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Huhtamaki India Ltd. has reported numbers for the quarter ended Sept’21. Following are the highlights of the result.

* The company has reported an exceptional loss in Q3CY21 on account of 102 employees opting for the VRS which involved a pay-out cost of Rs 30.98 crore.

* The packaging industry is seeing an increase in the RM prices recently due to the uptrend of oil prices over the previous few months hence affecting the margins of various packaging companies globally.

* However, we believe that in CY22 & CY23 the condition will stabilize and the company will start factoring the RM price increase in their selling prices and will be able to pass through to their customers.

OUTLOOK AND VALUATION

We believe that the growth in the FMCG and the Pharma segment due to increased demand from consumers will be one of the major factors in the growth of the business of HIL. Additionally, innovative packaging products which form ~25% of the company’s total topline coupled with geographical diversification will have a substantial positive impact on the margins of the company. The strong and superior financials will enable the company to tackle any adverse factors in the industry with ease.

Hence, for CY22E & CY23E we expect the company to deliver sales growth of 7% & 10% respectively. In addition to the growth in the revenue, we expect the company to deliver strong EBITDA and PAT margins of 11.3% and 5.8% respectively for CY23E. EPS for CY23E is projected to be ~Rs. 22.8. We have assigned a P/E multiple of ~17X and arrived at a target price of Rs. 396 which provides an upside of ~66% from the current market price of Rs. 239 within an investment horizon of 18-24 months. Hence, we maintain our rating at ‘BUY’

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