Lower volume offtake weighs on performance • Essel Propack :: ICICI Securities

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Lower volume offtake weighs on performance • Essel Propack (EPL) recorded ~6% YoY revenue growth supported by ~10% YoY growth in Amesa and ~12% YoY growth in the European region. With the Poland facility breaking even, this led the European region to register a profit of | 5.7 crore vs. ~| 0.1 crore in Q3FY14. However, lower-than-expected volume offtake by key oral care customers in Amesa and EAP caused the lower revenue growth. Americas revenue grew ~7% YoY with focus on conversion of plastic tube into new generation laminated tube • Non oral care segment revenue grew ~15% YoY while revenue from oral care was hit by lower demand from key FMCG players • EBITDA margins witnessed a decline of 55 bps YoY as saving in raw material prices was offset by higher manufacturing & other expenses. The higher fixed cost is largely attributable to lower volume growth in AMESA and EAP regions. Lower revenue growth coupled with decline in margin restricted PAT growth by ~7% YoY in Q3FY15 Revival in European region - key trigger for future growth The European region contributes ~12% to the consolidated topline (lower than other regions) largely due to under utilisation of its Poland plant. However, EBIT losses of Europe reduced substantially from | 93 crore in CY08 to profit of | 12 crore in 9MFY15, due to implementation of different cost effective programmes, stabilisation of the Poland unit and addition of new clients in various geographies. The Polish unit is a hub for extruded plastic tubes. It is also expanding into a major supplier of laminated tubes. The Polish unit turned positive from Q1FY15 onwards with an improvement in utilisation rate and addition of new clients. Stabilisation of the unit and new long term contracts would translate into higher operating leverage and reducing fixed cost. Focus on non-oral care category to drive volume growth Non-oral care categories, dominated by toiletries, skin care and shampoo, use laminated tubes as packing material. Contribution of non-oral care in total revenue is expected to increase from 39.1% in FY14 to 50% by FY16. Contribution of non oral in overall revenue increased to 41.9% in H1FY15. Emerging markets would be the key driver for oral and non-oral care categories due to lower product penetration. EPL is focusing on emerging markets of Asia, Africa and Latin America to drive revenue from the non-oral care category. Amesa: India remains strong market for Essel Amesa (Africa, Middle East & South Asia with operations in Egypt and India) remained a strong growth driver for EPL. We believe the region (led by India) would continue to grow at 17% CAGR in FY14-17E supported by rising disposable income, growing urbanisation and lower penetration of personal care products. Improvement in ‘volume’ key; maintain HOLD EPL is trading at an enterprise value of 5.3x and 4.5x its FY16E and FY17E EBITDA, respectively. We believe the recent rally captures the turnaround of the European business. EBIT losses of Europe reduced substantially from | 93 crore in CY08 to profit of | 12 crore in 9MFY15. We expect a further recovery in European region with rising focus on higher margin non oral care products. We expect consolidated sales, earning CAGR of ~15%, ~22%, respectively, in FY14-17E. We have valued the stock at 4.6x its FY17E EBITDA with revised target price of | 122 and HOLD rating.

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