Hold Essel Propack; target of Rs 198: ICICIDirect

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ICICIDirect's research report on Essel PropackEssel Propack’s sales growth remained under pressure in Q4FY16, as Amesa revenues continued to decline due to divestment of its flexible business. EAP and America regions revenue were largely hit by lower realisation and currency devaluation. However, capacity addition coupled with good traction of non oral care products have helped the Europe region to grow ~8% YoY Benefit of lower raw material prices was partially offset by higher other expenses and employee expenses. As result, the EBITDA margin improved only 100 bps YoY. However, for FY16, margins recorded sharp growth of 230 bps YoY due to higher gross margin and hiving off of the lower margin business. Additionally, improved utilisation in the European region further added to EBITDA margins. Despite a margin improvement and reduction in interest outgo by 21% YoY (due to debt reduction), PAT recorded a decline of ~9% YoY mainly due to exceptional loss of | 11 crore. We model moderate revenue growth of ~12% in FY16-18E led by stabilisation of performance in Amesa, EAP and Americas regions. However, contribution of non oral care segment (relatively higher margin) remained flat in FY16. We expect consolidated PAT CAGR of ~17% in FY16-18E, supported by better margin and lower interest outgo. 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). We believe the recent run up of stock discounts all near term positives. Hence, we value the stock at 6.8x its FY18E EBITDA (~20% premium than historical average) and change our recommendation from BUY to HOLD with a revised target price of | 198/share. For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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