EPL Limited
Ready to ride the sustainability wave
EPL Limited (EPLL IN) management reiterated its vision of becoming the “most sustainable packaging company in the world” at its recent plant visit. It leads the conversion of sustainable tube supplies, having sold 25-30mn PCR (post-consumer recycled material) tubes last year. Management expects 75-80% of the industry to move to PCR tubes over the next 1-2 years, except in pharma, where regulations are stringent. EPLL surpassed its target of doubling sustainable tubes volumes in FY24 (up 21% YoY) and expects to triple volumes in the next 3 years. EPLL’s strategy is to accelerate the conversion process and gain wallet share. Its long-term focus is to deliver profitable growth through a 4-point strategy (i) accelerate growth in beauty & cosmetics and pharma, (ii) Build wallet share in all key markets, (iii) lead sustainability and inspire customers to turn sustainable, and (iv) drive multi-year projects to harness ‘fuel for growth’. For FY25, management expects to achieve healthy volume growth and improve margins across geographies. Management reiterated its double-digit revenue growth guidance and is confident of clocking 20% EBITDA margin in FY25. Reiterating BUY with a target price of Rs 264 (unchanged), based on 20x FY26E P/E (unchanged). Key risks: Global recession could keep demand subdued, spike in commodity prices.
Targeting 1.4x revenue growth and 1.7x EBITDA growth over FY24-27E
Management expects to scale up revenue by 1.4x over FY24-27E by (i) aggressively targeting the personal care category segment by onboarding new customers and increasing the wallet share from existing customers. Personal care category is also growing faster than the oral care category, (ii) scaling up Brazil operations, (iii) launching innovative products such as Neo Seam, Applicators, and high-quality printing solutions, and (iv) launching a solid portfolio of sustainable tubes to meet the sustainability targets of its customers. The company envisages to meet 1.7x EBITDA growth over FY24-27 by (i) increasing the contribution of non-oral category, (ii) passing on inflation in non
commodity raw material prices, (iii) increasing insourcing of laminates, caps etc., and (iv) increasing automation and realigning the manufacturing process.
EPLL – Largest player in the 42bn global tubes market holding 20% market share
The global tubes market is pegged at 42bn in 2023 as per the management. Of this, EPLL is the largest tube manufacturer commanding 20% market share, producing ~8+bn tubes annually. The company enjoys a) 10% share in the global beauty, cosmetics and pharma market of 22bn tubes, b) 35% share in the oral care category, which is a 17bn tubes market globally, and c) 8% market share of the global food, home and industrial category, which is a 3bn tubes market globally. EPLL’s large customers include Colgate, P&G, L’Oreal, Unilever, etc.
Valuation and View
While management is confident of achieving double-digit growth, softening commodity prices could continue to impede revenue growth in the near term. However, we see the negative pricing environment receding and expect prices to stabilize 2QFY25 onwards. Initiatives taken by the company such as, Europe restructuring, mix improvement, strategic pricing management and cost optimization, to improve margins seem to be bearing fruit and instilling confidence in its ability to deliver 20% EBITDA margin it has targeted for FY25. We estimate revenue/EBITDA/PAT CAGR of 12%/18%/42% over FY24-26E, respectively; BUY with a target price of Rs 264, based on 20x FY26E P/E (both unchanged).
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