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One-off events drag overall EBITDA margin…

About the stock: EPL is the world’s largest manufacturer of laminated plastic tubes (~8 billion tubes annually) catering to the FMCG and pharma space.

* Oral care segment contributes ~54% of total topline while the rest comes from the personal care category

* Focus on debt reduction, improving RoE, RoCE (~15%, 16%, respectively).

Q1FY22 Results:

Muted revenue growth is attributable to higher base of Q1 and shutdown of Russian units

* Consolidated revenue grew ~8% YoY to | 799 crore led by Amesa regions (up ~29% YoY). However, revenue decline of ~10% YoY in Europe regions restricted overall topline growth

* Gross margins were flat YoY (up ~100 bps QoQ). EBITDA margin declined ~164 bps YoY due to higher other expenses (higher freight costs)

* PAT grew ~32% YoY to | 60 crore due to a favourable base.

What should investors do?

EPL’s share price has grown by ~2.3x over the past five years (from ~| 106 in July 2016 to ~| 245 level in July 2021).

* We maintain our HOLD rating on the stock

Target Price & valuation: We value EPL at | 275 i.e. 11x EV/EBITDA on FY23E EBITDA.

Key triggers for future price performance:

* Performance of Amesa regions has been laggard (FY18-21) mainly due to lower volume offtakes. However, consolidation of Creative Stylo and improved product mix would help drive revenues of the region

* Performance of America and European regions has remained volatile amid pandemic led challenges. This, coupled with improved revenue contribution from personal care segment would help drive future margins

* Focus on maintaining a quality balance sheet, going forward

Alternate Stock Idea:

We like MoldTek Packaging in the packaging space.

* Strong volume growth of ~20% in FY21-23E led by capacity expansion and client additions in the high margin product categories

* BUY with a target price of | 675

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