Essel Propack - Enough ammunition for growth - ICICI Securities

We initiate coverage on Essel Propack (Essel) with an ADD rating and target price of Rs325 (based on our DCF model). We like Essel's business model which has an underlying secular demand and has dominant market share in oral care. Company has a long runway for growth in personal care on move from plastic and aluminium tubes to laminate tubes. Blackstone is living up to its motto of 'capital efficient consistent earnings growth' and its new Board and management brings significant experience in driving personal care revenues and optimising costs. We also see headroom for inorganic growth backed by Blackstone's ability to crack good deals and cross-selling to Blackstone-backed companies.

- Experienced management pedigree: Mr Sudhanshu Vats, MD & CEO has previously worked with Unilever for 20 years in various sales & marketing and general management roles. And Mr Parag Shah, CFO, has worked in FMCG, medical devices and pharmaceutical sectors with the largest part of career with Unilever in supply chain roles. The top management has significant experience in FMCG companies which will significantly help Essel as it brings deep understanding of its key customers; and drive higher sales in personal care segment.

- Strong business model: Essel is well positioned in laminate tube packaging solutions and is fully integrated. It is among the world's largest tube manufacturers with sales at over ~8bn tubes annually. It has a dominant market share of ~36% in oral care and manufacturing presence on five continents. It derives significant revenues from FMCG and pharmaceuticals industries, which have secular growth, and strong presence in the fast-growing markets of India and China. Management change to Blackstone has added capabilities with strong industry experts.

- Long runway for growth in personal care: Personal care contributed 45% of Essel's revenues (beauty and cosmetics 32%, and pharmaceuticals 9%) in FY20. Personal care is 3x the market size of oral care. However, the beauty & cosmetics segment continues to use plastic extruder tubes 6-8bn tubes p.a. (total demand: 12bn tubes) while the prescription pharmaceuticals segment is dominated by aluminum tubes. Laminated tubes provide much better aesthetic value (due to flat surface) for beauty & cosmetics and better barrier property for pharmaceuticals (such tubes also entail lowest cost of ownership). Adoption of laminated tubes in these industries would significantly benefit Essel. We expect personal care revenue CAGR of 12.4% for Essel over FY20-FY23E.

Shares of ESSEL PROPACK LTD. was last trading in BSE at Rs.270.6 as compared to the previous close of Rs. 292.55. The total number of shares traded during the day was 28979 in over 941 trades.

The stock hit an intraday high of Rs. 293.65 and intraday low of 265.2. The net turnover during the day was Rs. 7947588.

Source : Equity Bulls

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