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Essel Propack Q3FY14 results update

February 4, 2014, Tuesday, 11:09 GMT | 06:09 EST | 15:39 IST | 18:09 SGT
Contributed by Nirmal Bang


Profitability remains on track; Retain BUY
 
- Net revenue was up by 19.9% YoY to Rs 532.6cr and by 2.1% QoQ to Rs. 532.6cr in Q3FY14. The revenue witnessed a growth on the account of blended volume growth of 10% YoY.
 
- EBITDA grew by 11% YoY to Rs 90cr and down by 2.3% QoQ. However, EBITDA margin declined by 130bps YoY to 16.9% in Q3FY14 owing to lower contribution of non-oral care category which fell by 400bps YoY to 37% in Q3FY14. Management continue to maintain to achieve 50% revenue contribution from non-oral care in the next couple of years.
 
- PAT increased by 28.3% YoY to Rs 28.3cr due to low interest cost and tax outgo.
 
- Revenue grew across all regions, Europe (+43% YoY), EAP (+32% YoY), AMESA (+14.5% YoY) and AMERICAS (+9.8% YoY). Moreover, India net revenue growth remains steady to 13.9% YoY of Rs 165.2cr.
 
- Higher off-take in EAP and ramp-up of new contracts in Europe were the major driver for strong revenue growth. In addition, Europe operation posted break-even first time.
 
Despite Europe posting break-even first time, EBITDA margin declined by 130bps YoY: Consolidated EBITDA margin stood at 16.9%, down by 130bps YoY owing to ramp-up in new contract for oral care tubes in Europe and increase in demand for oral care category in Indian operation resulted into lower contribution of non-oral care revenue by 400bps YoY to 37% in Q3FY14. Further, except Europe break-even, EBIT margins declined in all other regions led by EAP (-310bps YoY to 17.6%), AMERICAS (-220bps YoY to 2.1%) and AMESA (-80bps YoY to 12.8%) in Q3FY14, further added woes in the operating margin of the company.
 
Ramp-up of new orders in Europe, higher off-take in EAP and steady improvement in AMESA and AMERICAS resulted into strong revenue growth: Net revenue grew by 19.9% YoY led by higher off-take in EAP region led 32% YoY revenue growth and volume expansion in Germany and Polland led by new contracts resulted into 43% YoY revenue growth in Europe. In addition, AMESA posted a growth of 14.5% YoY to Rs 246.1cr, due to robust demand for tubes in oral care category. However, AMERICAS witnessed subdued growth of 9.8% to Rs 105.5cr due to to holiday season led to stock correction at its key customers has impacted the revenue and consequently the profit during the quarter.
 
 
Valuation & Recommendation
 
With the break-even in Europe during Q3FY14, we are upbeat on the strategies taken by management are on track. Further, better product profile, addition of new customers and ramp-up of capacities in EAP, Europe and AMERICAS would ensure revenue and profitability growth going forward. At CMP of Rs 49, stock is trading at a PE of 5.6x FY14E and 4.4x FY15E. We roll-over our target multiple to FY15E and revised our target price of Rs. 62 per share, valued at 7x FY15E EPS, (earlier Rs 54) and retain “BUY” rating.