Essel Propack Q2FY11 Result Update; BUY; Target: Rs 76 : Emkay

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Essel Propack

Target Rs1.0 bn net profit in FY12E, Maintain BUY

BUY

CMP: Rs 56                                       Target Price: Rs 76

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n     Essel Propack (EPL) reports good performance in Q2FY11 – revenue growth at 19.8% yoy to Rs3.7 bn and APAT growth at 160% yoy to Rs206 mn

n     EPL reports Ebidta margins at 18.5%, highest in last 16 quarters and since EPL goes international

n     Progress in various geographies was on expected lines –with Amesa and EAP reported strong traction in the quarter and Americas and Europe reporting reduction of Ebit loss

n     Maintain earnings of Rs3.9/Share and Rs6.3/share, Maintain BUY with target price of Rs76/Share

EPL reports good operational performance - APAT at Rs135 mn meets

expectation

EPL reported healthy operational performance in Q2FY11, Revenue and Ebidta being

ahead of estimates. Key highlights of the quarter are (1) revenue growth of 19.8% yoy to

Rs3.7 bn- with inherent volume growth at 12% and price-led growth at 8% (2) Ebidta

growth of 24.3% yoy to Rs683 mn (3) Ebidta margin expanded by 160 bps yoy to 18.5%

and (4) APAT growth of 160% yoy to Rs135 mn. Though, revenue and Ebidta

performance was ahead of expectation, APAT meets expectation owing to higher tax

provisions in the quarter.

Progress on expected lines – Amesa and EAP reports revenue traction

and Americas and Europe reports reduction of Ebit loss

Progress in various geographies was on expected lines –with Amesa and EAP reported

strong traction in the quarter and Americas and Europe reporting reduction of Ebit loss.

Key highlights of various geographies is as under (1) Amesa (largely India) reported

17% yoy growth in revenues to Rs1.7 bn & 80 bps yoy expansion in Ebit margins to

12.6% (2) EAP (largely China) reported 43% yoy growth in revenues to Rs1.7 bn & 500

bps yoy reduction in Ebit margins to 30.3% (3) Europe saw reduction in Ebit loss from

Rs83 mn in Q2FY10 to Rs40 mn in Q2FY11, alongside 12.7% yoy growth in revenues.

Gearing to achieve Rs1.0 bn net profit in FY12E- directionally correct

EPL has reported Ebidta margins of 18.5%, highest in last 16 quarters. Since, EPL

ventured on internanational waters, Ebidta margins have been under pressure. But,

continuous product-mix change, higher capacity utilization and gains from leverage has

resulted margin expansion. Considering seasonality-effect and utilization levels, EPL

would record 20% Ebidta margin in Q4FY11E, indicating at 20%-21% Ebidta margin in

FY12E. EPL is directionally on right path, gearing to achieve Rs1.0 bn net profit in

FY12E – revisiting the CY06 levels.

Maintain earnings estimates – Maintain ‘BUY’ rating

So far, our key arguments have played out i.e. reduction of Ebit loss in Europe & Americas,

strong revenue traction in Amesa and EAP in consequence to capacity expansion and

gains from operating leverage. We maintain our earnings estimates of Rs3.9/Share and

Rs6.3/Share for FY11E and FY12E. We maintain ‘BUY’ rating with price target of

Rs76/Share.