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Centrum Broking
Essel Propack (Buy)
CMP: ₹243.45
Target: ₹293
Essel Propack Ltd (EPL), a part of the Essel Group, is the leading manufacturer of laminated packaging tubes in the world. It has about 36 per cent global market share in oral care segment. This segment (58 per cent of FY16 revenue) is expected to remain steady with 8 per cent CAGR over FY16-19E. The non-oral segment is expected to be the key growth driver for EPL with 17 per cent CAGR over FY16-19E. This would be on the back of higher penetration, product innovation and increasing preference for laminated tubes over conventional packing materials. EPL has healthy financials with OPM about 20 per cent, RoE more than 20 per cent and free cash flow generation. Going ahead, we expect PAT CAGR of 20 per cent over FY16-19E led by improving profitability in Europe and US, higher contribution from non-oral segment and lower interest cost.
Risk factors: 1) Volatility in polymer prices; 2) Lower pace of adoption of laminated tubes in the food and pharmaceuticals segment; 3) Slower than expected recovery in international subsidiaries.
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