Sunday, October 3, 2010


Essel Propack (Rs 46) (Rs 2 paid up)
(BSE Code- 500135, NSE Code- ESSELPACK)
(FY10 Sales (of 15 months)-Rs 1656 cr, Equity- Rs31.3 cr, Market Cap- Rs720 cr)

Essel Propack Limited (EPL), promoted by Essel group is the world's largest specialty packaging company. EPL is into the manufacturing of laminated tubes, extruded plastic tubes, Medical devices and Specialty Packaging Material. The Company provides packaging solutions to toothpaste, pharmaceuticals, cosmetics, food and industrial sectors all over the world. The company's operations span over 13 countries with 25 manufacturing plants. The company's global sales stand at around 4.5 bn tubes, which is 32% of the global laminated tubes market. Over the years Essel has acquired a global status, with presence in USA, Mexico, Colombia, United Kingdom, Poland, Germany, Egypt, Russia, China, Philippines, Singapore, Indonesia and India. The company caters to the oral care, cosmetics, personal care, pharmaceutical, food and industrial sectors. A large part of this global stature has been possible due to the merger with Propack in 2001. The demand for its products closely tracks the growth of the oral care industry, which again depends on economic growth. In early 2003, the company commissioned a plant in Virginia, US, to cater solely to P&G's laminated tube needs in the US and Mexico. In August 2004, Essel acquired Arista Tubes of UK and then went on to acquire Telcon Packaging in April 2005, in order to increase its presence in the EU and the UK.
Consolidated top-line for Essel Propack was flat during Q1 ended June 2010 at Rs 332.3 cr.. In December 2009, the company divested its non-core medical business. When adjusted for this, the sales of the continuing business improved by 15% YoY. This growth is entirely volume based. Q1FY11 is not comparable with Q1FY10 owing to sale of Medical Device business in Q4FY10 - hence comparison is done on like-to-like basis excluding medical devices. EPL reported satisfactory performance on like-to-like basis (includes tubes and flexible packaging business) – EPL posted 15% yoy growth in revenues to Rs 332 cr. and 10.2% y-o-y growth in operating profit to Rs 56.3 cr.. Adjusted net profit stood at Rs 10.4 cr. versus loss of Rs 5.1 cr. The blended volume growth in the quarter was 12-13% (split as 13% in laminated tubes, 30% in plastic tubes and 15% in packaging), balance attributed to revenue mix change.
Interest payments were lower during the quarter as the company lowered its debt by Rs180 cr. Sales from Europe improved by 25% y-o-y, on better performance of the company in UK, Russia and Germany. The Indian operations of the company grew by 19% YoY during the quarter on the back of addition of new customers and product innovation. Sales in US however fell by 33% YoY. This is because medical devices business made a large portion of the US sales. When excluding the medical devices sales, sales of Americas remained flat. During the quarter, lower operating loss was recorded from European regions as a result of Russia and UK units ramping up volumes and breaking even in cash terms. The company also managed to curtail losses at its Poland unit.
For the fifteen months ended March 2010, EPL recorded a growth of 29% in consolidated revenues to Rs 1656.7 cr.. While the results of FY10 are not comparable to those of the previous year due to change in accounting year, the consolidated net profit for the year stood at Rs 59.9 cr. compared to a loss in CY08. On a equity of 31.3 cr (Promoters’ stake- 58.92%) the annualised EPS on a Rs 2 paid up share stood at Rs 3. Going forward, things are looking up now with the company expecting growth across geographies and improvement in the profitability of its European business. Moreover, the company is changing its products mix and increasing focus on cosmetic, hair care and pharmaceutical segment. EPL is entering into favorable period for next 3 quarters - likely to gain from better utilization of capacities in China, Polland and USA and gain from price hikes in Q1FY11. At the current price of Rs 46, EPL is trading at a P/E of 12X FY11E earnings (Rs 3.8) and 8.3X FY12E earnings (Rs 5.5).
Investors can start accumulating the EPL stock at current levels and add more on declines for decent returns of 50%-60% over the next 6-9 months.
Source: Internet (Valuenotes by Sanjay Chhabria)

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