CD Equisearch

EPL (Hold)

Target: ₹263

CMP: ₹239

Helped by a favourable base, EPL revenue from operations grew an impressive 7.8 per cent to ₹799.10 crore from ₹741.49 year ago; though q-o-q revenue from operations slid 137 bps. Revenue from the personal care category, which accounts for 43 per cent of the total tube revenues, grew 13.9 per cent y-o-y, while the oral care category grew 16.5 per cent, largely due to demand recovery post easing of Covid19 restrictions.

The stock currently trades at 27.5x FY22 EPS of ₹8.81 and 23.9x FY23 EPS of ₹10.11. Steady revenue increase from personal care products and smart manoeuvring of price hikes will drive margins moving ahead. Net profit is expected to improve by a handsome 10.8 per cent this fiscal, propelling ROCE to 13.9 per cent.

Growth was impacted due to a month-long shut-down of the Colombia plant and a key customer moving production from Colombia to Asia. New customer additions due to rising preference of laminated tubes over plastic/aluminium ones, as well as higher cross selling opportunities, could act as growth catalysts, but risks from rising Covid-19 cases cannot be ignored. Maturing of global oral care market could pose challenges to its top-line growth, thus restricting EPL’s pricing power.

Weighing odds, we assign hold rating on the stock with revised target price of ₹263 (previous target: ₹230) based on 26x FY23 earnings.