EPL Ltd. share price target

EPL reported an EBITDA of INR2b (+10%YoY) in 3QFY25, below estimates due to lower-than-expected performance of AMESA (down ~9.5% YoY) and EAP (~down 2.9% YoY), primarily driven by the slowdown in the Indian market and currency depreciation in Egypt, respectively.

EPLL reported a healthy operating performance in 2QFY25. EBITDA grew 22% YoY, led by Europe (up 2.1x YoY), followed by the Americas (up 59% YoY; ramp-up of Brazil).

Our conviction on EPL is now more fervent. EPL is at the cusp of transition– in our view, a rerating is imminent. An emerging theme is EPL’s customers taking to reducing/reusing plastic wastes.

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EPL has started growing in early teens as guided and was helped by stabilisation in raw material prices, though customer prices had some tail price reduction.

EPLL reported healthy operating performance in 1QFY25, with EBITDA rising 17% YoY, led by the Americas (up 94% YoY; ramp up of Brazil), followed by Europe/EAP (up 31%/10% YoY).

Management demonstrated EPLL’s manufacturing efficiencies that are driven
by the implementation of automation across machinery. Automation has
been the key focus area across processes for the company.

EPL’s Q4FY24 print was mixed, though it came slightly higher than our EBITDA estimate. The company reported mid single digit growth in India [standalone] EBITDA, which is concerning.

EPLL reported a strong operating performance in 4QFY24, with EBITDA rising
23% YoY due to 2.1x YoY EBITDA growth for the Americas (led by the
ongoing program to improve margins in the Americas coupled with a
positive contribution from the Brazil business).

EPL’s Q2FY24 print showed significant recovery in margins, and acceleration in revenue growth, together, alleviating concerns on execution and market share loss. It has led out path for sustained double-digit revenue growth with sustainability at core which is likely to contribute ~60% of revenue by FY26.

EPL’s Q1FY24 print shows recovery in margins (gross profit margin up 375bps QoQ to 57.8%; and EBITDA margin up 150bps QoQ to 17.5%) aided by price hikes, lower input prices and optically lower realisations. However, revenue growth has decelerated, particularly in AMESA (and India).

EPL’s Q4FY23 print has shown sequential improvement in EBITDA margin; however, it is still far away from normal. We believe FY24 could potentially have exponential recovery with demand normalising across geographies, selective price increases, ramp up in Brazil operation and stable inflation.

EPL’s Q3FY23 print suggests early signs of easing pressure on margins creating the vista of imminent margin expansion. Company will benefit from renegotiation of contracts to pass-on the rise in operating costs in the Americas and Europe, and easing inflation across the regions.

EPL’s Q2FY23 print was a mixed bag with revenue growth of 9% YoY (+14% QOQ) to Rs9.5bn led by growth across regions. However, gross profit margin fell 200bps QoQ
to 54% despite softening raw material prices due to high-cost inventory and volatility
in currencies (vs USD).

EPL, in its analyst meet, admitted near-term challenges significantly hampered its profitability, albeit it remains focused on achieving double digital profit growth. It is learning to re-adjust its business model for new challenges by pursuing price increases aggressively, market share wins and cost control measures.