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EPLL’s operating performance in the recent quarters (till 2QFY23) have been muted, due to a combination of sluggish demand and rising costs owing to inflation. However, since 3QFY23, the company’s operating performance improved, led by demand revival and softening of raw material and energy prices. Going ahead, we expect EPLL to register earnings growth, further aided by incremental revenue from Brazil.

* EPLL has tapped into the Brazilian market (accounting for ~8.3% of its global market of ~USD6.2b) by strategically building facilities in close proximity to key demand areas in the region to gain competitive edge. We expect Revenue/EBITDA of ~INR1.35b/INR0.3b from the region in FY25.

* EPLL’s sustainable tubes are gaining market prominence, driven by robust demand. This is evident from a significant volume growth of ~2.5x YoY in FY23. The company expects this upward trend to continue, with volumes projected to double in FY24. Sales contribution from innovations stood at 12% in FY23.

* Margins across geographies are expected to improve going ahead, on the back of demand revival in EAP/Europe, easing of raw material and energy prices, and price hikes implemented by the company.

* We reiterate our BUY rating on EPLL with a TP of INR270, valuing the stock at 21x FY25E EPS. (i.e., ~11% discount to the last five years average of ~24x).

Brazil - The next big growth opportunity

* The Global tube packaging market was valued at ~USD6.2b in CY23 and is likely to reach ~USD8.8b by CY28, registering a CAGR of ~7.3% over the period. (Source: Mordor Intelligence). Further, the emerging market such as Brazil is expected to witness a faster growth rate.

* In terms of volume, out of the total ~42b global tubes market, Brazil accounts for ~3.5b tubes (i.e., 8.3% of the total global market), representing an opportunity size of ~USD0.5b. ? Currently, Amcor, Berry global, WestRock are some of the key players in the Brazilin market.

* Amcor, in its previous year results (YE Jun’22), has attributed its volume growth in Latin America to its strong presence in the Brazilian market, reflecting the strong traction in the region.

* EPL has recently commercialized its Brazil plant (with project investment of ~USD20m) in 4QFY23 and expects to ramp it up over FY24.

* It is strategically entering the market and is building its facilities in nearby demand areas (which is not the case with existing top players in the market). This is likely to help EPLL gain a competitive edge over its peers and narrow the gap with the industry leaders.

* EPL is currently witnessing significant interest from both MNCs and local customers in Brazil. However, it plans to prioritize the supply to its anchor customer initially before considering the potential expansion of customer base.

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