EMAMI'S PERSISTENT BEAR HUG

After more than four successful decades, FMCG major Emami, which owns popular brands like Navratna oil, BoroPlus, Kesh King, etc., seems to be losing its charm among retail investors. Why has it lost significant value at the bourses in the last five years?

- Devanshu Singla

Few can boast of a history as dynamic as that of FMCG major Emami Ltd. It was born half a century ago, in 1974, when friends R.S. Agrawal and R.S. Goenka set up a small manufacturing unit called Kemco Chemicals for ayurvedic medicines and cosmetics in Kolkata. However, it is the impressive growth of the company with strategic and successful acquisitions over more than four decades, juxtaposed with the not-so-impressive run at the bourses for some time now, that makes it a fascinating case study.

The last five years have seen several bull runs on the stock markets. While the BSE 30 index has given 75% return in this period, the NSE 50 index has also increased investors’ wealth by 71%. Despite the blip of Covid-19, most listed companies with a sound business model have given decent returns to investors. But Emami Ltd stands out as an exception. The Kolkata-headquartered company’s stock price has plunged over 20% in the last five years. For a perspective on the opportunity cost to investors, the Nifty FMCG index gained nearly 70% during the same period.

The company’s stock has been trading below the all-time high of Rs 682 that it had touched on January 10, 2018, on the NSE for a while now. On the BSE, the Emami stock has slipped over 19%, compared to a 55% growth in the BSE FMCG index.

“The 2018 level of the stock was result of high valuation multiple as the stock was trading at 2x P/E multiple of the current. Even as the pledged shares went down, the impact of Covid-19 on demand also dragged the share value down. Current valuation multiples are much lower than historical level and hence stock is trading lower,” says Ajay Thakur, research analyst at Anand Rathi Institutional Equities.