Buy Essel Propack; target of Rs 190: ICICI Direct

ICICI Direct's research report on Essel Propack

Essel Propack (EPL) reported a flattish topline YoY led by Covid-19 related shutdown in Amesa and EAP regions (both regions contribute ~50% to revenue) while revenue from Americas, Europe increased ~4%, 16%, respectively, in Q4FY20. During the pandemic, EPL managed to classify itself under essential service provider category, (helped it to run operation across geographies with applicable government restrictions) thereby limiting the impact on topline. Further, recovery in profitability in EAP, Americas, Europe helped drive consolidated margin up 114 bps YoY in Q4FY20. We upgrade our rating from REDUCE to HOLD considering gradual recovery in Amesa regions, improving profitability in overseas business and strengthening balance sheet condition (D/E 0.4x, free cashflow of Rs 333 crore).

Outlook

We believe improved profitability along with balance sheet condition in the challenging scenario is encouraging. Further, the company’s focus on ‘capital efficient consistent earnings growth ’would help improve the return ratios, going forward. We upgrade our rating from REDUCE to HOLD with a revised price target of Rs 190/share, valuing at 9x FY22E EV/EBITDA.

Essel Propack 15062020

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