Buy Essel Propack; target of Rs 160: ICICIdirect

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26 Aug, 2025 12:21

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ICICIdirect.com's report on Essel Propack

"As part of the strategic decision to exit the non-core adhesive lamination packaging business, Essel Propack (EPL) has sold its wholly-owned subsidiary Packaging India Pvt Ltd (PIPL) (entire 100% stake) at an enterprise value of Rs 165 crore to Amcor Flexible India. PIPL, a flexible packaging company, largely serves the price sensitive category of food & beverages and the FMCG business. The lower margin business (~8-9% EBITDA margin) of PIPL was responsible for depressing the overall EBITDA margin of EPL (EBITDA margin ~17% in FY15). We believe the divestment of the non-core business would help the company to focus on its core tube packaging business and also help in improving the overall EBITDA/PAT margin to the tune of ~100 bps YoY in FY16E. We maintain our stance on the stock with a BUY rating and a revised target price of Rs 160 per share (5.8x FY17E EBITDA)."

"EPL is trading at an enterprise value of 6x and 5.3x its FY16E and FY17E EBITDA, respectively. We expect consolidated sales and earning CAGR of ~7% and ~26% in FY14-17E, supported by an improvement in margin and lower interest outgo. This coupled with improving earnings from the European business would also add to the performance. We expect an exit from the low margin business and reduction in debt to improve RoE, RoCE to over ~20% FY16E, FY17E, respectively. We value the stock at 5.8x its FY17E EBITDA (at its historical high valuation) and maintain our BUY rating with a revised target price of Rs 160/share", says ICICIdirect.com research report.

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