Recommendations » India

Essel Propack Q3FY13 results update

Contributed by Nirmal Bang

Essel Propack Global operations reported a steady growth in net sales 7.9% YoY and down by 5.9% QoQ to Rs. 444.3 crore. The revenue was up on account of growth in all four regions comprising AMESA (7.6% YoY), Europe (22.8% YoY), EAP (6.2% YoY) and America (4.6% YoY), in Q3FY13. The revenue witnessed a steady growth on the account of judicious product mix and price hike to the tune of 2% during the quarter.

The company reported a 17.5% YoY jump in EBITDA to the tune of Rs. 81.1 crore in Q3FY13 and down by 7.1% QoQ. The margin stood 18.2% in Q3FY13 as compared to 16.8% in Q3FY12 and 18.5% in Q2FY13. Gross margin expand by 140bps YoY to 52% in Q3FY13 and by 160bps QoQ due to the lower input cost.

The operating margin has jumped YoY as the contribution of non-oral care has improved by 4.8% to 39.9% in value terms. Management has guided to increase the contribution from non-oral care segment to 50% by FY15E. The management has guided EBIDTA margin for FY13E to be 18% driven mainly by healthy product mix (higher contribution from non-oral care) and continuous cost control.

The reported PAT increased by 62.4% YoY to Rs. 22.3 crore and down by 3.3% QoQ. The PAT margin was 5% in Q3FY13 as compared to 3.3% in Q3FY12 and 4.9% in Q2FY13. This was mainly on account of reduction in tax rate to 30.1% in Q3FY13 as against 38.8% in Q3FY12 and 35.1% in Q2FY13. The reason for the decline in tax rate attributed to the few non-performing geographies has started showing improvement.

The company had reported a forex gain of Rs. 0.14 crore in Q3FY13 as against forex loss of Rs. 0.52 crore in Q3FY12 and forex gain of Rs. 0.25 crore in Q2FY13.

India Standalone Operations also posted a steady performance. Net profit for Q3FY13 is Rs. 11.5 crore up by 11.8% over Q3FY12. Net Sales was up by 13% YoY to Rs. 144.9 crore and marginally down by 1.1% QoQ. Operating profit for the quarter stood at Rs. 30.7 crore, grew by 14.2% compared to previous year.

Valuation & Recommendation

Essel Propack posted steady revenue increase across different region led by judicious mix of increase in the contribution by non-oral care, price increase and favorable exchange rate. The management has guided to close FY13E with a revenue growth by 12% on constant basis (no currency gain) and the operating margin to be 18%. The Q4 which is seasonally a weak quarter as per the guidance by the management will report muted result; in our view. The outlook for the company looks favorable in terms of steady revenue growth in all the four geographies going forward led by richer product mix and addition of new customers. We expect margin to improve from hereon led by emphasis over higher contribution from the non-oral care segment which is gaining traction, though losses in Europe is a matter of concern. At CMP of Rs. 38, the stock is trading at a PE of 8.3x in FY13E and 7.2x in FY14E. We have maintained our target price of Rs. 54 per share with a “BUY” rating.