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Essel Propack: Challenging times continue - Views on News from Equitymaster
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Essel Propack: Challenging times continue
May 8, 2009

Performance summary
  • Consolidated topline reports a growth of 14% YoY led by strong growth in AMESA and US region.
  • Consolidated operating margins remain stable at 16.7%. Higher input costs are offset by lower other expenses as a percent of sales.
  • A 70% YoY drop in profits before taxes (PBT) on account of higher depreciation and interest costs leads to a loss at net levels during the quarter, in sharp contrast to the profits in 1QCY08.


Consolidated picture
(Rs m) 1QCY08 1QCY09 % change
Net sales 2,829 3,234 14.3%
Expenditure 2,360 2,692 14.1%
Operating profit (EBDITA) 469 542 15.5%
EBDITA margin (%) 16.6% 16.7%  
Other income 2 20 827.3%
Interest 128 180 40.7%
Depreciation 233 293 25.7%
Forex loss/ gain 6 (54)  
Profit before tax 117 35 -69.7%
Tax 62 73 17.4%
Profit after tax/(loss) 55 (38)  
Add : Profit from associate 2 2 -5.0%
Less: Minority interest 11 16 51.9%
Net profit/loss 46 (52)  
Net profit margin (%) 1.9% -1.2%  
No. of shares (m) 156.5 156.5  

What has driven performance in 1QCY09?
  • Essel Propack reported a consolidated topline growth of 14% YoY during 1QCY09. Africa, Middle East and South Asia region (AMESA) saw a 19% YoY jump in revenues while East Asia Pacific (EAP) grew by 5% YoY. America region reported a 44% YoY growth in revenues. However, Europe region was affected with a decline in sales to the extent of 45% YoY. The problems on account of low machine productivity, high scrap levels, poor production reliability and quality and delayed delivery claims continue to hamper performance of the Poland plant. Further, the credit crisis also led to lower demand. The domestic region saw a muted growth of 4% YoY, contributing 24% to the total sales. A sharp decline in inventories with clients led to the lower demand

    Region 1QCY08 1QCY09 % change
    AMESA 1,063 1,270 19.4%
    % of total sales 37.5% 39.0%  
    EAP 467 488 4.5%
    % of total sales 16.4% 15.0%  
    America 866 1,251 44.4%
    % of total sales 30.5% 38.5%  
    Europe 443 245 -44.6%
    % of total sales 15.6% 7.5%  
    Total 2,839 3,254 14.6%

  • Consolidated operating margins remained stable at 16.7%. Higher input costs were offset by lower other expenses as a percent of sales. On the domestic front, the margins saw a marginal decline of 1.3% YoY. While AMESA and EAP regions saw an improvement in the EBIT margins, America saw a dip of 3% YoY on account of the plastic tube business. Europe however played a major spoilsport with losses of around Rs 113 m on account of difficulties faced in Poland plant.

  • A 70% YoY drop in profits before taxes (PBT) on account of higher depreciation and interest costs hampered the bottomline performance. Forex loss to the tune of Rs 54 m added to the woes. The company reported a loss during the quarter as compared to profits in 1QCY08. Excluding the forex adjustments, profits of mere Rs 2 m were earned. Even on the domestic front, the performance has not been good with bottomline declining by 56% YoY (excluding the forex losses).

What to expect?
Essel Propack has done well on the topline and operating margin front. Lower crude prices led to stable margins. However, integration of new plants continues to be a worry. Further, the currency volatility along with global slowdown is adding to the woes. While the company has been taking steps to solve the problem, it seems far from over. Unless the turnaround happens, financials will remain under pressure.

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