EPL Ltd. share price target

Essel Propack Ltd. (Essel) declared its Q1FY17 results recently. 1. The company had a break through invention Mystik, which is an innovative tube solution on laminate platform with a novel multi-functional...

The results were below our estimates with a PAT miss of 11%. Revenues at INR518cr were in line with our estimate of INR 515cr, increased 3% YoY driven by volume growth of 6% and realisation degrowth of 3%. AMESA and Europe regions grew by 4% and 5% respectively while EAP (East Asia Pacific) and Americas declined by 4% and 8%. Americas degrew by 8% mainly due to inventory correction by one of its large customers which is expected to get...

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.

The underlying revenue growth for the quarter was 7.8% after adjusting for the raw material price reduction. EBITDA margins expanded by 90bps Y-O-Y to 18.3% this quarter. PAT excluding exceptional items grew 25.6% Y-O-Y for the quarter. Profitability...

The category grew by ~20bps to 41.4% Y-O-Y.in Y.in this quarter. For the 9 months, contribution of non oral care products increased by 120 bps Y-O-Y to 42.7%....

Non-Oral care segment to boost the growth: Currently, revenues from non-oral care are about 41% of the company's total turnover and remaining is from oral care segment. EPL has set a target of having a 50:50 revenue split from oral and non-oral care segments. Though non-oral care business is not a continuous run kind of business as oral care, the higher revenue realizations and larger market would lead the growth.