Hold EPL; target of Rs 280: ICICI Direct

ICICI Direct's research report on EPL

EPL’s Q2FY21 performance was largely led by European regions, wherein revenue increased ~11% YoY. Revenue growth in AMESA and EAP regions were also up ~7% and 9% YoY, respectively, mainly due to new product launches and client additions. However, America region revenue was down ~7% YoY mainly due to lower sales of travel tube (~25% of revenue) in the US. According to the management, this a small blip and revenue growth will get restored, supported by client additions and launches of new products in the coming quarters. Further, EPL also acquired a controlling stake in Creative Stylo Packs Ltd (CSPL), largely present in personal care categories and with a strong client base. We believe the acquisition is accretive in terms of better margin profile and strategic location advantage (in north region). Also, the acquisition at a valuation of 8x EV/EBITDA is reasonable considering CSPL’s historical performance. However, we would like to see the performance of CSPL, going forward. On the margin front, saving in raw material cost and other expenditure helped move EBITDA margins up 70 bps YoY to 21.6%. Finally, PAT moved up 13%, mainly tracking better operational performance and ~38% drop in interest cost. We revise our FY21E earnings estimates up by ~15% considering a strong performance in H1FY21 and continued demand momentum in the personal care category due to launch of new products. We introduce FY23 estimates with revenue earning CAGR of 11% and 19%, respectively.

Outlook

We introduce FY23 estimates with revenue, earning CAGR of 12%, 19%, respectively. We roll over our valuation on FY23E and value the stock at 11x FY23 EV/EBITDA with a revised target price of Rs 280/share. While we remain positive on the stock, we believe the major positives are priced in at the current market price. Hence, we revise our rating from BUY to HOLD.