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Essel Propack: Forex volatility plays spoilsport
May 6, 2011

Essel Propack Limited has announced its fourth quarter financial results of 2010-2011 (4QFY11). The company has reported a 16.1% YoY growth in sales and 3.8% fall in profits. Here is our analysis of the results.

Performance summary
  • Consolidated top-line for Essel Propack grew by 16.1% YoY during the quarter.
  • Consolidated operating (EBITDA) margins remained flat during the quarter as increase in raw material costs was offset by fall in staff costs (both as a percentage of sales).
  • On a consolidated basis, the company's net profit fell by 4% YoY. This was on the back of a forex loss (forex gain in 4QFY10) registered this quarter. On a standalone basis the company registered a strong rise of 138% YoY in net profits to Rs 85 m.
  • For FY11, on consolidated basis, net profit grew by 130% YoY while net profit margins expanded by 1.6%. This performance comes on the back of fall in interest costs, flat depreciation expense and fall in effective tax rate.


Consolidated picture
(Rs m) 4QFY10 4QFY11 % change FY10 FY11 % change
Net sales 3,013 3,497 16.1% 12,063 14,155 17.3%
Expenditure 2,527 2,934 16.1% 10,020 11,745 17.2%
Operating profit (EBDITA) 486 563 15.9% 2,042 2,410 18.0%
EBDITA margin (%) 16.1% 16.1%   16.9% 17.0%  
Other income 22 13 -40.8% 91 37 -59.1%
Interest 132 145 10.2% 662 585 -11.7%
Depreciation 256 260 1.8% 1,051 1,062 1.1%
Profit before tax 121 171 41.7% 421 800 90.3%
Exceptional Items (7) (13)   - (13)  
Forex changes 29 (5)   49 20 -58.0%
Tax 49 62 25.4% 247 332 34.8%
Profit after tax/(loss) 93 91 -2.8% 223 476 113.6%
Share of profits from associates 2 4   4 17 307.3%
Minority interest (8) (11)   (26) (32)  
PAT 87 84 -3.8% 201 461 129.5%
Net profit margin (%) 2.9% 2.4%   1.7% 3.3%  
No. of shares (m) 157 157   157 157  
Diluted earnings per share (Rs)*         2.9  
Price to earnings ratio (x)* 41% 36%     15.8  
* trailing twelve month earnings

What has driven performance in 4QFY11?
  • Consolidated sales during the quarter were up for this quarter on the back of strong demand in India and China. Sales from AMESA and Americas improved by 24% YoY and 22% YoY respectively. Europe improved by a tepid 5% YoY while sales from EAP region fell by 3% YoY. The Indian operations of the company grew by 23% YoY during the quarter on the back of addition of new customers and product innovation.

    India operations
    (Rs m) 4QFY10 4QFY11 % change FY10* FY11 >% change
    Net sales 873 1,074 23.0% 4,291 4,183 -2.5%
    Expenditure 681 888 30.3% 3,371 3,287 -2.5%
    Operating profit (EBDITA) 192 186 -2.9% 920 897 -2.5%
    EBDITA margin (%) 21.9% 17.3%   21.4% 21.4%  
    Other income - 54   250 197 -21.4%
    Interest 52 58 10.9% 314 196 -37.4%
    Depreciation 57 64 12.6% 289 243 -15.9%
    Profit before tax 83 118 42.8% 568 655 15.3%
    Exceptional Items - -   (1) -  
    Forex changes (36) (8)   (125) (27)  
    Tax 11 25 120.4% 96 180 87.1%
    Profit after tax/(loss) 36 85 138.0% 346 448 29.5%
    Net profit margin (%) 4.1% 7.9%   8.1% 10.7%  
    * 15 month year

  • Consolidated operating profit grew by 15.2% YoY during the quarter. While raw material costs increased as a result of high polyester prices ruling during the quarter, staff costs fell (both as a percentage of sales). Raw material costs increased by 46% YoY while staff costs increased by 16% YoY. 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 fell by 3% YoY on the back of increase in cost of raw material and other expenditure. Other expenditure was higher during the quarter due to expense incurred on commissioning of focused manufacturing and supply chain capabilities for pharma tubes at Murbad and on doubling of capacity of plastic tubes in Wada.

    Consolidated cost break-up
    As a % of net sales 4QFY10 4QFY11 FY10 FY11
    Total Cost of goods 46.7% 48.3% 45.9% 47.8%
    Staff Cost 16.3% 15.0% 16.2% 15.3%
    Other Expenditure 20.8% 20.6% 21.0% 19.9%

  • On a consolidated basis, the company's profits fell by 4% YoY. This performance comes on the back of forex loss of Rs 5 m registered during the quarter vs. a gain of Rs 29 m in the same quarter the previous year. The fall in bottom line could have been higher but for flat depreciation costs and fall in effective tax rates. Depreciation was flat during the quarter as the company wrote off some assets. Effective tax rate fell from 41% in 4QFY10 to 36% in 4QFY11.

What to expect?
At a price of Rs. 46.4, the stock is trading at 6.2 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 products mix and increasing focus on cosmetic, hair care and pharmaceutical segment. We remain bullish on company's growth.

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