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EPL Ltd>
  • CMP : 201.6 Chg : 3.85 (1.95%)
  • Target : 175.0 (10.06%)
  • Target Period : 12-18 Month

25 May 2022

Delay in price hikes hit EBITDA margin…

About The Stock

EPL is the world’s largest manufacturer of laminated plastic tubes (~8 billion tubes annually) catering to the FMCG and pharma space.

  • Oral care segment contributes ~54% of total topline while the rest comes from the personal care category          
  • Focus on debt reduction, improving RoE, RoCE (~15%, 16%, respectively)
Q4FY22 Results

Price hike delay takes toll on EBITDA margin.

  • EPL reported ~287 bps YoY (107 bps QoQ) fall in gross margin mainly due to higher raw material cost and delay in passing on the same. As a result, the EBITDA margin declined 213 bps YoY (60 bps QoQ) to 15.1%
  • Consolidated revenue growth of ~9% YoY to ₹ 880 crore led by Amesa & Americas segment growth of ~14% & 12% YoY, respectively
  • PAT fell 14% YoY to ~₹ 50 crore tracking lower EBITDA margins
What should Investors do?

EPL’s share price has given a negative return of ~38% over the past five years (from ~₹ 259 in May 2017 to ~₹ 159 level in May 2022).

  • We maintain our HOLD rating on the stock
Target Price & Valuation

We value EPL at ₹ 175 i.e. 8x EV/EBITDA on FY24E EBITDA

Key Triggers for future price performance
  • Performance of Amesa     region has been a laggard (FY18-21), mainly due to lower volume offtakes. However, consolidation of Creative Stylo and improved product mix would help drive revenues of the region
  • Performance of EAP and European regions has remained volatile amid pandemic led challenges. This, coupled with improved revenue contribution from personal care segment, would help drive future margins
  • Expansion into Brazil will help drive future revenue growth
Alternate Stock Idea

We like Shaily Engineering under our coverage.

  • We build-in strong revenue CAGR of 31% in FY21-24E led by capacity expansion and client addition
  • BUY with target price of ₹ 2165

Key Financial Summary

(Rs# Crore) FY19 FY20 FY21 FY22 5 Year CAGR(FY17-FY22) FY23E FY24E 2 Year CAGR (FY22-FY24E)
Net Sales 2,706.9 2,761.5 3,091.6 3,432.8 0.1 3,737.9 4,077.3 9.0
EBITDA 499.1 557.6 611.1 576.0 0.1 679.8 777.7 16.2
EBITDA Margin (%) 18.4 20.2 19.8 16.8 - 18.2 19.1 -
PAT 195.4 211.6 244.3 221.2 0.0 272.0 334.3 22.9
EPS (|) 6.2 6.7 7.7 7.0 - 8.6 10.6 -
P/E(x) 25.7 23.7 20.5 22.7 - 18.5 15.0 -
Price /Book Value (x) 3.6 3.2 2.9 2.8 - 2.7 2.6 -
EV/EBITDA (x) 10.9 9.3 8.6 9.5 - 7.9 6.8 -
RoE (%) 13.9 14.0 14.8 12.1 - 14.7 17.1 -
RoCE (%) 16.8 15.3 16.2 12.6 - 15.9 18.5 -
Source: Company, ICICI Direct Research

Key takeaways of recent quarter & conference call highlights

Q4FY22 Results:

  • Consolidated revenue increased ~9% YoY to | 880 crore led by ~14% and ~12% YoY growth in the Amesa and Americas regions, respectively. EAP and Europe regions revenues grew albeit a slow pace of ~7% and 4% YoY to | 197 crore and | 209 crore, respectively
  • Sharp increase in raw material prices (up in the range of 16-56% YoY in Q4FY22) and delay in passing on of the same (pass through with a quarter lag) dragged gross margin down ~287 bps YoY. The EBITDA margin declined ~213 bps YoY (58 bps QoQ) to 15% led by lower gross margins
  • PAT declined 14% YoY tracking lower EBITDA margin and higher interest outgo (up 32% YoY) during Q4FY22
  • Amesa regions (36% of re venues) revenue increased 14%YoY to | 314 crore led by customer addition. The reported EBIT margin declined 70 bps YoY to 8.8% owing to higher raw material prices
  • EAP region (25% of revenues) revenue growth at ~7% YoY to | 197 crore was hit by lower volume offtake in China due to pandemic led lockdowns. The segment EBIT margin declined ~360 bps YoY to 8.1% due to higher raw material prices and low operating leverage
  • America region (21% of revenues) witnessed revenue growth of ~12% YoY to ~| 196 crore, supported by easing of travel related restrictions (which helped drive travel tube demand). Reported EBIT margin declined 190 bps YoY to 9.6% tracking higher RM costs and employee costs
  • Europe region (22% of revenues) witnessed slower revenue growth of ~4% YoY to | 209 crore, mainly due to low demand of personal care products. The EBIT margin declined 450 bps YoY to ~5% due to higher raw material prices and labour charges

Q4FY22 Earnings Conference Call highlights

  • Demand Outlook:
    • The management maintained its guidance for double-digit revenue growth supported by revival of business in Amesa, EAP and Americas
    • The company expects revenue growth in coming years from business in Brazil on account of commitment received from a global customer but the meaningful impact on revenue from Brazil operations is expected to start from FY24E
    • Business in Europe was affected by Covid led disruptions. However, with easing restrictions and lower Covid Cases, revival of business is expected in this region from Q1FY23E
    • Lockdowns in China have impacted the company’s operations in EAP region adversely. However, with the opening up of economy, the company expects higher volume offtake from EAP region
  • Margins:
    • Higher raw material costs in a volatile environment along with inflationary pressure impacted margins negatively
    • The management expects EBITDA margin to go up supported by taking price hikes to recover raw material costs along with an improved product mix
Variance Analysis

  Q4FY22 Q4FY21 YoY(%) Q3FY22 QoQ (%) Comments
Revenue 880.2 810.2 8.6 883.4 -0.4 Revenue growth was largely driven by AMESA and Americas regions. The oral care category revenue increased by 8% YoY
Other Income 2.2 3.0 -26.7 3.1 -29.0  
Raw Material Exp 405.1 349.6 15.9 397.1 2.0 Delay in passing of price hikes results in 287bps drop in gross margin YoY
Employee Exp 161.8 157.6 2.7 169.6 -4.6  
Manf & Other exp 180.2 163.2 10.4 178.0 1.2  
EBITDA 133.1 139.8 -4.8 138.7 -4.0  
EBITDA Margin (%) 15.1 17.3 -213 bps 15.7 -58 bps Savings in employee costs restricted the overall fall in EBITDA margin at 213 bps YoY (58 bps QoQ)
Depreciation 63.1 60.1 5.0 64.2 -1.7  
Interest 11.4 8.6 32.6 10.3 10.7  
 PBT bef excp items  60.8 74.1 -17.9 67.3 -9.7  
Profit from associ 0.0 -0.2 -100.0 -0.6 -100.0  
PBT 60.8 74.1 -17.9 67.3 -9.7  
Total Tax 10.7 15.5 -31.0 8.2 30.5  
PAT 50.1 58.4 -14.2 58.5 -14.4 PAT decline is attributable to higher interest costs and lower EBITDA margin
Key Metrics            
AMESA 314.0 276.6 13.5 322.5 -2.6 Favourable base and new customer addition helped drive segment revenue
EAP 197.1 184.9 6.6 245.9 -19.8 Pandemic led lockdown hit volume offtake in China
Americas 196.4 174.9 12.3 189.9 3.4 Demand recovery in the personal care products helped drive overall segment revenue growth in Q4
 Europe      208.6     200.2           4.2     173.2        20.4 Low demand of personal care products drags overall revenue growth in the region

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