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Essel Propack Ltd. Q3 FY12 results update by Nirmal Bang

Contributed by Nirmal Bang

Quarterly Analysis

Essel Propack Global operations reported a jump in net sales YoY by 13.7% and up by 4.7% QoQ to Rs. 414.04 crs backed by strong growth registered in all four regions comprising: AMESA (10.5% YoY), AMERICA (10.8% YoY), EAP (9.5% YoY) and Europe (45.3% YoY), in Q3FY12. The company reported an 11.5% YoY jump in EBITDA to the tune of Rs. 67 crs in Q3FY12 and a jump by 6.2% QoQ. The margin was almost flat QoQ but reported a decline by 30bps YoY led by jump in input prices and employee expenses. The consolidated PAT was down by 12.9% YoY to Rs. 13.59 crs on account of forex loss of Rs. 0.52 crs as against Rs. forex gain of Rs. 5.97 crs in Q3FY11. The increase in interest cost further contributed in the fall in net profit YoY basis. The PAT was up by 48.5% QoQ.

Standalone (India operation) revenue was up by 17.9% YoY to Rs. 129.12 crores in Q3FY12 led by volume growth. However, sharp increase in input prices and rupee depreciation pending full pass through, as also the sharp rise in India interest rates have caused India stand alone Net Profit to be lower by 4.9% to Rs. 10.24 crores as compared to last year.

International Business: The Europe grew by 45.3% YoY but continued to post EBIT losses of Rs. 5.65 crores due to consolidation business in the Poland region (though the region has broken-even at EBIT level in January 2012) and lower volumes in the Germany operations. AMESA grew by 10.5% YoY to Rs 199.8 crores though EBIT margins contracted by 320bps YoY. The margins in AMESA were down due to the input cost pressure and delay in pass through. Americas reported a growth of 10.8% YoY to Rs 91.82 crores and has reported a loss of Rs. 0.76 crores as against a profit of Rs. 0.75 crores in Q3FY11. The business in Americas falls due to the Mexico unit facing some problem resulted into the loss and decline in the volume of plastic tube business. According to the management, the Mexico unit will be EBIT profit by Q4FY12 and volumes are expected to improve in Q1FY13. EAP region grew by 9.5% YoY and reported a jump in EBIT margins by 170bps YoY to 20.6% led by price increase taken by the company.

Valuation & Recommendation

At CMP of Rs. 33, the stock is trading at a PE of 11.2x in FY12E and 7.9x in FY13E. With the slowdown pressure still mounting on Europe plus dependency on few customers, European operations continue to remain negative. The company had taken an increase in raw-material prices in Q3FY12 due to time lag, the positive effect will be seen in coming quarters. We have reduced our EPS estimate by 3.2% to Rs. 3 in FY12E and by 12.5% to Rs. 4.2 in FY13E. We maintain our stock recommendation to “BUY” rating, with a revised target price of Rs. 46 per share, valued on (PE of 11x on FY13E).