How Emami Group achieves aggressive growth while also reining in its debt

High growth aspirations often come at the cost of stressed finances, as is amply proved by the long queue of companies facing insolvency proceedings. But the Kolkata-based ₹16,000-crore Emami Group appears to be an exception to this rule.

Beginning with the ₹730-crore acquisition of Zandu Pharmaceuticals in 2008 by the then ₹600-crore Emami Ltd, the group has been consistently making investments, be it in acquisitions or brownfield or greenfield expansion. Yet, it has never been ‘reckless’.

Consider this: Since 2008, the group has acquired at least eight companies or brands in India and abroad, from the 2015 acquisition of SBS Biotech’s hair care brand Kesh King for ₹1,651 crore, to the latest purchase of Eco Cement in Bihar for an undisclosed price.

During the period, Emami Cement invested ₹4,000 crore to set up three greenfield plants. It invested ₹300 crore in its ninth and largest plant, in Assam. It also diversified into the edible oil business with a capacity of 5,000 tonnes a day; it is now doubling the refining capacity. Emami Paper, meanwhile, set up a second plant in Odisha and is investing in a third one, at ₹1,000 crore, in Gujarat.

There are also investments in other business verticals and in two start-ups.

However, the large investments notwithstanding, the group claims to have kept its debt on leash. “We are almost debt-free,” said Director Aditya V Agarwal.

The cash cow

The claim is not baseless. Take FMCG arm Emami Ltd, which made seven out of the group’s eight acquisitions over the past 10 years. As of FY18, it did not have any ‘non-current’ or long-term borrowings in the books. The current borrowings stand at ₹279 crore.

The company’s profitability has been under pressure since FY16 for two reasons — high interest payout due to the finance cost of Kesh King and the new Assam factory vis-a-vis a flat topline.

Emami CEO NH Bhansali attributes the revenue woes to the impact of demonetisation (November 2016) and GST rollout (July 2017), which now seems to be over. In the June quarter of FY19, Emami’s volume sales grew 16 per cent, sales 19 per cent and EBIDTA margin a whopping 54 per cent.

Bhansali is preparing to make the company debt-free this fiscal. As Emami is the cash cow of the group, generating in excess of 75 per cent of the group profit against 15 per cent share of aggregate turnover, a recovery in its bottomline should boost the group’s ability to make fresh investments.

Cement and paper

The group’s finances are expected to get an additional boost from Emami Cement and Emami Paper Mills.

The paper business’ profits have been sliding for the past two years. The slide was a significant 38 per cent to ₹16 crore in FY18, due to the dual impact of low realisation in newsprint (Emami is the nation’s largest newsprint maker) and high interest payout due to diversification into consumer grade paper boards one-and-a-half years ago.

Price realisation of newsprint started rising due to lower imports from China, which closed many facilities to address environmental concerns, confirmed Agarwal. But he was more bullish on the growth prospects of the paperboard business. “The paper business should be stabilised this year. And it seems board consumption will keep on increasing with packaging needs,” he said.

Meanwhile, the cement business, which will be reaching 8 mt capacity this month, should witness a major boost in both top and bottomline this fiscal. The unlisted Emami Cement posted a net loss on a ₹1,000-crore turnover from its 3.2 mt integrated facility in Chhattisgarh and 2 mt grinding unit in West Bengal in FY18. Since then the company added 1 mt capacity through acquisition and will be adding another 2.5 mt grinding capacity in August.

This should help the company double its turnover. There is strong expectation in the group that the business will break even this year, riding on strong demand in the East.

Though the officials are tight-lipped, market sources say Emami Cement may hit the capital market this year, to mitigate part of the expansion costs so far and create resources for the next phase of expansion to 20 mt with facilities in Andhra Pradesh and Rajasthan.

Oil, a growth driver

Agarwal expects the group’s business to increase four-fold to about ₹60,000 crore in four-six years.

Though he wouldn’t comment on where the growth will come from, one can safely assume the edible oil business of the unlisted Emami Agrotech will be a major driver.

Having started its journey in 2010, Agrotech reported a ₹9,000-crore turnover (56 per cent of group turnover) and over ₹95-crore profit in FY18. Over 97 per cent of its turnover comes from edible oil.

With ₹5,000 tpd refining capacity in West Bengal and Andhra Pradesh, the company is one of the major players in the edible oil segment, after Adani, in the East and South.

Agarwal expects Emami Agrotech’s sales to grow 40 per cent to ₹13,000 crore this fiscal. But he rules out a listing. “Our Chairmen (founder duo RS Agarwal and RS Goenka) believe we should take money from the public (only) once we are sure we are giving them value and will continue to give them value for their investments,” he said.