Essel Propack Ltd Research Report

Company
Date of report May 8, 2017
Issuer
Target Price (Rs) 320
Gain (%) 23.5
Rationale

Non oral segment to be key growth catalyst

We expect high value and high margin non-oral care category to drive Essel Propack Ltd. (EPL)’s future growth. Off late, usage of laminated tubes is growing (over plastic and aluminum tubes) in non oral care due to its lower cost, better durability and easy printability. At present, laminated tube is under penetrated with mere 10% share in 22bn unit non-oral market. Thus, shift of non-oral – cosmetics, pharmaceuticals and food segments to laminated tubes will benefit EPL. EPL leveraging on its global presence, is well placed to grow its non-oral sales at a CAGR of 18% over FY17-19E; thereby increasing non-oral share in sales to 50% (at present 42%) by FY19-20.

Steady growth in oral care to be led by new products and client addition

EPL commands 35% share in global laminated tubes market in oral care category; which contributed 58% to sales in FY17. Since oral care penetration levels have crossed 75% in most of the countries; the segment is likely to grow at a steady CAGR of 5.6% over FY17-19E (4.5% over FY12-16) through innovative products and new client addition.

India, China, USA and Europe to lead the pack with strong growth

EPL’s India (1/3 of sales) market growth will be driven by rising disposable income and growth of modern retail & e-commerce. In EAP; China’s oral as well as non-oral care business will lead 21.6% sales CAGR (FY17-19E). We expect Europe’s sales to grow at 25% CAGR (FY17-19E) led by its subsidiary-Essel Deutschland Germany (EDG), which will add Rs.250-300 cr to revenue and help boost growth in cosmetics and food segments. EPL’s new high speed manufacturing line in USA will also boost efficiency and improve margins.

Outlook and Valuation

Increasing contribution of value added products, rising share in non oral care and rise in profitability from Europe, EAP and America are key growth triggers for EPL. We expect PAT to grow at 29% CAGR (FY17-19E) led by favorable product mix and margin expansion. EPL currently trades at 14xFY19PE; strong profits, ROCE@20% and free cash flow yield@ 7% in FY19E indicate sufficient headroom for upside. We recommend Buy with TP of Rs.320 (17xFY19E EPS).

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