In Q1FY17, Essel Propack’s sales growth remained under pressure mainly due to 1) revenues from AMESA continuing to decline due to divestment of its flexible business 2) Europe, EAP and America regions revenue were largely hit by lower volume offtake by key customers and slow pick up in utilisation level of new plant started in Colombia. Lower operating leverage on account of low volume growth led higher other expenses and employee expenses, which partly offset the benefit of lower raw material prices. As result, the EBITDA margin improved only 47 bps YoY. We have modelled EBITDA margin of ~19% for FY17E and FY18E supported by hiving off of the lower margin business and improved utilisation in the overseas business on the back of addition of new clients and stabilisation of new units.

Valuation: Contribution of the non oral care segment (relatively higher margin) remained flat in FY16. Historically, EPL has traded at an average one year forward EV/EVBITDA multiple of 5.7x due to lower debt level (average D/E of 0.6x). They maintain our HOLD rating on the stock with a revised target price of | 206/share (valuing at ~7x FY18E EV/EBITDA) as they believe the recent run up of stock discounts all near term positives.