Stock Pick
Why Buy?
Essel Propack
Product Innovation
Pushing Growth
The company looks well placed to ride the growth
in non-oral care category, says Jash Kriplani
191.69
200
Sensex (Points)
Essel Propack (`)
n Strong earnings visibility
n Entered the non-oral care segment
n Growth outlook remains healthy
Watch Out For
Recovery of global acquisitions
Normalization of GST-related issues
Slowdown in consumer demand
New launches may not be received
well by the market
n
n
n
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Financials
Net sales (` crore)
FY18
150
FY17
128.64
100
FY16
2,446.42
2,302.29
2,127.50
OP (` crore)
FY18
50
FY17
0
FY16
15 May 2015
F
rom being the first company
to introduce laminated
tubes in India in the 80s to
becoming the largest player
in the oral care segment witsh 36
per cent global market share, Essel
Propack has come a long way. Riding
on product innovation, the company
is looking to repeat its success in
the non-oral category (3.5 per cent
market share), which is nearly three
times the size of oral care.
Foraying into non-oral care
business has worked well for Essel
Propack. Over FY12-17, its revenue
grew at 7 per cent CAGR from `1,583
crore to `2,302 crore, while profit
clocked 30 per cent CAGR from
`51 crore to `190 crore. Operating
margin was up 217 basis points to
19 per cent during the same period.
Revenue contribution from the non-
oral care tubes business rose from
34 per cent in FY12 to 40 per cent
22
17 May 2018
in FY17. The company now plans to
take the contribution of non-oral care
to 50 per cent by FY19.
“We expect a strong growth
in non-oral revenue riding on
conversions in the US and Europe
and growth in cosmetics, foods and
pharma in China and India. The oral
care business is expected to log stable
revenue growth. Earlier, losses in the
Americas and Europe had impacted
Essel’s performance,” says Nihal Jham,
an analyst at Edelweiss.
Given its execution record,
analysts believe that the company’s
valuation is attractive. “The company
is trading at 8.6x one-year forward
EV/EBITDA, which is at a 15-20 per
cent discount to global peers such
as Aptar and Bemis. None of the
global peers’ return ratios are at par
with Essel Propack. So the company
should get a premium valuation as it
expands its business,” observes Jham.
Outlook Money June 2018 www.outlookmoney.com
PAT (` crore)
FY18 170.1
FY17 190.32
FY16 171.6
EPS (`)
491.12
456.6
427.6
FY18
10.91
FY17 12.11
FY16 10.83
OP: Operating profit; PAT: Profit after tax;
EPS: Earnings per share; Source: Ace Equity
The performance of the company’s
global acquisitions is also expected to
improve. In October 2016, Essel Propack
bought Essel Deutschland Germany
(EDG), its partner in the joint venture.
The German unit, which accounts for
40 per cent of Europe’s topline, saw its
revenue drop by 10 per cent for the nine
months ended December 2017. “In six to
eight months, the EDG business should
breakeven. That should give a fillip to
overall Europe operations,” says Ankit
Gor, analyst at Systematix.
Sanjay Manyal, who is analyst at
ICICI Securities, says that the EDG
turnaround will offer Essel Propack
cross-selling opportunities, sourcing
flexibility and higher capacity utilization
at its European plants. Given its growing
presence in the non-oral segment, Essel
Propack looks well placed to ride the
growth in non-oral care. The company
is trading at reasonable valuations of
18.42x one-year forward earnings.