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Essel Propack: Volumes drive growth - Views on News from Equitymaster
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Essel Propack: Volumes drive growth
Aug 1, 2011

Essel Propack Limited has announced its first quarter results for the financial year 2011-2012(1QFY12). The company has reported an 8.4% YoY growth in sales and 8.5% YoY increase in net profits. Here is our analysis of the results.

Performance summary
  • Consolidated revenues for Essel Propack grew by 8.4% YoY during the quarter.
  • Operating margins declined marginally to 16% as compared to the 16.9% seen during the same period last year. This was due to higher input costs which offset the savings in the employee costs (as a percentage of sales).
  • Net profit increased by 8.5% YoY during the quarter. This was due to lower forex losses during the quarter.

Consolidated financial performance snapshot
(Rs m) 1QFY11 1QFY12 % change
Net sales 3,323 3,601 8.4%
Expenditure 2,760 3,024 9.6%
Operating profit (EBDITA) 563 576 2.3%
EBDITA margin (%) 16.9% 16.0%  
Other income 10 7 -27.8%
Interest 140 145 3.0%
Depreciation 267 270 1.2%
Forex changes (17) (5)  
Profit before tax 148 163 10.3%
Exceptional Items      
Tax 59 68 15.6%
Profit after tax/(loss) 89 95 6.7%
Share of profits fromassociates 6 5  
Minority interest (9) (6)  
PAT 86 94 8.5%
Net profit margin (%) 2.6% 2.6%  
No. of shares (m) 157 157  
Diluted earnings per share (Rs)*   3.1  
P/E ratio (x)*   14.1  
*On a trailing 12-months basis

What has driven performance in 1QFY12?
  • Consolidated sales for the company clocked a growth of 8.4% YoY during the quarter. This was driven by volume growth for the tubes business across all the regions. However, the decline in volumes for the flexible laminates offset the growth to some extent.

  • On a geographic basis, growth was driven by the 17.6% YoY growth from the East Asia Pacific (EAP) business. Sales from Europe and AMESA (Africa, Middle East & South Asia) increased by 10.7% YoY and 9.6% YoY during the quarter. However, sales from Americas witnessed a decline of 1.9% YoY during the quarter.
  • Geographic breakup (Rs m) 1QFY11 1QFY12 % change
    AMESA* 1,569 1,719 9.6%
    EAP** 607 714 17.6%
    Americas 808 792 -1.9%
    Europe 339 375 10.7%
    * Africa, Middle East and South Asia, includes India, Nepal & Egypt
    ** East Asia Pacific includes China & Philippines

  • Operating margins for the company declined by 0.9% YoY to 16% during the quarter. This was on account of higher raw material costs (as a percentage of sales). As per the company's management the lower operating margins were due to the delay in passing through the increase in costs in India. The increase in input costs offset the decline in employee costs (both as percentage of sales) during the quarter.

  • The net profits increased by 8.5% YoY during the quarter. This was on account of lower forex losses. This offset the impact of higher interest costs as well as higher depreciation charges during the quarter. Tax outflow was higher for the company as effective tax rates rose to 41.8% during 1QFY12 as compared to 39.9% seen in 1QFY11.

What to expect?

At the current price of Rs 43, the stock is trading at a multiple of 5.7 times our estimated FY14 earnings. The company has finished its capacity expansion at Goa. This expansion was made based on an exclusive long term contract with a leading FMCG company. The management has stated that the growth would be driven by Asia, Africa and Latin America. To harness the same, the company has undertaken several expansion programs in China, Germany as well as in USA. On the basis of its long term growth prospects, we maintain our 'Buy' view on the company.

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