Accumulate Huhtamaki PPL; target of Rs 327: CD Equisearch

Unexpected slowdown in export sales of Positive Packaging led to a mere growth of 5% (y-o-y) in HPPL consolidated revenues in Q2CY16 (Rs 572.18 crs/$85.6m vs Rs 544.84 crs/$81.5m). Good monsoons leading to good demand from the health and pharma sector boosted Webtech’s business (20% growth y-o-y). Though the volume grew by 11.5% (q-o-q) in Q2, the moderation in the realizations due to passing on the benefits of the lower raw material prices in Q1CY16 to the customers was the argument for the tepid growth in revenues.   

The stock currently trades at 22.5x CY16e EPS of Rs 12.60 and 18.2x CY17e EPS of Rs 15.58. Fortified by 10-12% sales growth, earnings would rise by 21.2% on average over the next two years. Integration benefits would help sustain the margins at 11-11.5%. Yet, HPPL is barely impervious to fluctuations in crude oil prices making prophecy a tad challenging. Predilection on the FMCG sector is nauseating too. On balance, we assign ‘accumulate’ rating on the stock with a target of Rs 327 (previous target: Rs 281) based on 21x CY17 earnings (peg ratio retained at 1) over a period of 9-12 months. 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.