Recommendation From Containers & Packaging Sectors

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.

PACKING THE RIGHT PUNCH FOR GLOBAL GROWTH 

HERE IS WHY

Essel Propack Ltd (EPL) is a part of the US $4.2 billion Essel Group. It is the largest specialty packaging global company. It manufactures laminated plastic tubes catering to the FMCG and pharma space with a 36 per cent share of the world's oral care market in volume terms. Its products are extensively used in the packaging of products across categories such as beauty and cosmetics, pharma and health, foods and home. The company generates revenue from oral and non-oral segments, with oral segment contributing about 60 per cent. 

In order to reduce dependence on oral care segment and cater to the growing demand globally from non-oral category, EPL is shifting its focus from the oral to non-oral categories. Its revenue share from the non-oral care category, which is more profitable, increased to 40.9 per cent in Q2FY18 as against 39.9 per cent in Q2FY17. By using laminated tubes as packing material, EPL is further planning to increase it to 50 per cent over the next two years. The company has developed a laminated plastic tube, Mystik; with a tube structure that can comprehensively protect highly abrasive formulations. EPL believes this to be a breakthrough innovation and a huge business opportunity in the non-oral care category. 

The capability augmentation in both laminated and plastic tubes, revival of Russian operations, the acquisition of Essel Deutschland Germany will help EPL improve its European operations. EPL has also undertaken expansion in Assam where a lot of FMCG companies operate due to tax advantage. By expanding in Assam, EPL expects to increase its customer base in a year of its operation.

On the financial front, the net sales of the company decreased 1.51 per cent to Rs 206.79 crore in the third quarter of FY18 against Rs 209.96 crore in the same quarter of the previous year. The company’s PBDT increased 45.2 per cent to Rs 46.48 crore in the third quarter of FY18 on a yearly basis. The company’s net profit increased 64.67 per cent in the December quarter to Rs 19.53 crore as against Rs 11.86 crore in the same period last year. 

On an annual basis, the company’s net sales increased 32.28 per cent to Rs 881.05 crore in FY17 on a year-on-year basis. The company’s PBDT increased 37.58 per cent to Rs 154.48 crore in FY17, as against Rs 112.28 crore in the previous fiscal. The net profit of the company rose 19.49 per cent to Rs 65.11 crore in FY17 as against Rs 54.49 crore in the previous fiscal. 

On the valuation front, the company has a PE ratio of 24.22x as against its peer Huhtamaki PPL (46.03x). The company’s return on equity (RoE) and return on capital employed (RoCE) stood at 16.90 per cent and 16.48 per cent, respectively. The company has a debt-to-equity ratio of 0.77x. The company has been maintaining a healthy dividend payout of 19.44 per cent. 

Considering EPL’s strong innovation track record, marquee clientele, global presence and increasing focus on non-oral care segment, the scrip is a BUY from us.