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Essel Propack: Recovery aids growth - Views on News from Equitymaster
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Essel Propack: Recovery aids growth
Jan 28, 2011

Essel Propack Limited has announced its 3QFY11 results. The company has reported a 19.2% YoY and 151.6% YoY growth in sales and profits respectively. Here is our analysis of the results.

Performance summary
  • Consolidated top-line for Essel Propack grew by 19.2% YoY during the quarter.
  • Consolidated operating (EBITDA) margins improved by 0.2% to 16.5% as a result of fall in staff costs and lower other expenditure (both as a percentage of sales). The operating margin could have been higher but for increase in costs of goods as a percentage of sales.
  • On a consolidated basis, the company’s net profit grew by a robust 151.6% YoY. On a standalone basis, the company registered a strong rise of 21.6% in net profits to Rs 108 m.
  • For 9mFY11, on consolidated basis, net profit fell by 33.1% YoY while net profit margins fell by 1.9% to 3.5%. This performance comes on the back of fall in other income and the absence of extraordinary gain. When adjusted for extraordinary gain, net profit grew by 49.6% YoY while net profit margins grew by 0.9%.


Consolidated picture
(Rs m) 3QFY10 3QFY11 % change 9mFY10 9mFY11 % change
Net sales 3,062 3,649 19.2% 10,347 10,659 3.0%
Expenditure 2,562 3,048 19.0% 8,535 8,811 3.2%
Operating profit (EBDITA) 500 601 20.2% 1,812 1,847 1.9%
EBDITA margin (%) 16.3% 16.5%   17.5% 17.3%  
Other income 49 7 -85.3% 71 24 -66.1%
Interest 163 144 -11.3% 535 440 -17.9%
Depreciation 254 267 5.2% 826 802 -2.8%
Profit before tax 133 197 48.9% 523 630 20.5%
Exceptional Items - -   311 -  
Forex changes (16) 60   19 25  
Tax 50 95 91.3% 249 270 8.7%
Profit after tax/(loss) 67 162 142.9% 604 385 -36.3%
Share of profits from associates - 2   2 13 456.5%
Minority interest (5) (8) 78.7% (43) (21) -52.4%
PAT 62 156 151.6% 563 377 -33.1%
Net profit margin (%) 2.0% 4.3%   5.4% 3.5%  
No. of shares (m) 157 157   157 157  
Diluted earnings per share (Rs)*         3.0  
Price to earnings ratio (x)*         17.6  
* trailing twelve month earnings

What has driven performance in 3QFY11?
  • Consolidated sales during the quarter were up for this quarter on the back of strong demand in India and China. Sales from Europe improved by a tepid 3% YoY as a result of the holiday season and inclement weather. AMESA and EAP regions grew by 23% YoY and 14% YoY respectively. The Indian operations of the company grew by 21.5% YoY during the quarter on the back of addition of new customers and product innovation. Sales in US also grew by 23% YoY.
    India operations
    (Rs m) 3QFY10 3QFY11 % change 9mFY10 9mFY11 % change
    Net sales 941 1,143 21.5% 2,632 3,125 18.7%
    Expenditure 726 878 21.0% 2,056 2,399 16.7%
    Operating profit (EBDITA) 215 265 23.3% 576    726 26.0%
    EBDITA margin (%) 22.9% 23.2%   21.9% 23.2%  
    Other income   48   3 -94.1% 247    128 -48.2%
    Interest   59   46 -21.4% 187    138 -26.3%
    Depreciation   58   62 5.5% 175    180 2.8%
    Profit before tax 146 161 9.9% 461    536 16.2%
    Exceptional Items -   -     (1) -    
    Forex changes (34) (6)   (86)    (19)  
    Tax 24 47 95.0% 82    155 88.0%
    Profit after tax/(loss) 89 108 21.6% 292    362 24.2%
    Net profit margin (%) 9.4% 9.4%   11.1% 11.6%  

  • Consolidated operating profit grew by 20.2% YoY during the quarter. This was a result of fall in staff costs and lower other expenditure (both as a percentage of sales). Raw material costs increased by 25.1% YoY to stand at 48.3% of sales. This was due to higher polyester prices ruling during the quarter. During the quarter, operating profit for US turned positive as a result of cost efficiency programmes and consolidation of facilities. On the domestic side, operating profit improved by 23.3% YoY.

    Consolidated cost break-up
    As a % of net sales 3QFY10 3QFY11 9mFY10 9mFY11
    Total Cost of goods 46.1% 48.3% 43.3% 47.7%
    Staff Cost 16.2% 15.0% 18.9% 15.3%
    Other Expenditure 21.4% 20.2% 20.2% 19.6%

  • On a consolidated basis, the company’s profits grew by 152% YoY. This performance comes on the back of higher operating income, fall in interest payment, fall in depreciation expense and forex gains recorded during the quarter. When adjusting for forex gains net profit for the quarter grew by 23% YoY. Depreciation was lower during the quarter as the company wrote off some assets.

What to expect?
At a price of Rs. 52.2, the stock is trading at 6.9 times our estimated FY13 earnings (RPro subscribers click here. The company has faced problem as a result of slowdown in Americas and in Europe. However, things are looking up now with the company expecting growth across geographies and improvement in the profitability of its European business. The China and India boost has helped the company grow its top line this quarter. Moreover, the company is changing its product mix and increasing focus on cosmetic, hair care and pharmaceutical segment. We remain bullish on the company’s growth.

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