CD Equisearch Pvt Ltd - bsmedia.business-standard.combsmedia.business-standard.com/_media/bs/data/market-reports/equi… · CD Equisearch Pvt Ltd Sept 21, 2016 Equities Derivatives

CD Equisearch Pvt Ltd Sept 21, 2016

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Essel Propack Ltd (EPL)

No. of shares (m) 157.1

Mkt cap (Rs crs/$m) 3514/524.4

Current price (Rs/$) 224/3.3

Price target (Rs/$) 298/4.4

52 W H/L (Rs.) 234/132

Book Value (Rs/$) 64/1.0

Beta 0.6

Daily volume (avg. monthly) 91410

P/BV (FY17e/18e) 3.1/2.7

EV/EBITDA (FY17e/18e) 8.7/7.8

P/E (FY17e/18e) 17.1/14.2

EPS growth (FY16/F17e/18e) 31.6/13.6/20.3

OPM (FY16/17e/18e) 19.1/18.8/18.5

ROE (FY16/17e/18e) 20.6/19.5/20.3

ROCE(FY16/17e/18e) 13.0/14.1/15.7

D/E ratio (FY16/17e/18e) 0.7/0.5/0.4

BSE Code 500135

NSE Code ESSELPACK

Bloomberg ESEL IN

Reuters ESSL.BO

Shareholding pattern %

Promoters 57.0

MFs / Banks / FIs 4.1

Foreign 12.4

Govt. Holding 0.0

Public & Others 26.5

Total 100.0

As on June 30, 2016

Recommendation

BUY

Phone: + 91 (33) 4488 0055

E- mail: [email protected]

Consolidated (Figures in Rs crs)

FY14

FY15

FY16

FY17e

FY18e

Income from operations 2126.62 2322.96 2184.65 2414.03 2752.00

Other Income 22.38 26.48 26.09 25.92 27.06

EBITDA (other income included) 375.74 417.24 443.24 479.48 536.14

Profit after EO 108.76 137.34 180.75 205.30 246.95

EPS(Rs) 6.92 8.74 11.51 13.07 15.72

EPS growth (%) 40.8 26.3 31.6 13.6 20.3

Company Brief Essel Propack Ltd is the largest specialty packaging company globally,

manufacturing laminated plastic tubes catering to the FMCG and pharma

space. It has its units operating in oral care, pharma and health, food and

beauty and cosmetics market in various countries across the world.

Highlights � To augment its business, Essel Propack counts on the unceasing share of

non oral care category of its revenue which is targeted to even the share of

oral care in a couple of years. It managed to add spin to its AMESA

business last quarter, improving its non oral care share to 50.3% shouldered

by strong recovery in cosmetic and pharma category in the Indian market.

� To bolster its overseas presence, Essel continues to eye on Europe segment

which has a huge scope of capacity expansion (acquired 100% stake in Essel

Deutschland Germany recently). Q1FY17 didn’t turn out well for Europe –

EBIT margin dipped to 2.4%, down by 350 bps on account of issues of

inventory correction and slower pitch in by new customers.

� Recently, Essel innovated in laminated plastic tube for packaging premium

hair colorant and developers which has a business opportunity of 2.5

billion tubes globally. Striving hard to capture a decent market in high

revenue generating non oral care (3-5% share globally), it is ramping up

manufacturing units in China and Colombia which would aid the margins

for there is copious scope to add value in beauty and cosmetics category

there.

� Revenue growth in Q1FY16 remained dozy (down by 5.7%) on account of

slower off take from key customers outside India. Operations in America

are expected to boost its capacity expansion plans, while the focus to grow

China’s non oral market remains puzzled. Favored by 28% reduction in

interest expenses, the profit after tax grew 6% to Rs 37.62 crs ($5.6m) last

quarter as against Rs 35.48 crs ($5.3m) in the same period previous year.

� The stock currently trades at 17.1 FY17e EPS of Rs 13.07 and 14.2x FY18e

EPS of Rs 15.72. Beset by the edgy performance of the subsidiaries at the

onset of this fiscal, profit grew by a puny 6% in Q1. However, palatable

outcomes emanating from expansion in Europe and AMESA region would

boost revenue by 12.3% and profits by 16.9% (CAGR) over the next two

years. Essel’s peppy introduction of value added products would pad the

operating margins (18.5-18.8%). Increasing consumer preferences towards

personal care, FMCG brands will present Essel an opportunity to grow its

non oral share market. Weighing all odds, we assign ‘buy’ rating on the

stock with a target of Rs 298 based on 19x FY18e earnings (peg ratio: 1.1)

over a period of 9-12 months.

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CD Equisearch Pvt Ltd


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Company Profile

Incorporated in 1982, Essel Propack is a part of the USD 2.4 billion Essel Group, with a turnover of over USD 320 million and

is the largest specialty packaging company globally, manufacturing laminated plastic tubes catering to the FMCG and Pharma

space. Essel Propack is a producer of plastic packaging material in the form of multilayer collapsible tubes and laminates used

primarily for packaging of toothpaste, personal care, cosmetics, pharmaceuticals, household and industrial products. The

Company offers specialized large diameter laminated tubes with features such as thermal timers, product authentication, child

protection and aroma sensory. It provides packaging solutions for products in paste or cream or gel forms. EPL functions

through 21 state of the art facilities in 11 countries, selling more than 6 billion tubes and continuing to grow every year.

Holding oral care market share of 36% in volume terms globally, Essel Propack is the world’s largest manufacturer of

laminated tubes with units operating across countries such as USA, Mexico, Colombia, Poland, Germany, Egypt, Russia,

China, Philippines and India.

The company’s product range also includes the plastic tubes where it manufactures products ranging from custom colored

materials to high-end decoration tubes. The company has in-house injection molding facility that is engaged in high quality

closures. EPL has gradually shifted its focus from oral to non care category to diversify its product portfolio. It has embarked

on a mission to grow the non oral care share of revenue to 50% and to grow net profit at a CAGR of 20% in a couple of years.

Source: Essel Propack Source: Essel Propack Source: Essel Propack

Product Portfolio

Laminated Tubes

Laminated tubes offer products a competitive edge in the market and are used across the globe for packaging in personal care,

food, pharma and industrial applications. With excellent barrier properties, laminated tubes are a cost effective solution to

help increase a product’s shelf life. Their smooth, flexible and soft exteriors enable high filling line speed during the packaging

process. Their features include shoulder barriers for superior flavor and moisture retention, pin-hole orifices for low viscosity

products and nozzle seals with an option of hot foil stamping.

Laminated tubes allow for consistent quality and performance reliability. They are adaptable to a wide range of caps, i.e. fez /

flower pot, stand-up, flip-top and custom designed. Laminated tubes can be customized into different varieties of coloured

tubes and transparent tubes with polyester barrier for products with contact clarity.

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Seamless Plastic Tubes

Believed to be the most ideal packaging solution for the cosmetic industry, due to its high aesthetic value and easy

adaptability to numerous decorative forms, the seamless plastic tube business is an exciting horizon for the packaging

industry. Through constant innovation, Essel has been successfully manufacturing and delivering plastic tubes to new and

emerging sectors. The acquisition of Arista Tubes, a leading manufacturer of plastic tubes in the United Kingdom, has helped

Essel to absorb comprehensive and cutting-edge knowledge and experience in the sector.

Caps & Closures

Essel manufactures special caps and closures for products other than tubes, such as closures for hair care and personal care

product bottles. The unique innovations have added a great amount of ease to the delivery of products. The company

provides comprehensive one-stop solutions right from concept development and product design to the final product

assembly. It uses rapid prototyping (SLS) technology to provide a replica of an actual closure before it starts production on a

large scale.

Laminates

The laminates are composite materials made from linear low density polyethylene (LLDPE) that form the core barrier of the

tube body. They help keep contents fresh and safe with multiple layers of foil.

Customized Specialty Laminates - The facilities in China and India work proficiently with the creativity and innovation

teams, customizing specialty laminates. Essel offer new web structures for aggressive products or simply provide a distinct

visual element to the material.

Aluminum Barrier Laminates (ABL) - ABL tubes have an aluminum foil barrier, which provides superior light, air and

moisture barrier along with reduced flavor absorption. The material density offers a more durable tube and allows for

additional dispensing of the products contents.

Plastic Barrier Laminates (PBL) - PBL structures are a good option for packaging that needs to maintain its form and shape. It

presents a more cosmetic look and is environmentally friendly. Special barriers can be provided such as EVOH (Ethylene

Vinyl Alcohol Polymer) to offer strong chemical resistance. Standard material is offered in white or natural but specialty

custom colours can also be developed. New Products

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New Products

Etain, a fully recyclable packaging tube, has been made using a percentage of recycled material with the aim of reducing the

amount of virgin plastic in tube packaging. It contains up to 40% PCR HDPE plastic material; also the amount can be varied

depending upon customer requirements and the nature of the product that is contained within the package. Etain tubes are

typically used by FMCG companies for packaging various types of beauty and skin care, pharmaceutical and food products.

Egnite is a high-luster laminate available in a variety of shades. Its metallic feel enhances its ability to offer a striking level of

product differentiation. With material that provides a protective barrier and resilient bounce-back properties, it helps the tube

maintain shape and form, while also creating a distinctive aesthetic effect with a surface so lustrous that it is reflective. It

facilitates complex printing with novel colours and effects, changing the appearance for laminated tubes.

Green Maple Leaf is an eco-friendly laminated tube that maintains the freshness of products while keeping in line with the

commitment towards the environment and society. This fully-recyclable packaging solution helps prevent oxidization of

contents with a proprietary oxygen-barrier coated core layer and an all-polyethylene (PE) film multilayer laminate. It is

especially suited for cosmetics, toiletries and food products. The recyclable, all-plastic laminate helps in reducing a product’s

carbon footprint, making it the best eco-friendly choice to keep products fresh.

Investment Thesis

Packaging Industry

Buttressed by development across consumer and industrial market that uses flexible films, improvements in manufacturing

practices, and continued technological innovations, the packaging market has been able to grow and evolve thereby shaping

the packaging industry trends. The Indian packaging industry which constitutes about 4% of the global packaging industry is

expected to reach $72.6 billion in 2020 from $31.7 billion in 2015 (see chart). In the coming years, the packaging industry is

anticipated to register 18% annual growth rate, with the flexible packaging and rigid packaging expected to grow annually at

25% and 15% respectively (Source: FICCI, Jan 2016).

Source: Smithers Pira Source: FICCI Source: Industry ARC

Rising per capita income and rising trends of sustainable packaging are accelerating the demand for squeeze tubes and

laminated tubes. Consumer preference in emerging economies such as China, India, Brazil, and South Africa are gradually

transitioning from traditional packaging to new innovative packaging. The reason behind this is the high disposable income.

However, the market for laminated tube packaging is observed to mature in developed economies, such as Europe and North

America. The Europe region formed the largest market for tube packaging, in terms of volume, having accounted for 12

billion tubes in 2014. Asia-Pacific formed the second-largest market, with a share of 27%. The Asia-Pacific region is projected

to be the fastest-growing market for tube packaging from 2015 to 2020. The global market for tube packaging is projected to

grow at a CAGR of 6.7% from 2015, to reach $8.6 billion by 2020 (Source: marketsandmarkets.com).

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The market for tube packaging is driven by the growth in the flexible packaging industry (to grow at an annual rate of 3.4%

during the period 2015-2020 to US$248 billion). The increasing population with high disposable incomes has encouraged the

end users to spend more on such type of packaging, which facilitate ease of use. The biggest end users of packaging, the food

and beverages will help to drive the packaging demand, by growing at a CAGR of 25% in the period 2015-2020 (Source:

FICCI). Beside food & beverages, the pharmaceuticals’ is another major user of packaging which has become the major part of

the drug delivery system. With the overall drug approvals given by the USFDA to Indian companies doubling in FY16, the

Indian pharma market is expected to grow 13-15% annually in the period 2015-2020 to $55 billion from $30 billion in 2015.

Expansion plans

The major suppliers of tubes and packaging for oral care makers and other consumer goods firm have restructured their

operations and have shifted their focus to the high revenue generating non oral care tube market. At present, for Essel, the

non oral care category accounts for 41.8% (41.2% in FY15) of the total revenues brought by the robust growth of 24.3% in the

EAP region. With increasing operations in USA, China and Europe regions, Essel pegs an opportunity to have a 22 billion non

oral tube market of over $2.5 billion in a couple of years.

The manufacturing capabilities set up in Egypt, China and Colombia will cater to the FMCG and cosmetic brands in Middle

East and other developed markets while in the emerging markets the pharma market will grow, which will help to drive the

revenue upwards. Essel eyes huge growth in the hair care market in African regions and has introduced the latest plastic

barrier laminate tube with inviseam technology, and high decor using its own elite printing platform. It has established the

gateway to South America by opening a new modern factory at Colombia. This facility will have the capacity to manufacture

180 million tubes a year and help Essel expand its laminated tubes market to adjacent Andean markets of Ecuador, Peru,

Bolivia, Chile etc., satisfying both export and local demand.

Financials and Valuations

The slow off take in the non oral care category in the Indian market along with the divestment of EPL’s stake in Packaging

India Pvt Ltd contracted the revenues by 6% last fiscal to Rs 2184.65 crs ($326.0m). On adjusted basis (excluding divestiture),

the growth was seen at 3%-the lowest recorded in last five years. Lower realizations ensuing pass through to customers of the

sharp reduction in the raw material prices muted the topline growth last year. The domestic sales were severely affected due

to sluggishness in the FMCG sector and some export related issues in the pharma market.

Source: EPL, CD Equisearch Source: EPL, CD Equisearch Source: EPL, CD Equisearch

Though the operations in the AMESA region look a little wobbly, EAP and the Europe regions have managed to post robust

numbers in FY16. The continuous focus to foray into niche oral care brands and increase the share of non oral care tube

market in these regions have been reflected in the margins. In the EAP segment EBIT margin expanded by 301 bps to 15.9% in

FY16 (12.9% in FY15) mainly due to improved operational efficiency and increasing non oral care sales. The steady ramp up in

the manufacturing operations in China to cater to premium Chinese customers is expected to push up the margins in the next

two years.

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With growing revenue base Indo Count needs to punch above its weight to stay competitive. Slowdown in sales is apparent: revenues in Q3 grew at the lowest rate in atleast four quarters; revneus projected to grow by 16.6% (annual) over the next two years (see chart). So value addition holds the key. It unvieled new categories of home textiles - fashion bedding, utility bedding and institutional bedding - in FY15. Better product mix partly showed up in jaw-dropping gains (+690 bps) in operating margins in 9MFY16; other factors which supported margins include higher capacity utilization, prudent raw material sourcing and benefits of operating leverage. Yet gains would be difficult to sustain not least due to increasing competition (Welspun India has recently ramped up its bed linen capacity by 12 mn meters to 72 mn meters and plans to further increase it to 90 mn meters by FY17) and base effect.


Also, strong market presence in America and Europe has enabled the company to tap the new generation (high luster,

recyclable) laminated tubes to non oral care customers; the share of non oral care revenue in Americas segment jumped by 2.1%

to 29.6% in FY16. Contributing nearly 20.5% to the overall sales, the Americas segment will be able to seize the export market

with further capacity expansion in Columbia. High vulnerability in currency devaluation has led units in Russia and Mexico to

pester the overall growth. However, improvement in the volumes, lower raw material prices and better product mix has helped

the overall operating margin to expand by 226 bps to 19.1% last fiscal.

Continuous repayment of its long term debt has improved its debt equity from 1.2 in FY15 to 0.7 in FY16. We expect the

leverage to further improve and go down to levels of 0.4 in the next two years. Supported by the reduction in interest cost, the

profit after tax (adjusted for extraordinary) grew by 31.6% to Rs 180.75 crs ($27.0m) in FY16 as against Rs 137.34 crs ($20.5m) in

FY15. Considering the huge size of the non oral care markets and increasing awareness among customers about the superior

barrier properties and decoration capability of the laminated tubes, the bottom-line is expected to grow at a CAGR of 16.9%

over the next two years to Rs 205.3crs ($30.6m) and Rs 246.95 crs ($36.8m) in FY17 and FY18 respectively.


The stock currently trades at 17.1 FY17e EPS of Rs 13.07 and 14.2x FY18e EPS of Rs 15.72. Beset by the edgy performance of the

subsidiaries at the onset of this fiscal, profit grew by a puny 6% in Q1. However, palatable outcomes emanating from expansion

in Europe and AMESA region would boost revenue by 12.3% and profits by 16.9%, CAGR over the next two years. Essel’s

peppy introduction of value added products would pad the operating margins (18.5-18.8%). Increasing consumer preferences

towards personal care, FMCG brands will present Essel an opportunity to grow its non oral share market. Weighing all odds,

we assign ‘buy’ rating on the stock with a target of Rs 298 based on 19x FY18e earnings (peg ratio: 1.1) over a period of 9-12

months.


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Risks and Concerns

Raw material prices

Increasing volatility in the prices of raw material such as polymer and aluminium foil (for manufacturing laminated tubes)

enables the selling prices to be revised periodically to reflect the variation in the material costs. At present, raw material costs

constitute 49% of EPL’s revenues and sharp fluctuation in the crude oil prices may make the topline growth and margins highly

vulnerable.

Dependence on oral care market

Being an essential consumer product and an item of daily use, oral care as a category still dominates EPL’s product range albeit

to a much lesser extent than before. However, it also tends to have a stable demand in an adverse economic environment which

can affect the volume numbers globally. Though the share of the non oral share in the Indian and the American markets are

increasing, regions like China and Europe nations are facing some pressure.

Currency volatility

The global nature of operations exposes the Company to multiple currencies; fluctuations in exchange rates could affect Essel’s

performance. Though the company has systematically hedged its trade and capital exposures using forward contracts, significant

currency movement leads to revisions in prices of finished products-impact on raw material costs.

Other factors

Since a large portion of its revenue is derived from the FMCG sector, any slowdown in this sector due to higher inflation can hit

the revenue growth. Rural distress, arising due to vagaries of monsoon can also fetter the company’s revenue as it will have an

impact on the demand of consumer goods. Moreover, the competitive environment for EPL can put pressure on volume growth

and pricing.

Cross Sectional Analysis

Company Equity* CMP MCAP* Sales* Profit* OPM

(%)

NPM

(%)

Int

Cov

ROE

(%) Mcap/Sales P/BV P/E

Essel Propack 31.4 224 3514 2153 183 19.3 8.5 5.5 20.0 1.6 3.5 19.2

Huhtamaki 14.5 277 2013 2148 89 11.8 4.3 4.6 22.2 0.9 4.6 22.5

Jindal Poly 43.8 407 1783 7075 306 13.6 6.3 7.1 13.8 0.3 0.7 5.8

Uflex 72.2 286 2066 6031 322 13.2 5.3 3.2 9.9 0.3 0.6 6.4

*figures in crores; calculations on ttm basis Book value adjusted for goodwill & revaluation reserves wherever applicable

Source: Company, CD Equisearch Source: Company, CD Equisearch Source: Company, CD Equisearch CY for Huhtamaki Note: All $ value figures in the write up are translated at current exchange rate

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Financials

Consolidated Quarterly Results Figures in Rs crs

Q1FY17 Q1FY16 % chg FY16 FY15 % chg

Income From Operations 528.03 560.09 -5.7 2184.65 2322.96 -6.0

Other Income 5.27 4.66 13.1 26.09 26.48 -1.5

Total Income 533.30 564.75 -5.6 2210.73 2349.44 -5.9

Total Expenditure 430.40 459.69 -6.4 1767.49 1932.20 -8.5

EBITDA (other income included) 102.90 105.06 -2.1 443.24 417.24 6.2

Interest 13.11 18.22 -28.0 62.34 79.36 -21.4

Depreciation 31.34 31.18 0.5 126.98 131.79 -3.7

PBT 58.45 55.66 5.0 253.92 206.09 23.2

Tax 20.15 19.98 0.9 71.57 61.05 17.2

PAT 38.30 35.68 7.3 182.34 145.04 25.7

Minority Interest 0.72 0.90 -20.0 3.02 4.72 -36.1

Share of Associate 0.04 0.70 -94.3 2.74 0.32 770.3

PAT after MI 37.62 35.48 6.0 182.07 140.63 29.5

Extraordinary Item 0.00 0.00 - 1.32 3.29 -59.7

Net Profit 37.62 35.48 6.0 180.75 137.34 31.6

EPS(Rs) 2.39 2.26 6.0 11.51 8.74 31.6

Segment Result Figures in Rs crs Q1FY17 Q1FY16 % chg FY16 FY15 % chg

Segment Revenue

AMESA 221.04 262.89 -15.9 884.20 1097.35 -19.4

EAP 128.75 133.96 -3.9 545.92 533.82 2.3

AMERICAS 111.47 120.96 -7.8 471.90 478.15 -1.3

EUROPE 82.02 78.36 4.7 404.57 358.50 12.9

Unallocated 0.22 0.18 22.2 0.77 0.69 11.6

Inter segmental elimination -15.47 -36.26 -57.3 -122.71 -145.55 -15.7

Net Sales 528.03 560.09 -5.7 2184.65 2322.96 -6.0

Segment EBIT

AMESA 36.10 34.97 3.2 133.71 133.30 0.3

EAP 15.95 18.66 -14.5 86.72 68.75 26.1

AMERICAS 12.24 12.84 -4.7 59.40 48.61 22.2

EUROPE 1.97 4.59 -57.1 22.78 18.58 22.6

Unallocated -0.80 -1.12 -28.6 -4.42 -4.11 7.5

Inter segmental elimination 0.83 -0.19 -536.8 -1.31 -0.68 92.6

Total 66.29 69.75 -5.0 296.88 264.45 12.3

Other Income 5.27 4.66 13.1 26.09 26.48 -1.5

Other expenses 0.00 0.53 -100.0 6.71 5.48 22.4

EBIT 71.56 73.88 -3.1 316.26 285.45 10.8

Finance Cost 13.11 18.22 -28.0 62.34 79.36 -21.4

PBT 58.45 55.66 5.0 253.92 206.09 23.2

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Consolidated Income Statement Figures in Rs crs

FY14 FY15 FY16 FY17e FY18e

Income From Operations 2126.62 2322.96 2184.65 2414.03 2752.00

Growth (%) 16.1 9.2 -6.0 10.5 14.0

Other Income 22.38 26.48 26.09 25.92 27.06

Total Income 2149.00 2349.44 2210.73 2439.96 2779.06

Total Expenditure 1773.26 1932.20 1767.49 1960.48 2242.91

EBITDA (other income included) 375.74 417.24 443.24 479.48 536.14

Interest 81.37 79.36 62.34 52.83 43.86

Depreciation 125.76 131.79 126.98 135.35 142.15

PBT 168.61 206.09 253.92 291.30 350.13

Tax 56.91 61.05 71.57 84.48 101.54

PAT 111.70 145.04 182.34 206.83 248.59

Minority Interest 3.86 4.72 3.02 3.17 3.33

Share of Associate 0.00 0.32 2.74 1.65 1.68

PAT after MI 107.83 140.63 182.07 205.30 246.95

Extraordinary Item -0.93 3.29 1.32 0.00 0.00

Net Profit 108.76 137.34 180.75 205.30 246.95

EPS (Rs) 6.92 8.74 11.51 13.07 15.72

Segment Result Figures in Rs crs

FY14 FY15 FY16

Segment Revenue

AMESA 980.66 1097.35 884.20

EAP 498.36 533.82 545.92

AMERICAS 456.86 478.15 471.90

EUROPE 310.78 358.50 404.57

Unallocated 0.42 0.69 0.77

Inter segmental elimination -120.46 -145.55 -122.71

Net Sales 2126.62 2322.96 2184.65

Segment EBIT

AMESA 129.23 133.30 133.71

EAP 80.79 68.75 86.72

AMERICAS 31.80 48.61 59.40

EUROPE -8.79 18.58 22.78

Unallocated -4.13 -4.11 -4.42

Inter segmental elimination -0.14 -0.68 -1.31

Total 228.76 264.45 296.88

Other Income 21.22 26.48 26.09

Other expenses 0.00 5.48 6.71

EBIT 249.98 285.45 316.26

Finance Cost 81.37 79.36 62.34

PBT 168.61 206.09 253.92

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Consolidated Balance Sheet Figures in Rs crs


Sources of Funds

Share Capital 31.41 31.42 31.42 31.42 31.42

Reserves 674.44 751.55 944.35 1096.82 1281.48

Total Shareholders' Funds 705.85 782.97 975.77 1128.24 1312.90

Minority Interest 7.55 8.08 8.14 8.20 8.25

Long Term Debt 644.90 643.43 566.90 459.37 367.49

Total Liabilities 1358.31 1434.47 1550.81 1595.80 1688.64

Application of Funds

Gross Block 2438.48 2552.71 2635.96 2778.07 2908.07

Less: Accumulated Depreciation 1540.33 1665.48 1695.46 1830.82 1972.97

Net Block 898.15 887.23 940.49 947.25 935.10

Capital Work in Progress 35.53 88.76 57.11 40.00 45.00

Investments 45.44 45.75 47.59 49.24 50.92

Current Assets, Loans & Advances

Inventory 224.90 231.76 207.04 226.92 253.18

Trade Receivables 367.51 375.76 335.47 359.69 393.54

Cash and Bank 141.60 116.41 85.04 99.44 115.64

Short term loans 276.05 278.28 279.17 285.67 306.44

Other Assets 34.97 20.84 34.30 37.73 41.51

Total CA & LA 1045.03 1023.05 941.03 1009.45 1110.31

Current Liabilities 682.09 597.15 421.28 429.82 421.37

Provisions-Short term 36.32 50.15 55.55 64.59 77.13

Total Current Liabilities 718.40 647.30 476.83 494.40 498.50

Net Current Assets 326.62 375.75 464.20 515.05 611.81

Net Deferred Tax -4.44 -13.73 -11.61 -10.50 -10.50

Net long term assets 57.01 50.70 53.03 54.77 56.31

Total Assets 1358.31 1434.47 1550.81 1595.80 1688.64

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Key Financial Ratios


Growth Ratios (%)

Revenue 16.1 9.2 -6.0 10.5 14.0

EBITDA 11.7 9.4 7.0 8.6 11.8

Net Profit 40.8 26.3 31.6 13.6 20.3

EPS 40.8 26.3 31.6 13.6 20.3

Margins (%)

Operating Profit Margin 16.7 16.9 19.1 18.8 18.5

Gross profit Margin 13.9 14.3 17.4 17.7 17.9

Net Profit Margin 5.3 6.1 8.3 8.6 9.0

Return (%)

ROCE 10.1 11.3 13.0 14.1 15.7

ROE 16.9 18.5 20.6 19.5 20.3

Operating return on assets 28.5 28.0 28.0 28.8 31.0

Valuations

Market Cap/ Sales 0.4 0.8 1.1 1.5 1.3

EV/EBITDA 4.7 6.8 7.1 8.7 7.8

P/E 8.3 14.3 13.9 17.1 14.2

P/BV 1.3 2.5 2.6 3.1 2.7

Other Ratios

Interest Coverage 3.1 3.5 5.0 6.5 9.0

Debt Equity 1.4 1.2 0.7 0.5 0.4

Current Ratio 1.5 1.6 2.0 2.0 2.2

Dividend Payout Ratio 26.3 26.3 26.3 25.9 25.4

Turnover Ratios

Fixed Asset Turnover 2.4 2.4 2.2 2.4 2.8

Total Asset Turnover 1.7 1.7 1.5 1.5 1.7

Debtors Turnover 6.4 6.3 6.1 6.9 7.3

Inventory Turnover 8.2 8.5 8.1 9.0 9.3

Creditor Turnover 11.9 11.2 12.1 14.2 14.7

WC Ratios

Debtor Days 57.3 58.4 59.4 52.6 50.0

Inventory Days 44.4 43.2 45.3 40.4 39.1

Creditor Days 30.8 32.5 30.1 25.6 24.8

Cash Conversion Cycle 71.0 69.0 74.6 67.3 64.2

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Cumulative Financial Data

Rs crs FY10-12 FY13-15 FY16-18

Income from operations 4674 6281 7351

Operating profit 802 1062 1380

EBIT 532 744 1053

PBT 235 492 894

PAT after MI & AP 139 323 633

Dividends** 38 84 162

OPM (%) 17.1 16.9 18.8

NPM (%) 3.1 5.3 8.7

Interest coverage 1.8 3.0 6.6

Debt-equity* 1.8 1.2 0.4

ROE (%) 16.5 20.2

ROCE (%) 10.4 14.0

Fixed asset turnover 2.4 2.5

Debtors turnover 6.7 6.4

Creditors turnover 12.4 12.4

Inventory turnover 8.1 8.2

Debtor days 54.5 57.3

Inventory days 45.1 44.5

Creditor days 29.4 29.4

Cash Conversion 70.3 72.4

Dividend payout ratio (%) 25.0 25.7 25.8

FY10-12 implies three years ending FY12. *as on terminal year

**includes CDT on subsidiary dividends

Reliance on non-oral care segment by ramping up capacity expansion in India for laminated tubes in FY13 coupled with

increasing revenues from US plastic units in period FY13-15, boosted income from operations by 34.4% to Rs 6281 crs

($937.2m) in the period FY13-15 compared to the period FY10-12. The operating margins were maintained at a stable rate

of ~17% due to raw material price pass through effect. Relentless focus on reducing its financial leverage through

enhanced capital productivity and improved cash generation helped EBIT to multiply 2.1 times in period FY13-15 from

FY10-12, while the debt-equity ratio revamped to 1.2 from 1.8 in the same period.

Optimistic approach by the company in scaling up its operations in China and US and expanding presence globally

through acquisitions will help Essel to nearly double its profits in the period FY16-18 to Rs 633 crs ($94.4m) compared to

Rs 323 crs ($48.3m) in the period FY13-15. Essel has been able to actualize its target of providing good return on its

capital; ROE and ROCE is expected to jump to 20.2% and 14.0% respectively in the period FY16-18.

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Financial Summary – US dollar denominated


Equity capital 5.2 5.0 4.7 4.7 4.7

Shareholders' funds 117.2 124.9 146.9 168.1 195.7

Total debt 170.5 153.7 109.9 91.4 73.1

Net fixed assets (inc CWIP) 155.4 155.9 150.4 147.3 146.2

Investments 7.6 7.3 7.2 7.3 7.6

Net current assets 54.3 60.0 70.0 76.8 91.3

Total assets 226.0 229.2 233.8 238.1 252.0

Revenues 351.5 379.9 333.7 360.2 410.6

EBITDA 62.3 67.5 67.4 71.5 80.0

PBDT 48.9 54.5 57.9 63.7 73.5

PBT 28.1 32.9 38.5 43.5 52.2 Profit after minority & extraordinary items 18.0 22.5 27.6 30.6 36.8

EPS ($) 0.11 0.14 0.18 0.20 0.23

Book Value ($) 0.75 0.79 0.94 1.07 1.25

Historical income statement figures translated at average rates; balance sheet at year end rates; projections (FY17&18) at current rates All dollar denominated figures are adjusted for extraordinary items.

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Recommendation

Buttressed by development across consumer and industrial market that uses flexible films, improvements in

manufacturing practices, and continued technological innovations, the packaging market has been able to grow and evolve

thereby shaping the packaging industry trends. The Indian packaging industry which constitutes about 4% of the global

packaging industry is expected to reach $72.6 billion in 2020 from $31.7 billion in 2015. In the coming years, the packaging

industry is anticipated to register 18% annual growth rate, with the flexible packaging and rigid packaging expected to

grow annually at 25% and 15% respectively (Source: FICCI, Jan 2016).

To augment its business, Essel Propack counts on the unceasing share of non oral care category of its revenue which is

targeted to even the share of oral care in a couple of years. It managed to add spin to its AMESA business last quarter,

improving its non oral care share to 50.3% shouldered by strong recovery in cosmetic and pharma category in the Indian

market.

Essel eyes huge growth in the hair care market in African regions and has introduced the latest plastic barrier laminate

tube with inviseam technology, and high decor using its own elite printing platform. It has established the gateway to

South America by opening a new modern factory at Colombia. This facility will have the capacity to manufacture 180

million tubes a year and help Essel expand its laminated tubes market to adjacent Andean markets of Ecuador, Peru,

Bolivia, Chile etc., satisfying both export and local demand.

The slow off take in the non oral care category in the Indian market along with the divestment of EPL’s stake in Packaging

India Pvt Ltd contracted the revenues by 6% last fiscal to Rs 2184.65 crs ($326.0m). On adjusted basis (excluding

divestiture), the growth was seen at 3%-the lowest recorded in last five years. Lower realizations ensuing pass through to

customers of the sharp reduction in the raw material prices muted the topline growth last year. The domestic sales were

severely affected due to sluggishness in the FMCG sector and some export related issues in the pharma market.

Since a large portion of its revenue is derived from the FMCG sector, any slowdown in this sector due to higher inflation

can hit the revenue growth. Rural distress, arising due to vagaries of monsoon can also fetter the company’s revenue as it

will have an impact on the demand of consumer goods. Moreover, the competitive environment for EPL can put pressure

on volume growth and pricing.

The stock currently trades at 17.1 FY17e EPS of Rs 13.07 and 14.2x FY18e EPS of Rs 15.72. Beset by the edgy performance of

the subsidiaries at the onset of this fiscal, profit grew by a puny 6% in Q1. However, palatable outcomes emanating from

expansion in Europe and AMESA region would boost revenue by 12.3% and profits by 16.9%, CAGR over the next two

years. Essel’s peppy introduction of value added products would pad the operating margins (18.5-18.8%). Increasing

consumer preferences towards personal care, FMCG brands will present Essel an opportunity to grow its non oral share

market. Weighing all odds, we assign ‘buy’ rating on the stock with a target of Rs 298 based on 19x FY18e earnings (peg

ratio: 1.1) over a period of 9-12 months.

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conflict of interest in the subject company(s) (kindly disclose if otherwise).

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engaged in market making activity of the company covered by analysts.

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Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading

volume, as opposed to focusing on a company's fundamentals and as such, may not match with a report on a company's fundamentals.

The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources

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guidance only. CD Equi or any of its affiliates/group companies shall not be in any way responsible for any loss or damage that may arise to

any person from any inadvertent error in the information contained in this report. CD Equi has not independently verified all the information

contained within this document. Accordingly, we cannot testify nor make any representation or warranty, express or implied, to the accuracy,

contents or data contained within this document.

While, CD Equi endeavors to update on a reasonable basis the information discussed in this material, there may be regulatory compliance or

other reasons that prevent us from doing so.

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