ICICI Direct recommended hold rating on Essel Propack with a target price of Rs 120 in its research report dated January 25, 2019.
ICICI Direct's research report on Essel Propack
Essel’s consolidated sales growth of ~17% YoY was led by strong performance of all regions, largely on a lower base wherein performance of Amesa and Europe region was hurt by GST led transition (in India) and lower volume offtake by key customer in Europe. In Q3FY19, revenue contribution of non-oral category to consolidated sales increased from 41.3% in Q3FY18 to 43.5% in Q3FY19. According to management, Amesa region (contributes 38% to topline) will record healthy performance, going forward, as packaging related issue in the Indian pharma industry has been resolved while EPL has a good order pipeline in the same segmentEBITDA margin during the quarter declined marginally by 31 bps YoY mainly due to exchange rate fluctuations and initial expenditure incurred towards various strategic programmes. We believe rising contribution of non-oral care category in the topline, coupled with improvement in utilisation level in the Europe business would be key driver for improvement in EBITDA margin, going forward. Adjusted with exceptional loss in the base period, PAT remained flat YoY (reported PAT increased 14% YoY).
We model revenue, earnings CAGR of ~12%, 13%, respectively, in FY18-21E led by EAP, America and Amesa regions. We believe Amesa region growth would largely be driven by recovery in demand from India post GST implementation and product portfolio shift towards non-oral care category (like pharma industry). We also believe business development in Europe will be a key trigger for future growth. We roll over our valuation on FY21E and value the stock at FY21E 6.5x EV/EBITDA. We maintain our HOLD recommendation on the stock.
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