EPL Ltd - Double-digit revenue growth outlook intact - ICICI Securities

EPL's Q3FY21 revenue growth was slow at 7.9% YoY due to muted performance in personal care segment, which rose only 7.3%, and decline of 4.3% in laminates revenue. However, gross profit margin improved 140bps YoY on inventory gains, but was offset by rise in operating cost due to covid-related expenses to ensure supply security. EBITDA grew just 0.4% YoY. In the near term, hardening raw material prices is a clear headwind for margins, but the company remains confident in the long term, with double-digit revenue outlook and mid-teens EBITDA growth remaining intact. Further, we see EPL benefiting from inorganic growth. It has completed the acquisition of Creative Stylo Packs, which should add to growth from next quarter. Maintain BUY with a target price of Rs318.

- Revenue is slightly lower on weakness in AMESA. In Q3FY21, EPL's revenue growth was slower at 7.9% YoY to Rs7.7bn due to 6.1% dip in revenue from AMESA. Personal care grew 7.3% YoY at Rs3bn and down sequentially due to benefit of pent-up demand in base. Oral care revenue grew strong at 10.7% YoY to Rs4bn and others (laminates) dipped 4.3% YoY to Rs662mn.

- Gross margin expands 140bps YoY to 60.2% despite inferior mix. Gross profit expanded 10.6% YoY to Rs4.6bn, and likely benefited from inventory gain on hardening raw material prices. Nonetheless, higher input cost will be a headwind for margins in near term as 50% volumes do not have pass-through clause, and EPL has to wait for contract renewal for price reset. EBITDA rose only 0.4% YoY to Rs1.6bn and margin contracted 155bps YoY on higher operating cost from rise in overtime employee cost, and go-to-market investment. Net profit grew 18% YoY to Rs709mn on lower ETR.

- Geographical performance. 1) AMESA revenues dipped 6.1% YoY to Rs2.4bn on lower demand from travel and promotional tubes and impact on personal care segment; EBITDA fell 4.2% YoY to Rs633mn and EBITDA margin expanded 50bps YoY to 26.8%; 2) EAP revenue grew 17.4% YoY to Rs2bn on strong orderbook, and focus on fast-growing regional players. EBITDA rose 16.7% YoY to Rs511mn with EBITDA margin dip of 20bps YoY to 25%; 3) Americas revenue rose 19% YoY on new customer conversion across categories and conversion of bottle-to-tube products. But EBITDA rose only 0.3% YoY to Rs309mn on rise in absenteeism and higher overtime payment to maintain supply security; and 4) Europe revenue grew 9.3% YoY to Rs1.8bn, and was hurt from the second Covid wave; EBITDA grew 5.5% YoY to Rs231mn.

- Other highlights from earnings call. 1) EPL has maintained double-digit revenue growth outlook and mid-teens growth in EBITDA in the long term notwithstanding near-term trend. This will be helped by a marginal rise in EBITDA margin from better product mix and cost efficiency; 2) raw material could be near-term margin spoiler as 50% volumes do not have pass-through clause; and price reset happens with a lag; 3) TSA (transition services agreement) payment is Rs160mn annually for five years from merger; and 4) capex guidance is equal to at least depreciation of ~Rs2.3bn annually.

Shares of EPL LTD. was last trading in BSE at Rs.238.55 as compared to the previous close of Rs. 245.15. The total number of shares traded during the day was 10233 in over 1544 trades.

The stock hit an intraday high of Rs. 254 and intraday low of 235.55. The net turnover during the day was Rs. 2472256.

Source : Equity Bulls

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