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>> APRIL 20, 2005
Essel Propack: Decent show
CONSUMER PRODUCTS SECTOR QUOTES |
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Laminated tubes major, Essel Propack, reported a strong 25% topline growth for the March quarter. However, margin pressure continued, resulting in the company posting an 8% bottomline growth.
Consolidated global picture…
| (Rs m) |
1QCY04 |
1QCY05 |
Change |
CY04 |
Change |
| Net Sales |
1,521 |
1,905 |
25.2% |
6,689 |
15.9% |
| Expenditure |
1,092 |
1,410 |
29.1% |
4,801 |
15.8% |
| Operating profit (EBDITA) |
429 |
495 |
15.4% |
1,888.0 |
16.3% |
| EBDITA margin (%) |
28.2% |
26.0% |
|
28.2% |
|
| Other income |
12 |
5 |
-58.3% |
31 |
-60.8% |
| Interest (net) |
6 |
22 |
266.7% |
65 |
30.0% |
| Depreciation |
162 |
176 |
8.6% |
685 |
9.4% |
| Profit before Tax |
273 |
302 |
10.6% |
1,169 |
13.9% |
| Extraordinary income/(expense) |
- |
- |
|
(20) |
|
| Tax |
93 |
107 |
15.1% |
348 |
16.4% |
| Profit after Tax/(Loss) |
180 |
195 |
8.3% |
801 |
13.5% |
| Net profit margin (%) |
11.8% |
10.2% |
|
12.0% |
|
| No. of Shares (m) |
31.2 |
31.3 |
|
31.3 |
|
| Diluted Earnings per share (Rs)* |
23.0 |
24.9 |
|
25.6 |
|
| Price to earnings ratio (x) |
|
11.9 |
|
11.6 |
|
*(annualised), CY = Calendar Year
What is the company’s business?
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Essel Propack is the largest laminated tubes supplier in the world. The company's global sales stand at around 4.5 bn tubes, which is 30% of the global laminated tubes market. Over the years Essel has acquired a global status, with presence in China, Egypt, Colombia, Venezuela, Mexico, USA, Germany, India, Nepal, Philippines and Indonesia. A large part of this global stature has been possible due to the merger with Propack in 2001. The demand for its products is highly linked to the growth of oral care industry, which again depends on economic growth. In early 2003, the company commissioned a plant in Virginia, USA, to cater solely to P&G's laminated tube needs in the US and Mexico. Going forward, Essel will cater to 55% of P&G's global tube requirements, including China. In 2004, 34% of Essel's revenues came from India and the rest from across the globe including China, US and the UK. In August 2004, Essel acquired Arista Tubes - UK, a plastic tubes company.
What has driven performance in 1QCY05?
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All around revenue growth: International operations of the company have contributed 67% (up from 63% in March 2004) of the consolidated revenues, thus reflecting the trend of increasing overseas growth and market penetration. The company’s operations in China, which was under pressure for the greater part of 2004, has stabilized. In our view, profitability from this region has started to improve. India (33% of revenues) also grew by a much improved 10% in the quarter.
Indian operations
| (Rs m) |
1QCY04 |
1QCY05 |
Change |
CY04 |
Change |
| Net Sales |
566 |
624 |
10.2% |
2,273 |
-0.3% |
| Expenditure |
358 |
423 |
18.2% |
1,457 |
4.8% |
| Operating profit (EBDITA) |
208 |
201 |
-3.4% |
816 |
-8.3% |
| EBDITA margin (%) |
36.7% |
32.2% |
|
35.9% |
|
| Other income |
12 |
16 |
33.3% |
34 |
61.9% |
| Interest (net) |
(11) |
(8) |
- |
(27) |
- |
| Depreciation |
57 |
46 |
-19.3% |
224 |
-18.2% |
| Profit before Tax |
174 |
179 |
2.9% |
653 |
-0.6% |
| Extraordinary income/(expense) |
- |
- |
- |
(20) |
- |
| Tax |
57 |
64 |
12.3% |
219 |
-8.0% |
| Profit after Tax/(Loss) |
117 |
115 |
-1.7% |
414 |
4.0% |
| Net profit margin (%) |
20.7% |
18.4% |
|
18.2% |
|
| No. of Shares (m) |
31.2 |
31.3 |
|
31.3 |
|
| Diluted Earnings per share (Rs)* |
15.0 |
14.7 |
|
13.2 |
|
| Price to earnings ratio (x) |
|
|
|
|
22.4 |
*(annualised), CY = Calendar Year
Margin blues for India: However, Essel’s Indian operations saw bottomline dip by 2% despite the 10% revenue growth. We believe that the competitive pressure engulfing the FMCG industry in India seems to have forced the company to give away benefits to its key customers, which have reflected in the falling margins. With competition showing no signs of easing, Essel is likely to continue being pressured on the Indian side of its business. The new product, Minitube, which was launched in India has performed well and found increasing acceptability with customers. The Company is poised to replicate this technology in all the markets that it operates in so as to tap the potential of this technology.
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