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Essel Propack: Slow top-line growth - Views on News from Equitymaster
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Essel Propack: Slow top-line growth
Jan 30, 2010

Performance summary
  • Consolidated top-line for Essel Propack fell by 2.8% during the quarter due to fall in revenue from America and Europe. Domestic sales rose by 2% during the quarter.
  • Consolidated operating (EBITDA) margin increased by 0.9% to 16.6% aided by a fall in employee costs and other expenditure as a percentage of sale.
  • On a consolidated basis, the company reported profit of Rs. 428 m compared with a loss of Rs. 600 m during 4QCY08.
  • During 12mFY10, the consolidated net profit stood at Rs. 512 m compared to a loss of Rs. 883 m during 12mCY08.


Consolidated picture
(Rs m) 4QCY08 4QFY10** % change 12mCY08 12mFY10** % change
Net sales 3,604 3,502 -2.8% 12,911 13,581 5.2%
Expenditure 3,037 2,922 -3.8% 11,190 11,227 0.3%
Operating profit (EBDITA) 567 580 2.2% 1,721 2,354 36.8%
EBDITA margin (%) 15.7% 16.6%   13.3% 17.3%  
Other income 8 29 281.8% 38 92 138.9%
Interest 181 162 -10.6% 619 715 15.5%
Depreciation 353 265 -25.0% 1,120 1,119 -0.1%
Profit before tax 41 182 348.8% 21 612 2871.4%
Exceptional Items - 324   12 311 2537.3%
Forex changes (425) (16)   (517) (35)  
Tax 216 62 -71.3% 346 322 -7.0%
Profit after tax/(loss) (600) 428   (831) 567  
Share of profits from associates 3 - -100.0% 8 4 -46.2%
Minority interest 20 11 -44.2% 60 59 -1.8%
PAT (617) 417   (883) 512  
Net profit margin (%) -17.1% 11.9%   -6.8% 3.8%  
No. of shares (m) 157 157   157 157  
Diluted earnings per share (Rs)*         3.3  
Price to earnings ratio (x)*         14.1  
* trailing twelve month earnings
** company is moving from a calender year reporting to a finacial year reporting

What has driven performance in 4QFY10?
  • Consolidated sales during the quarter were lower due to a fall in YoY sales from America and Europe. Sales from America fell by 18% YoY and from Europe by 9% YoY. Sales fell in America due to economic slowdown while sales from Europe were lower due to restructuring and exit of low margin customers. Sales could have fallen more sharply but for a 26% YoY growth in sales from EAP due to new customers added.

    India operations
    (Rs m) 4QCY08 4QFY10* % change 12mCY08 12mFY10 % change
    Net sales 925 941 1.7% 3,359 3,419 1.8%
    Expenditure 704 726 3.1% 2,637 2,677 1.5%
    Operating profit (EBDITA) 222 215 -2.9% 723 742 2.7%
    EBDITA margin (%) 23.9% 22.9%   21.5% 21.7%  
    Other income 101 48 -52.8% 189 247 30.9%
    Interest 53 59 11.4% 243 257 5.8%
    Depreciation 55 58 6.6% 207 231 11.8%
    Profit before tax 215 146 -32.2% 462 502 8.5%
    Exceptional Items - -   12 (1) -108.5%
    Forex changes 37 34   90 87 -2.7%
    Tax 60 24 -60.0% 113 99 -12.1%
    Profit after tax/(loss) 119 89 -25.6% 272 314 15.7%
    Net profit margin (%) 12.9% 9.4%   8.1% 9.2%  
    * company is moving from a calender year reporting to a finacial year reporting

  • Consolidated operating profit grew by 2.2% YoY in spite of lower sales. The growth comes aided by cost saving measures across geographies led by Europe. The company drove a cost saving programme to check costs while rationalising production to derive better efficiencies.

    Consolidated cost break-up
    As a % of net sales 4QCY08 4QFY10* 12mCY08 12mFY10*
    Total Cost of goods 41.8% 44.5% 45.0% 43.3%
    Staff Cost 18.8% 18.9% 19.6% 19.2%
    Other Expenditure 23.7% 20.1% 22.0% 20.2%
    * company is moving from a calender year reporting to a finacial year reporting

  • On a consolidated basis, the net profit of the company grew aided by higher operating income, higher other income, lower interest costs, lower depreciation and lower tax expense. The company’s profits also got a boost as it registered a onetime gain from the sale of its medical device business. On a standalone basis, the company suffered due to lower operating income along with lower other income.

What to expect?
At a price of Rs. 46, the stock is trading at 11 times estimated CY11 earnings. The company’s consolidated topline has suffered due to restructuring in Europe while the company’s bottom line has benefitted from a one time gain from sale of one of its subsidiaries. We shall soon have a relook at our assumptions for the stock

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