Buy EPL, target price Rs 260: ICICI Securities

ICICI Securities has buy call on EPL with a target price of Rs 260. The current market price of EPL is Rs 175.6.
Time period given by analyst is one year when EPL Ltd. price can reach defined target.

EPL Ltd., incorporated in the year 1982, is a Mid Cap company (having a market cap of Rs 5534.05 Crore) operating in Packaging sector.

EPL Ltd. key Products/Revenue Segments include Laminated Tubes, Royalty Income, Scrap and Export Incentives for the year ending 31-Mar-2021.


Financials
For the quarter ended 31-12-2021, the company reported a Consolidated Total Income of Rs 886.50 Crore, up 1.72 % from last quarter Total Income of Rs 871.50 Crore and up 15.09 % from last year same quarter Total Income of Rs 770.30 Crore. Company reported net profit after tax of Rs 59.10 Crore in latest quarter.


Investment Rationale
EPL’s Q3FY22 EBITDA declined 12.5% YoY to Rs1.4bn, impacted by hardening raw material prices and lag in pass-through of the same. Price volatility is posing additional challenges and has eroded the gross margin by 470bps YoY. Higher employee and other expenses have added to the pain. The cost rise was due to covid-related absenteeism and soaring freight costs. Company sees margins to have bottomed, and is making efforts to revive the same, which should materialise in the next few quarters. Margin compression is more pronounced in America and Europe. Company has won a long-term contract from an MNC customer to supply in Brazil market; and also it will invest in new plant at Brazil, more details awaited. It has cut EPS estimates by 17% / 7% / 6% for FY22E/ FY23E / FY24E. It assumes cost inflation to slow down and margins to normalise in FY23E. However, it has cut DCF-based target price to Rs260 (from Rs290) as it lowers long-term margin expectations.

Promoter/FII Holdings
Promoters held 51.91 per cent stake in the company as of 31-Dec-2021, while FIIs owned 14.95 per cent, DIIs 14.07 per cent.