Buy Essel Propack Ltd For Target Rs.312 - HDFC Securities
Essel Propack is the global leader in the manufacturing of laminated plastic tubes and laminates with ~37% share. The products of the company are the key integrals of packaging for FMCG and Pharma industry. Essel Propack has marquee clientele across the globe. Essel Propack had a management overhaul in FY2020, when Blackstone group acquired majority stake from the erstwhile promoters. With this stake sale, there have been significant changes in the top level management. Recently company hired Mr. Sudhanshu Vats as new MD and CEO to strengthen the corporate governance, prudent capital allocation and consistent earnings growth. We believe company operates in a segment where COVID-19 impact is expected to be minimal. Essel Propack leading market position in laminated tubes coupled with the management overhaul post Blackstone entry and sustainable and diversified revenues across the globe gives us confidence in the company. The company has huge prospects of growth across the globe with European facilities being key growth driver in the recent times.
View & Valuation:
In FY20, Blackstone group acquired majority stake in the company and since then has made significant changes in the top level management to improve corporate governance standards. The company has adopted more prudent capital allocation across regions and also aims at consistent earnings growth. The European region is likely to be key growth driver for the company given better utilization levels along with diversification across categories and robust order pipeline. Amidst the COVID-19 crisis, company has identified an extra source of revenue through introduction of hand sanitizer tube and in a very short span of time the company has become a leading supplier of hand sanitizer tubes. We expect Revenues/EBITDA/PAT CAGR of 10%/15%/27% respectively over FY20-22E factoring in the impact of COVID-19 crisis and post crisis pick up of volumes across the geographies. The stock is currently trading at ~23x FY22E earnings. We feel investors can buy the stocks at current price and add the stock on dips at band of Rs. 225-228 (~21x FY22E earnings). We have arrived at base case fair value of Rs. 291 (~27x FY22E earnings) and bull case fair value of Rs. 312 (~29x FY22E earnings).
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