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Mixed quarter; guidance maintained

EPL’s Q1FY22 revenue growth disappointingly slowed to just 7.8% YoY, but the company managed to expand its gross profit margin by 66bps QoQ, which was commendable given that RM inflation was >15% QoQ. However, EBITDA at Rs1.45bn missed our estimates by 15%, and margin (at 18.1%) was impacted due to lower absolute gross profit. EPL has retained its guidance for double-digit revenue growth for FY22, and would see sequential expansion of EBITDA margin for next three quarters as comforting.

EPL has seen traction in sustainable tubes and expects revenues from this segment to expand 4x in FY22 (on low base). We raise our EPS estimates by ~1% each year in FY22E / FY23E on better gross profit margins. We maintain our target price for EPL at Rs322 and BUY rating.

* Revenue growth disappoints. In Q1FY22, EPL’s revenues grew 7.8% YoY (down 1.4% QoQ) to Rs8bn despite higher RM inflation in LLDPE, HDPE and LME (which were up >50% YoY) and merger of Creative w.e.f. Feb’21. EPL clarified there was no volume decline as it sold smaller tubes (in fact, it expects higher volume growth in FY22). America and Europe revenues grew slower YoY at 8.6% and 9.8% respectively and were impacted by logistic issues, Colombia plant shutdown (for one month) and permanent closure of Russia plant. AMESA growth was strong at 28.7% YoY. Personal care segment grew only 2.4% YoY despite inclusion of Creative as the Colombia plant serveds the large personal care category. Oral care was up 16.1% YoY, but laminate segment revenues dipped 5.8%.

* Gross margin rose 66bps QoQ to 57.8%. Gross profit was up 8% YoY (0.3% QoQ) to Rs4.6bn. EPL has contractual agreements for passing on inflation with 3- month lag, and it has done so for >90% of customers, which helped margins. It expects margins to continue to grow in the next few quarters. EBITDA dipped 1.2% YoY to Rs1.45bn, impacted by 22% rise in other expenses on higher freight costs. Net profit rose 30% YoY (+1.9% QoQ) to Rs579mn, aided by one-off loss in base.

* Geographical performance. 1) AMESA revenues rose 28.7% YoY to Rs2.8bn partly due to Creative; EBITDA rose 38.7% YoY to Rs613mn and EBITDA margin dipped 156bps YoY to 21.7%. 2) EAP revenues grew 2% YoY to Rs2bn; EBITDA fell 16% YoY to Rs465mn with EBITDA margin down 475bps YoY to 22.6%. 3) Revenues from the Americas rose 8.6% YoY to Rs1.6bn, impacted from shutdown of Colombia plant; EBITDA fell 9% YoY to Rs233mn. 4) Europe revenues dipped 9.8% YoY to Rs1.8bn and was impacted by Russia plant shutdown and weaker sales in personal care; EBITDA dipped 21.8% YoY to Rs233mn and EBITDA margin contracted 200bps YoY to 13.1%.

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