Emami Ltd – Dilution of Promoters Stake

Why Emami Promoters Are Selling Their Stake?

Introduction

The Emami Group promoters have sold 10% stake in Emami Ltd for raising around Rs.1,230 Cr resulting into the dilution of promoters stake in the company. Funds are raised for reducing the debt at the promoter level.

Emami Ltd – Dilution of Promoters’ Stake

About The Emami Group

• Emami Group, established in the 1970s, is an Indian conglomerate company headquartered in Kolkata, India.
• The Emami Group has diversified its presence across varied sectors like FMCG, newsprint and packaging boards manufacturing, edible oil and biodiesel, real estate, hospitals, ballpoint tip manufacturing, retail, pharmacy chain, cement, solar power and contemporary art.
• Following companies are the part of Emami Group of companies :
  1. FMCG : Emami Ltd
  2. Real Estate : Emami Realty Ltd
  3. Cement : Emami Cement Ltd
  4. Paper : Emami Paper Mills Ltd
  5. Biodiesel and Edible Oil : Emami Agrotech Ltd

Emami Ltd – Company Overview

• Established in 1974, Emami Limited is the flagship company of the Emami Group. It is one of the leading FMCG companies in India operating in beauty and healthcare spaces.
• The company manufactures products under various categories namely Hair Care, Skin Creams and Lotions, Talcum Powder and ayurvedic health care products.
• Its portfolio include more than 300 products based on Ayurvedic formulations. It consist of many household brand names such as BoroPlus, Navratna, Fair and Handsome, Zandu balm, Mentho Plus balm and Fast Relief.
• Emami has a strong distribution network of 3150 distributors through which its products are available over 4 million + retail outlets across India.
• The company has footprints in more than 60 countries including GCC, Europe, Africa, CIS countries and the SAARC.

Emami Group Promoters Have Sold 10% Stake in Emami Ltd

• On Monday, 24th June, 2019, the Emami Group promoters have sold 10% stake in Emami Ltd for raising approximately Rs.1,230 Crores. The funds will be used primarily for further reducing debt at the promoter level.
• The debt was taken to fund the other companies under the Emami group. Since, the Promoters had borrowed heavily from mutual funds keeping shares as collateral to invest in businesses like cement and power. After the stake sale, promoters’ debt has now come down to Rs.2,200 Crores from Rs.3,300 Crores. 
• This 10% stake sale by the promoters has brought down promoters’ holding in the Emami Ltd to 52.74% from earlier 62.74% (as on March 31, 2019). The promoters intend to maintain this controlling majority stake in Emami Ltd without further diluting it in future.
• The stake sale was done to marquee institutional investors. Some of the buyers of the promoters’ stake include domestic mutual funds such as L&T, SBI and Aditya Birla Sun Life etc. 
• This is the second time in 2019 for which the Emami group promoters have sold their stake in Emami Ltd. Earlier in February 2019, the promoters have sold 10% stake for raising around Rs.1,600 Cr.

Promoter Pledging in Emami Ltd

• Emami promoters had pledged shares with HDFC AMC, Reliance Nippon Life AMC, ICICI Prudential AMC, SBI-SG Global Securities, Axis MF AMC and Invesco MF AMC etc.
• These fund houses had pushed Emami promoters to sell 10% stake in the company Emami Ltd in February 2019 to SBI Mutual Fund, Premji Invest, Amundi, IDFC and others. The intention was to raise about Rs.1,600 Cr in the wake of a fall in the shares. 

Share Price Movement

• Emami’s stock had been under pressure due to consistent weak operating performance and rising promoter share pledge.
• The stock has declined nearly 55% from its 52-week high level of Rs.599 hit on August 1, 2018 to Rs.267.30 on June 24, 2019.
• The crash in Emami stock price had got nothing to do with the operations of the company. It is due to the promoter’s pledging in the Emami group.

Emami Ltd – Financial Performance Fy2019

• The company’s financial performance for FY2019 has also been weak.
• Net Sales for FY2019 increased by 6.4% while Revenue from operations has increased by 6% as compared with FY2018.
• Net Profit has declined in FY2019 by 1.27%. Also, the operating profit margin is decreased by 1.37% in FY 2019 as compared to FY2018.