Hence, we revise up our target multiple to 8x (7x earlier) EV/Ebitda, leading to revised TP of Rs 134 (`111 earlier).
Essel Propack (EPL) reported a stable Q3FY19 driven by a strong 17% y-o-y revenue surge (eight quarter high, non-oral driven). However, margin miss led to Ebitda coming in line. Key highlights: (1) India turned around with 9% y-o-y revenue growth post a flat H1FY19; (2) EAP sustained stellar performance driven by non-oral. 9mFY19 jumped 19% y-o-y; and (3) Europe posted multi-quarter high growth, but margin improvement was still below expectation.
We believe, given growth revival (after many quarters) and strong management guidance, the stock should again trade close to its long-term average. Hence, we revise up our target multiple to 8x (7x earlier) EV/Ebitda, leading to revised TP of `134 (`111 earlier).
Maintain ‘Buy’. That said, valuation is dependent on sustained performance in ensuing quarters.
India operations grew 9% y-o-y (Q2FY19: -5% y-o-y) as issues related to pharma industry subsided and off take from a key customer improved. However, relatively lower pharma segment’s share impacted India margin—fell 200bps y-o-y. Egypt sustained strong performance, growing 55% y-o-y in Q3FY19. EAP continued its strong trend – up 23% y-o-y (9mFY19: 19% y-o-y), driven by non-oral category. EAP reported 200bps y-o-y margin improvement driven by better product mix and operational efficiencies.
Europe finally reported strong growth – jumped 21% y-o-y with constant currency (CC) growth of 13% y-o-y aided by growth in oral care and non-oral care categories. However, despite the CC growth, margin improvement was still muted, rising only 220bps y-o-y to 1.1% (versus 5.0% plus margin trend).
Americas (CC) revenues grew 6.5% primarily on account of non-oral care. Margin (down 270bps y-o-y) was impacted by volume mix, price pass through, higher operating expenses and depreciation.