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Essel Propack: Big presents in big packages - Views on News from Equitymaster

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Essel Propack: Big presents in big packages
Nov 10, 2009

Performance summary
  • Consolidated top-line for Essel Propack grew by 4% during the quarter, aided by higher sales in the East Asia Pacific (EAP) region. Domestic sales however fell by 2% during the quarter.
  • Consolidated operating (EBITDA) margin jumped by 11% YoY to 18% aided by lower raw material costs, employee costs and other expenditure
  • On a consolidated basis, the company reported profit of Rs. 94 m compared with a loss of Rs. 214 m during 3QCY08. On a standalone basis the net profit jumped by 117% to Rs. 109 m.
  • During 9mCY09, the consolidated net profit stood at Rs. 95 compared to a loss of Rs. 266 m during 9mCY08. On a standalone basis the company’s net profit fell by 20% YoY due to increase in interest expense and higher taxes.


Consolidated picture
(Rs m) 3QCY08 3QCY09 % change 9mCY08 9mCY09 % change
Net sales 3,365 3,509 4.3% 9,307 10,080 8.3%
Expenditure 3,138 2,874 -8.4% 8,256 8,305 0.6%
Operating profit (EBDITA) 228 635 179.3% 1,051 1,775 68.8%
EBDITA margin (%) 6.8% 18.1%   11.3% 17.6%  
Other income 28 21 -24.9% 133 62 -53.4%
Interest 171 173 1.1% 438 553 26.3%
Depreciation 274 280 2.4% 767 854 11.3%
Profit before tax -190 203   -20 430  
Exceptional Items 12 -1   12 -13  
Forex changes 14 19 33.3% 93 18 -80.2%
Tax 8 75 800.0% 130 260 99.7%
Profit after tax/(loss) -201 108   -231 139  
Share of profits from associates 2 1 -70.6% 5 4 -19.2%
Minority interest 15 15 -0.7% 40 48 19.1%
PAT -214 94   -266 95  
Net profit margin (%) -6.4% 2.7%   -2.9% 0.9%  
No. of shares (m) 157 157   157 157  
Diluted earnings per share (Rs)*         -3.3  
Price to earnings ratio (x)*         na  
* trailing twelve month earnings

What has driven performance in 3QCY09?
  • Consolidated sales during the quarter were higherm aided by increase of 17% YoY in the EAP segment due to new customers added. Sales in the AMENSA region grew by 5% YoY aided by strong volume growth in mini tube market especially in the pharma segment. Sales in Europe fell by 1% due to restructuring and exit of low margin customers. The sales of Essel were mainly affected by the fall in sales in America. The sales fell by 12% YoY due to economic slowdown in spite of strong performance by the Mexican market.

    India operations
    (Rs m) 3QCY08 3QCY09 % change 9mCY08 9mCY09 % change
    Net sales 897 884 -1.5% 2,423 2,478 2.3%
    Expenditure 738 706 -4.4% 1,930 1,951 1.1%
    Operating profit (EBDITA) 159 178 11.9% 493 527 6.9%
    EBDITA margin (%) 17.7% 20.2%   20.3% 21.3%  
    Other income 2 104   88 200 127.2%
    Interest 68 52 -23.6% 53 198 272.7%
    Depreciation 54 58 7.6% 152 173 13.7%
    Profit before tax 39 172 339.0% 376 356 -5.3%
    Exceptional Items 12 -1 -108.5% 12 -1 -108.5%
    Forex changes 0 41   53 54 0.8%
    Tax 1 21 1845.5% 53 75 41.8%
    Profit after tax/(loss) 50 109 116.7% 281 226 -19.7%
    Net profit margin (%) 5.6% 12.3%   11.6% 9.1%  

  • Consolidated operating profit grew by 69% YoY. The growth comes aided by cost saving measures across geographies. The company drove a cost saving programme to check costs while rationalising production to derive better efficiencies. The fall in crude oil prices also helped the company save costs and increase its operating income.

    Consolidated cost break-up
    As a % of net sales 3QCY08 3QCY09 9mCY08 9mCY09
    Total Cost of goods 51.1% 43.2% 47.2% 42.9%
    Staff Cost 19.7% 18.5% 19.9% 19.3%
    Other Expenditure 22.5% 20.2% 21.6% 20.2%

  • On a consolidated basis the net profit of the company grew, aided by higher operating income. The company saw its net profit increase aided by its European business. The Poland unit is a turnaround story with a reduction of 40% in costs during the quarter thereby helping lower the cash breakeven point. On a standalone basis, the company reaped the benefit of debt restructuring and higher other income. While interest expense fell by 24%, other income increased by Rs. 102 m.

What to expect?
At a price of Rs. 44, the stock is trading at 14 times estimated CY11 earnings. The company has performed better than our estimates on the back of increase in demand and lower raw material costs. We shall update our assumptions after a meeting with the management.

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