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MOSL - ESSEL PROPACK (INITIATING COVERAGE)-Embarking on the next growth trajectory-Ramp-up of operations and improvement in product mix

Essel Propack (initiating coverage): Embarking on the next growth trajectory; Ramp-up of operations and improvement in product mix to drive growth

(ESEL IN, Mkt Cap USD0.7b, CMP INR161, TP INR210, 30% Upside, Buy)

 

Essel Propack Ltd. (EPL) is primarily engaged in the manufacture of multi-layer collapsible laminated and plastic tubes, which are used for packaging of consumer products in the oral care, beauty & cosmetics, health & pharmaceuticals, food, and home care industries. EPL operates in four regions: Africa, Middle East and South Asia (AMESA), East Asia Pacific (EAP), Europe and the Americas. The company commands a gigantic global market share of ~36% in oral care tubes and 7-8% market share in personal care tubes. It operates through 20 units spread across 10 countries.

• EPL is set to benefit from various expansion measures and efforts to improve its product mix across geographies over the last two years. Operating leverage benefits are likely to kick in with ramp-up of operations, particularly in the Americas and Europe.
• In our view, the company's dominant position in global oral care tubes (~36% share) provides comfort on sustainability of growth. Moreover, its increasing share of higher-value personal care tubes will help improve margins. Diversified presence across the globe reduces its concentration risk.
• Under the leadership of Blackstone (which boasts of a global network of experts and relationships with FMCG/pharma players), EPL's global market share is expected to improve from the current level of ~36% in oral care tubes and 7-8% in personal care tubes. Furthermore, a renewed growth strategy and prudent allocation of capital will benefit the company in the long run.
• EPL is also well positioned to benefit from the increasing use of laminated tubes over aluminum. Also, new product launches such as Platina and Green Maple Leaf are expected to contribute to its growth.
• We estimate a CAGR of 8% in revenue and 20% in PAT over FY19-22, driven by 11% revenue CAGR in the Americas, 5% in EAP, 3% in AMESA and 15% in Europe. We value the stock at 20x FY22E EPS of INR10.5, arriving at a target price of INR210. We initiate coverage with a Buy rating.