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Strong order pipeline, execution remains key…

EPL has guided for strong order in pipeline for FY22 (up 29% YoY in April 2021) led by client addition and wallet share gains from existing customers. EPL is also looking to expand its product portfolio into the health & hygiene category in FY22. We believe EPL’s oral care category (contributes ~54% in topline) will grow at 8% in FY21-23E, higher than its historical average of 5% (in FY18-21). We believe client addition and new product launch will help drive segment revenue growth. Further, EPL has been selected as a preferred partner for its 100% recyclable ‘Platina Tube’ for the oral care products of Unilever and GSK Consumer Healthcare. Further, personal care segment (~46% of topline) is likely to be a key growth driver for it in FY21- 23E. The segment is likely to grow at 12% CAGR led by a recovery in the Amesa business. Historically, Amesa region revenues were hit by lower offtake of personal care products. However, in FY21-23, we build in Amesa region revenue CAGR of 9% (vs. 2% in FY18-21) supported by consolidation of ‘Creative Stylopack’ and pick up in personal care products. On the balance sheet front, reduction in gross debt by 16% YoY and increased dividend payout was largely due to rationalisation of capex in FY21.

Focus on double digit topline growth in FY21-23E

The management has guided for double digit revenue growth in FY21-23E (we estimate ~10%) led by 8%, 12% revenue CAGR in the oral and personal care segment, respectively. The company has a strong order in pipeline (29% growth in April 2021 over April 2020) supported by new customer addition in Europe. We believe new client addition, consolidation of Stylopack in Amesa and increasing wallet share from existing clients in all regions will help drive the company’s future revenue growth.

Guidance of margin improvement in FY22-23

The company faced challenges in margin improvement in FY21 due to higher input price and pandemic related disruption. However, EPL has guided an improvement in EBITDA margin QoQ, going forward. We believe calibrated price hike, improvement in product mix and cost optimisation measures (like change in business strategy from own manufacturing to outsourcing in Russia) will drive EBITDA margin, going forward. We build in 120 bps improvement in EBITDA margin from 19.8% in FY21 to 21% in FY23.

Valuation & Outlook

We build-in PAT CAGR of 23% in FY21-23E supported by better EBITDA margin and lower interest outgo. However, the performance of Amesa & Americas regions remained sluggish. EPL can get re-rated once there is secular growth across regions. While the management guidance suggests strong business recovery, going forward, we await to see performance improvement on the said lines. We maintain HOLD rating with a revised target price of | 275/share (earlier | 250) valuing at 11x EV/EBITDA FY23E.

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