Buy Essel Propack; target of Rs 153: Emkay Global

Emkay Global Financial Services 's report on Essel Propack 

“EPL is driving growth by increasing share of laminated tubes via conversion (from plastic & aluminum) and expanding non-oral care revenues (42% of sales in 9MFY15). Company stated there is ample potential for non-oral care growth in i) AMESA – cosmetics & pharma, ii) EAP – Cosmetics, foods & pharma, iii) Americas – cosmetics and iv) Europe – cosmetics & foods. EPL expects non-oral care to account for 50% of revenues by FY16. We expect higher conversion to laminated to drive 13.4% revenue CAGR over FY14-17E.”

“Despite better product mix & improving utilization in Europe and America, EBITDA margins for 9MFY15 were flat impacted by lower offtake in EAP & AMESA and dragging flexible packaging business. Company has made investments in expanding non-oral care share across regions and we believe with improving mix & scale of operations should drive margin expansion in FY16/17E. We expect 17.6%/18% EBITDA margins in FY16/17E.”

“Company guides to deliver 13-15% revenue CAGR & +20% PAT growth in FY16, led by higher conversion from plastic & aluminum tubes to laminated tubes, higher non-oral care mix, operating leverage from ramp up in capacities and tight leash on cost management. Company is focused on improving capital allocation, higher free cash flow generation and expanding return ratios. EPL trades at a significant discount to global packaging peers at 8x P/E & 4x EV/EBITDA FY17E. We assign 10x P/E to EPL arriving at target price of Rs153/share and maintain BUY rating”, says Emkay Global Financial Services’ research report.

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