Growth in sight, Maintain BUY
Huhtamaki’s Q1CY26 Revenue was slightly higher, but EBITDA was below our estimates owing to higher other expenses plus higher depreciation than usual & higher other income led to slightly lower PAT than estimates. The company reported largely flat revenue in Q1CY26, reflecting the company’s conscious strategy of prioritizing profitability over aggressive volume expansion. Management reiterated that the focus remains on selective participation in higher-value business segments rather than low-margin commoditized volumes. Despite muted topline growth, EBITDA grew by ~3% YoY driven by slightly better product mix. The recent IMD forecast of lower monsoon or even El Nino effect can impact growth in packaging industry. While the Indian flexible packaging industry may be growing at around 10-12%, the company is selectively focusing on customers and product categories aligned with its core strengths in innovation, premiumization, and sustainability. The company expects the inflationary impact at low-to-mid double-digit levels across key raw materials. The company “blueloop” range of products will focus on increasing value-added proportion in its product portfolio, although the pace of growth is slow but will increase going ahead as demand environment improves. This strategy will help the company to regain its lost glory & achieve double digit margins in the next 5-6 years. The current stock price is attractive, however new management execution capabilities needs to be watched out. We maintain our target multiple of 13.5x on CY27E EPS of Rs 19.6 per share arriving at target price of Rs 265 per share, upside of ~56% from current valuations.
Revenue flattish YoY & QoQ; EBITDA margins slightly improved YoY owing to better product mix
Despite muted topline growth, EBITDA increased by ~3% YoY driven by slightly better product mix.
Demand although continue to improve in both rural & urban market supported by GST rate cut & income tax benefits,still not meaningfully visible in company’s performance, although with improving value added mix the growth outlook is intact.
The company is intentionally avoiding low-margin business opportunities even if that means growing slower than the broader packaging industry. Management believes that serving high-quality multinational and premium domestic customers provides better long-term profitability and strategic positioning than participating aggressively in commoditized regional packaging markets. The company indicated that this disciplined strategy is already visible through the consistent improvement in profitability over recent quarters.
The company has significant room to increase volume as current utilization is ~60-65% & its new factory of Blueloop will incrementally provide support to volumes along with better margins.
Cost savings measures, noncore asset monetization & right strategy started yielding results
The company had embarked on ‘Project Parivartan’ (Transformation Project) which focuses on cost transformation, value added products, stronger price realisation to enhance better quality of growth to turnaround its performance. This strategy has yielded results for the company & we believe Huhtamaki is on the verge of a turnaround.
As the company is focussing on its value-added segment named “Blueloop” which has higher margins & better use case it also provides benefits like reducing input costs, wastage reduction, overhead optimization & improving productivity.
Valuation
The stock is trading at ~9x with an EPS of ~Rs19.6 per share as on CY27E. We maintain our target multiple of 13.5x & thereby arrive at target price of Rs 265 per share which is an upside of ~54% from current valuations.
We anticipate volume growth benefits to flow led by GST rate cut, cost optimization benefits & leveraging its blueloop brand which will grow its margin trajectory in the long term.
Thus, we maintain BUY rating on the stock.
