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CD Equisearch
Essel Propack (Accumulate)
CMP: ₹130.6
Target: ₹155
Essel Propack is the largest speciality packaging company, manufacturing laminated plastic tubes catering to the FMCG and pharma space.
Essel undertook a capital expenditure of over ₹300 crore in FY19. Some of the capacity expansion initiatives undertaken were setting up of a custom built factory near Guwahati, Assam which is a strategic investment, relocation of the Russia unit to create future growth opportunities beside other efficiency enhancement initiatives.
The stock currently trades at 19.1x FY19e EPS of ₹6.8 and 16.8x FY20e EPS of ₹7.76. Expansion opportunities in non-oral care segment which tend to generate higher revenues and have lower packaging costs in terms of bills to customers (10 per cent for pharma and 5-6 per cent for cosmetics in comparison to 25 per cent for toothpaste) provide significant headroom for growth while the flourishing e-commerce business, which is globally disrupting the supply chains of the established brands, poses a significant challenge for EPL.
Weighing odds, we advise accumulating the stock with the revised target price of ₹155 (previous target ₹140, adjusted for bonus)) based on 20x FY21e EPS of ₹7.76 over a period of 9-12 months.
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