Essel Propack Ltd (ESSPRO)

CMP: | 133 Target: | 136 ( 2%) Target Period: 12 months HOLD

April 23, 2019

Blackstone acquires promoter’s stake…

In a recent development, private equity player Blackstone has entered into
an agreement with Ashok Goel Trust to purchase ~51% stake in Essel

Company Update
Propack (EPL) for a consideration of | 2157 crore (| 134/share). Ashok Goel
Trust and its affiliates currently hold ~57% of EPL. Further, as per the
takeover code, this transaction will trigger a mandatory open offer for a
purchase of additional 26% shares of the company. The open offer price has Particulars
been fixed at ~| 139/share. Based on the open offer subscription, the Particular Amount
purchase price consideration will vary between | 2,157 crore and | 3,211 Market Capitalization (| Crore) 4,178.9
crore (~US$310-US$462 million). Ashok Goel, Chairman & Managing Total Debt (FY18) (| Crore) 594.3
Director, will retain a minority stake (6%) in EPL. Cash and Inv (FY18) (| Crore) 36.0
EV (| Crore) 4,737.2
Focus on acceleration growth in emerging markets 52 week H/L 144/ 85
Equity capital (| Crore) 62.8
In 2017, Blackstone had acquired China-based cosmetics packaging firm Face value (|) 2.0
ShyaHsin Packaging for about US$800-900 mn. The acquisition of EPL is the
sw

Price Performance (|)

second largest acquisition in the field of packaging by Blackstone. Being the
world’s largest PE player, the company has various investments in other 200 15000
geographies and strong relations with customers across globe. Blackstone 150
10000
is likely to bring its global expertise in the packaging space with highly 100
experienced professional. Initially the company is likely to focus on two 5000
50
areas for future development:
Accelerating growth in non-oral care: Though EPL is one of the largest 0 0

ICICI Securities – Retail Equity Research

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players in the oral care category (with ~40% market share), the company is
looking to increase its presence in the non-oral care business (such as
beauty, cosmetics and pharmaceuticals). The non-oral care tube market is EPL Nifty
more than 3x in value compared to oral care tube. Hence, the company is Key Highlights
aiming to increase revenue contribution from non-oral category from 40.4%
 Blackstone has entered into an
in FY17 to 50% in the next three years. agreement with Ashok Goel Trust
Increased focus in emerging markets: Emerging markets would be the key to purchase ~51% stake in EPL.
driver for oral and non-oral care categories due to lower product The open offer price has been fixed
at | ~| 139/share
penetration. EPL is focusing on emerging markets of Asia and Latin America
to drive revenue from the non-oral care category.  Accelerating growth in non-oral
care and increased focus in
Valuation & Outlook emerging markets
 Upgrade target price to | 136/share
EPL is a global leader in laminated tubes selling ~7 billion tubes across 10 (from | 120/share earlier) and
countries. EPL's clientele includes marquee global brands (Colgate, HUL, etc) maintain HOLD recommendation
in the oral care, beauty, cosmetics and pharmaceutical industries. Increasing
presence in emerging markets and further penetration in the fast growing
beauty, cosmetics and pharmaceutical segments is expected to accelerate Research Analyst
growth, going forward. We believe revenue, earnings CAGR of ~12%, Sanjay Manyal
~13% in FY18- 21E would largely led by strong performance in emerging sanjay.manyal@icicisecurities.com
markets. We believe a demand recovery in the Amesa and Europe region
will be a key trigger for future growth. With a target market cap, the deal is Hitesh Taunk
valued at 20xFY20E, 17xFY21E earnings and 8xFY20E, 7xFY21E EBITDA, hitesh.taunk@icicisecurities.com
respectively. We believe the stock would hover around the deal price.
Key Financial Summary
(| crore) FY17 FY18 FY19E FY20E FY21E
Net Sales 2,302.3 2,423.9 2,701.7 3,026.8 3,440.9
EBITDA 421.3 464.7 493.1 558.5 641.8
Adjusted PAT 184.5 177.5 182.0 211.8 251.5
P/E 21.4 24.0 23.0 19.7 16.6
EV / EBITDA 11.4 10.1 9.4 8.1 6.9
RoCE 18.0 18.0 18.3 20.3 22.9
RoNW 18.2 15.2 14.6 15.8 17.1

Source: ICICI Direct Research, Company

 Company Update | Essel Propack Ltd ICICI Direct Research

Financial Summary
Exhibit 1: Profit & Loss statement Exhibit 2: Cash Flow Statement
(Year-end March) FY18 FY19E FY20E FY21E (Year-end March) FY18 FY19E FY20E FY21E
Net Sales 2423.9 2701.7 3026.8 3440.9 Profit after Tax 174.2 182.0 211.8 251.5
Growth (%) 5.3 11.5 12.0 13.7 Depreciation 167.1 186.4 208.8 227.1
Expenses CF bef working capital chag 396.2 422.6 472.6 530.2
Raw Material Expenses 1036.6 1161.3 1321.5 1502.2 Net Increase in Current Assets -88.4 -102.0 -121.7 -192.2
Employee Expenses 433.9 504.4 532.9 599.4 Net Increase in Current Liabilities 88.4 62.1 76.0 96.9
Manufacturing & Other Exp 488.6 542.8 614.0 697.6 Net CF from operating act 396.2 382.7 426.9 434.9
Total Operating Expenditure 1959.1 2208.6 2468.3 2799.1 (Purchase)/Sale of Fixed Assets -193.8 -150.0 -160.0 -120.0
EBITDA 464.7 493.1 558.5 641.8 Minority Interest -1.4 0.0 0.0 0.0
Growth (%) 10.3 6.1 13.3 14.9 Others -15.0 -20.0 -20.0 -20.0
Interest 54.9 54.2 51.9 51.6 Net CF from Investing act -210.2 -170.0 -180.0 -140.0
Other Income 26.4 28.2 31.9 33.8 Equity Capital 0.0 0.0 0.0 0.0
Depreciation 167.1 186.4 208.8 227.1 Loan -97.6 -50.0 -50.0 -50.0
PBT before Exceptional Total Outflow on account of
269.1 280.7 329.6 396.9 -113.4 -127.0 -122.5 -122.5
Items dividend
Less: Exceptional Items 5.0 0.0 0.0 0.0 Others 39.0 -35.3 -41.9 -51.6
PBT 264.2 280.7 329.6 396.9 Net CF from Financing Act -172.0 -212.3 -214.4 -224.1
Total Tax 88.9 96.2 115.6 142.5 Net Cash flow -22.9 0.4 -17.5 20.8
Profit from Associates -1.0 -2.5 -2.2 -2.9 Cash and Cash Equ at the beg 58.9 36.0 36.4 18.9
PAT 174.2 182.0 211.8 251.5
Growth (%) -10.9 4.5 16.4 18.7 Cash 36.0 36.4 18.9 39.7
EPS 5.5 5.8 6.7 8.0 Source: Company, ICICI Direct Research
Source: Company, ICICI Direct Research

Exhibit 3: Balance Sheet Exhibit 4: Key Ratios

(Year-end March) FY18 FY19E FY20E FY21E (Year-end March) FY18 FY19E FY20E FY21E
Equity Capital 62.8 62.8 62.8 62.8 Per Share Data
Reserve and Surplus 1107.9 1181.8 1281.1 1410.1 EPS 5.5 5.8 6.7 8.0
Total Shareholders funds 1170.7 1244.6 1343.9 1472.9 Cash EPS 10.9 11.7 13.4 15.2
Total Debt 594.3 544.3 494.3 444.3 BV 37.3 39.6 42.8 46.9
Total Liabilities 1805.0 1828.8 1878.1 1957.1 DPS 3.6 4.0 3.9 3.9
Assets
Total Gross Block 3287.2 3419.2 3579.2 3699.2 Operating Ratios
Less Total Accumulated EBITDA Margin 19.2 18.3 18.5 18.7
2107.6 2294.0 2502.9 2730.0
Depreciation PAT Margin 7.3 6.7 7.0 7.3
Net Block 1179.6 1125.2 1076.3 969.2
Total CWIP 32.1 50.0 50.0 50.0 Return Ratios
Total Fixed Assets 1211.6 1175.2 1126.3 1019.2 RoE 15.2 14.6 15.8 17.1
RoCE 18.0 18.3 20.3 22.9
Other Investments 13.1 33.1 53.1 73.1 RoIC 15.3 15.4 17.0 19.5
Inventory 286.4 318.3 348.3 414.8
Debtors 459.0 503.3 563.9 650.5 Valuation Ratios
Loans and Advances 126.6 141.1 158.0 179.7 EV / EBITDA 10.1 9.4 8.1 6.9
Cash 36.0 36.4 18.9 39.7 P/E 24.0 23.0 19.7 16.6
Other Current Assets 102.2 113.5 127.6 145.1 EV / Net Sales 1.9 1.7 1.5 1.3
Total Current Assets 1010.2 1112.6 1216.7 1429.7 Market Cap / Sales 1.7 1.5 1.4 1.2
Creditors 188.4 207.3 232.2 264.0 Price to Book Value 3.6 3.4 3.1 2.8
Provisions 29.5 32.5 36.4 41.3
Total Current Liabilities 569.8 631.9 707.9 804.8 Turnover Ratios
Net Current Assets 440.4 480.7 508.8 624.9 Asset turnover 1.3 1.5 1.6 1.8
Total Assets 1805.0 1828.8 1878.1 1957.1 Debtor Days 69.1 68.0 68.0 69.0
Source: Company, ICICI Direct Research Creditor Days 28.4 28.0 28.0 28.0

Solvency Ratios
Debt / Equity 0.5 0.4 0.4 0.3
Current Ratio 4.5 4.5 4.5 4.6
Quick Ratio 3.2 3.2 3.2 3.2
Source: Company, ICICI Direct Research

ICICI Securities | Retail Research 2

 Company Update | Essel Propack Ltd ICICI Direct Research

RATING RATIONALE
ICICI Direct endeavours to provide objective opinions and recommendations. ICICI Direct assigns ratings to its
stocks according to their notional target price vs. current market price and then categorises them as Strong Buy,
Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined
as the analysts' valuation for a stock

Buy: >10%/15% for large caps/midcaps, respectively;

Hold: Up to +/-10%;
Sell: -10% or more;

Pankaj Pandey Head – Research pankaj.pandey@icicisecurities.com

ICICI Direct Research Desk,

ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
research@icicidirect.com

ICICI Securities | Retail Research 3

 Company Update | Essel Propack Ltd ICICI Direct Research

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I/We, Sanjay Manyal, MBA (Finance) and Hitesh Taunk, MBA (Finance) Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this
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