New products and improving revenue mix puts Essel Propack on firm footing

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Essel Propack Ltd’s expansion into the personal care packing business (laminated tubes) is yielding good returns for its shareholders. The stock has extended its gains lately, and has now risen 57% so far this calendar year.

The company managed to quickly recover from the covid-19 hit in the March quarter. Revenue and operating profit grew by 17 and 35% last quarter, as the company benefited from strong growth in personal care products business. In March (Q4 FY20), revenues fell 0.7%, while operating profit grew just 5.5%.

Essel Propack is benefiting from new customer wins and increasing adoption of laminated tubes in personal care products, especially in beauty, cosmetics and pharma. Personal care products’ contribution to total laminated tubes segment rose from 41% of revenues in FY18 to 45% in FY20 and to 49% last quarter.

From face care, the company has expanded its presence to medical, food and homecare products. Recently, it gained a foothold in the sanitizer segment and is pursuing the eye-care and hand cream markets.

“(While the) end markets are perceived to have lower growth rates, our conversation with the management leads us to believe that scaling-up revenue growth to double-digit levels is quite possible over medium term. It would be achieved through sharply defining the end market segmentation and capturing opportunities in low penetrated categories,” analysts at JM Financial Institutional Securities Ltd said in a note.

Europe is a case in point. The region generates a large part of the personal care products business revenues. The company saw strong new customer wins last quarter and also has a good business pipeline.

Note that personal care products are more profitable than oral care, the other mainstay business of the company which generates about half of the company’s revenue.

In the oral care business, it is gaining market share in China from regional firms. In developed markets such as Europe and the US it is gaining more customer spends (wallet share). The company now serves all major oral care companies in Europe, points out Motilal Oswal Financial Services Ltd.

“Share of personal care products reached an all-time high; this coupled with kicking-in of operating leverage and cost rationalization measures has led to improvement in margins. As a result, Europe’s cost structure which was previously higher (compared to other regions) is gradually stabilizing and is expected to further improve operating margin in the medium-to-near term,” analysts at Motilal Oswal said in a note.

The stock is reflecting this optimism. Valuations at 24 times FY22 earnings estimates are not cheap.

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