Emkay's research report on Essel Propack
Essel Propack divests 100% stake in Packaging India Pvt ltd to Amcor Flexibles India Pvt Ltd at an enterprise value of Rs 1.7bn (0.7x EV/Sales and 7x EV/EBITDA)
PIPL operates in a hyper competitive & price sensitive flexible packaging industry and has lower EBITDA margins profile of sub 9-10%. This divestment is EBITDA margin accretive by about 90bps. Proceeds from divestment is likely to be utilized for debt repayment, thus it is earnings neutral
Post this divestment, balance sheet structure will further strengthen and return ratios will improve by 100bps & 160bps to ROCE (23.7%) and RONW (23.5%). For earnings CAGR of 30% and ROCE of 24%, business commands higher valuations. Stock is trading cheap at 9.6x vs global packaging peers. We view this as a positive development and upgrade P/E to 12x, arriving at target price of Rs 177 and retain BUY
"By exiting from non-core business of PIPL, Essel Propack reaffirms its stance of focusing & strengthening its expertise in core tube packaging business. Divestment of PIPL will improve overall margin profile by 90bps and proceeds should be utilized for debt repayment, thus divestment is earnings neutral. Balance sheet structure strengthens and ROCE & RONW will improve by 100 & 160bps to 23.7% and 23.5% respectively by FY17. For EBITDA margins of +19%, earnings CAGR of 30% and ROCE of 24%, this business commands higher valuations. Stock is trading cheap at 9.6x FY17 EPS and 5x EV/EBITDA, much below global packaging peers. We view this divestment as a positive development and upgrade P/E multiples to 12x FY17E EPS, arriving at target price of Rs 177. We maintain BUY rating on the stock", says Emkay Global Financial Services research report.
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.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
Find the best of Al News in one place, specially curated for you every weekend.
Stay on top of the latest tech trends and biggest startup news.
Read More
