X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Essel: Global growth - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Nov 2, 2004

    Essel: Global growth

    Introduction to results
    Laminated tubes packaging major, Essel Propack, reported a strong 20% topline growth in the September quarter. Buoyant Europe and US performance, as well as the acquisition of Arista Tubes UK (in August 2004) led the growth. This and a marginal improvement in operating margins resulted in a 25% bottomline growth during the quarter. The company finished the nine month period ended September quarter with over 13% topline and 15% bottomline growth.

    Consolidated global picture...
    (Rs m) 3QCY03 3QCY04 Change 9mCY03 9mCY04 Change
    Net Sales 1,477 1,765 19.5% 4,181 4,742 13.4%
    Expenditure 1,031 1,225 18.8% 2,926 3,342 14.2%
    Operating profit (EBDITA) 446 540 21.1% 1,255 1,400 11.6%
    EBDITA margin (%) 30.2% 30.6%   30.0% 29.5%  
    Other income 6 2 -66.7% 25 23 -8.0%
    Interest (net) 24 21 -12.5% 50 47 -6.0%
    Depreciation 170 176 3.5% 503 497 -1.2%
    Profit before Tax 258 345 33.7% 727 879 20.9%
    Extraordinary income/(expense) 0 (20) - 0 (20) -
    Tax 77 99 28.6% 214 268 25.2%
    Profit after Tax/(Loss) 181 226 24.9% 513 591 15.2%
    Net profit margin (%) 12.3% 12.8%   12.3% 12.5%  
    No. of Shares (m) 31.2 31.3   31.2 31.3  
    Diluted Earnings per share (Rs)* 23.1 28.9   21.9 25.2  
    Price to earnings ratio (x)         8.3  
    *(annualised), CY = Calendar Year            

    What is the company’s business?
    Essel Propack is the largest laminated tubes supplier in the world. The company's global sales stand at around 4.5 bn tubes, which is 30% of the global laminated tubes market. Over the years Essel has acquired a global status, with presence in China, Egypt, Colombia, Venezuela, Mexico, USA, Germany, India, Nepal, Philippines and Indonesia. A large part of this global stature has been possible due to the merger with Propack in 2001. The demand for its products is highly linked to the growth of oral care industry, which again depends on economic growth. In early 2003, the company commissioned a plant in Virginia, USA, to cater solely to P&G's laminated tube needs in the US and Mexico. Going forward, Essel will cater to 55% of P&G's global tube requirements, including China. In 2003, 40% of Essel's revenues came from India, 28% from China and 16% from the US.

    What has driven performance in 3QCY04?
    Sales:  While growth was sluggish in the June quarter (revenues down 4.5% YoY), this quarter picked up largely owing to buoyant performance in US and Europe region. The acquisition of Arista Tubes - UK also helped prop up the revenue growth during the quarter. The company is currently upgrading its Philippines capacity to make it the export hub for the ASEAN region. Also, the company's Mexico plant has received a firm commitment for three years from an MNC customer.

    India operations
    (Rs m) 3QCY03 3QCY04 Change 9mCY03 9mCY04 Change
    Net Sales 617 553 -10.4% 1,625 1,621 -0.2%
    Expenditure 377 333 -11.7% 1,008 1,000 -0.8%
    Operating profit (EBDITA) 240 220 -8.3% 617 621 0.6%
    EBDITA margin (%) 38.9% 39.8%   38.0% 38.3%  
    Other income 5 7 40.0% 14 26 85.7%
    Interest (net) 6 (5) - (12) (15) -
    Depreciation 70 56 -20.0% 206 165 -19.9%
    Profit before Tax 169 176 4.1% 437 497 13.7%
    Extraordinary income/(expense) 0 (20) - 0 (20) -
    Tax 69 55 -20.3% 172 162 -5.8%
    Profit after Tax/(Loss) 100 101 1.0% 265 315 18.9%
    Net profit margin (%) 16.2% 18.3%   16.3% 19.4%  
    No. of Shares (m) 31.2 31.3   31.2 31.3  
    Diluted Earnings per share (Rs)* 12.8 12.9   11.3 13.4  
    Price to earnings ratio (x)         15.7  
    *(annualised), CY = Calendar Year            

    However, the company's India operations (nearly 34% of 9mCY04 revenues) continued to be under pressure. Essel recorded over 10% dip in Indian revenues in September quarter (10% revenue dip in June quarter as well). We believe that the competitive pressure engulfing the FMCG industry in India seems to have forced the company to give away benefits to its key customers, which have reflected in the sales (in value terms). With competition showing no signs of easing, Essel is likely to continue being pressured on the Indian side of its business.

    Cost break-up (Global operations)
    as a % of net sales 3QCY03 3QCY04 9mCY03 9mCY04
    Consumption of raw materials 46.4% 42.9% 45.3% 44.4%
    Staff cost 11.8% 14.1% 10.8% 12.7%
    Other expenditure 11.6% 12.5% 13.8% 13.5%
    Total expenditure 69.8% 69.4% 70.0% 70.5%

    Profitability:  The company has seen a marginal rise in 3QCY04 consolidated margins, led by drop in raw material consumption as percentage of sales during the quarter. However, on a nine month basis, the margins have actually fallen marginally. Buoyant sales growth in September quarter has resulted in the company reporting a 25% profit growth during the quarter. As a result, the nine month performance too has improved (net profit up over 15% YoY). It should be noted that Essel's India operations are able to command higher margins, as compared to its other regions. Extra ordinary expense for the September quarter is towards the payment of disputed Sales Tax liabilities under Amnesty Scheme 2004 of Government of Maharashtra, which extinguishes the company's contingent liabilities significantly

    Over the last five quarters
      3QCY03 4QCY03 1QCY04 2QCY04 3QCY04
    Sales growth (YoY) 14.7% 37.8% 28.9% -4.5% 19.5%
    OPM (%) 29.6% 29.9% 28.2% 29.6% 30.6%
    Net profit growth (YoY) -14.6% 29.9% 10.4% 9.5% 24.9%

    What to expect?
    At Rs 210, the stock trades at 8.3x 9mCY04 consolidated annualised earnings, market cap. to sales of 1x. Valuations are at the lower end of the FMCG spectrum. Essel has set itself an ambitious target to up its share in the global laminated industry to 50% in the next few years. It is also looking at growing by making 'caps' for tubes for the global FMCG players.

    However, among the key concerns, the company has still to receive over Rs 600 m from the promoters, which was given as a loan to them. Also, when the company took over Propack, it provided for goodwill to the tune of Rs 2.7 bn (over 40% of 2003 networth). The company has still to write off this amount.

     

     

    Equitymaster requests your view! Post a comment on "Essel: Global growth". Click here!

      
     

    More Views on News

    Marico: Earnings Hit by Lower Volumes and Firming Input Prices (Quarterly Results Update - Detailed)

    Aug 9, 2017

    While GST implementation brought down volumes and profitability in the short run, Marico remains optimistic in the long run.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    Proxy Plays: A Smart Way to Bet on 'Off Limits' Companies(The 5 Minute Wrapup)

    Aug 4, 2017

    The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    ESSEL PROPACK SHARE PRICE


    Aug 17, 2017 (Close)

    TRACK ESSEL PROPACK

    • Track your investment in ESSEL PROPACK with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
    • Add To MyStocks

    ESSEL PROPACK 8-QTR ANALYSIS

    Detailed Quarterly Results With Charts

    COMPARE ESSEL PROPACK WITH

    MARKET STATS