Hold Huhtamaki PPL; target of Rs 304: CD Equisearch

CD Equisearch's research report on Huhtamaki PPL
Income from operations grew by 7% q-o-q in Q3CY17 suggesting rebound in sales after offtake was marred by impact of demonetization and GST in first two quarters of current fiscal; partial impact also felt in Q3CY17. However, HPPL’s revenue witnessed degrowth of 2.1% in Q3CY17 (y-o-y). For the same period, other income fell by 49.6% q-o-q- and 62% y-o-y. The sales volume growth in Q3 was in sync with its value growth. HPPL’s raw material to sales ratio reduced by 128 bps q-o-q and 227 bps yo- y to 66% owing to lower raw material prices that prevailed in Q3CY17. During the same period, other expenses were kept under reasonable control which led to a reduction in other expenses (including forex gain/loss) to sales ratio by 210 bps q-o-q and 38bps y-o-y to 12%. OPM as a result, rose to the highest in at least three quarters to 11.7% compared to 9.9% in the same quarter a year ago.

Outlook

We cut our expected CY18 EPS by 26.6%. As the current valuation leaves little margin for error, we assign ‘hold’ rating on the stock and retain our target of Rs 304 based on 23x FY19e earnings (peg ratio: ~1) over a period of 9-12 months.

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