Hold Essel Propack; target of Rs 160: ICICIdirect

ICICIdirect.com has recommended to hold Essel Propack with a target price of Rs 160, in its research report dated August 3, 2015.

August 03, 2015 / 02:31 PM IST

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ICICIdirect.com's report on Essel Propack
Essel Propack’s Q1FY16 topline growth at ~5% was largely hit by lower sales growth in the Amesa region wherein topline recorded abysmal growth of ~2% YoY. This was largely due to de-growth in India flexible packaging business (since divested) and flat sales in India tubing business. Sales from EAP and European regions were up ~17% YoY and ~19% YoY due to ramping up of new capacity in China and improved utilisation of the Poland plant. Sales from the America region increased ~3% YoY due to focus on conversion of plastic tube into new generation laminated tube

There was a sharp increase in EBITDA margin by 193 bps YoY in Q1FY16, led by improved operational efficiencies in the European region (EBIT of ~Rs 5 crore vs. ~Rs 2 crore) and America region (EBIT of ~Rs 13 crore vs. Rs 11 crore). With the Poland facility breaking even, this led the European region to register a profit

Sharp growth in PAT by ~46% YoY can be attributed to a sharp growth in EBITDA margin and lower interest (due to debt reduction)

"EPL is trading at an enterprise value of 6.5x and 5.6x its FY16E and FY17E EBITDA, respectively. We expect consolidated sales and earning CAGR of ~7% and ~26% in FY14-17E, supported by an improvement in margin and lower interest outgo. This coupled with improving earnings from the European business would also add to the performance. We expect an exit from the low margin business and reduction in debt to improve RoE, RoCE to over ~20% FY16E, FY17E, respectively. We value the stock at 5.8x its FY17E EBITDA and maintain target price of Rs 160 with HOLD rating", says ICICIdirect.com research report.

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