Hold Essel Propack; target of Rs 310: ICICI Direct

ICICI Direct's research report on Essel Propack

Consolidated revenues (net of GST) increased ~12% YoY to Rs 640 crore largely on account of ~51% and ~9% YoY increase in revenue of Europe and EAP regions, respectively. AMESA region revenues (like-for-like up ~7%) were impacted by GST related issues and devaluation of currency in Egypt. Though the America region recorded revenue growth of ~9% (on a constant currency basis), the European business (excluding EDG business) continuously remained under pressure (down ~12% YoY) due to lower offtake by key customers. Revenue contribution of non oral care segment increased from 40.9% to 39.9% during Q2FY18 The EBITDA margin increased ~140 bps YoY mainly due to higher operating leverage from overseas business (led by ~700 bps YoY increase in EBIT margin of America). Adjusted with one-time gains in base quarter, PAT increased ~12% YoY.

Outlook

We model revenue, earning CAGR of ~9% in FY17-19E led by EAP and European regions (owing to EDG acquisition). However, AMESA region growth would largely be driven by recovery in demand from India post GST implementation. Further, focus to increase contribution of non-oral care segment (relatively higher margin) to 50% would help in further margin expansion. However, we believe business development in Europe (excluding EDG) and AMESA will be key triggers for future growth. At the CMP, the stock is trading at 10x FY18E and 8.4x FY19E EV/EBITDA. We maintain HOLD rating on the stock with a revised target price of Rs 310.

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