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This Small-Cap Packaging Sector Stock Gets Buy Call For Strong 44% Potential Upside

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Motilal Oswal, a renowned brokerage firm operating, in its recently published report on EPL Ltd. has given a buy call for 44% gains if the investor buys the stock of the company at Rs 157.55/share, the current market price of the share. The brokerage has estimated Rs 226/share as the target price.

 

Stock Outlook

Stock Outlook

EPL Ltd.'s share price closed at Rs 157.55 on Friday after gaining 4.93%. The stock hit its 52-week low of Rs. 147.15/share on 20 June 2022. While the 52-week high of Rs 291/share was recorded on 05 July 2021. 

Potential Gains - The stock may increase by up to 44% based on the estimated Target Price of Rs 226/share and the CMP of the stock. 
 
Returns - In the past one year, the stock price has decreased by 43.52%. However, it has gained almost 21.15% over the last three years of investing and 28.88% over five years.

Stock Details 
CMPRs 157.55
Target PriceRs 226
Potential Gains44.00%
1-Year Returns-43.52%
5-Yeras Returns28.88%
Market CapRs 4,976.54 Cr

 

Global shift to laminated tubes bodes well for EPL
 

Global shift to laminated tubes bodes well for EPL

The global tube market volume is around 42b of which, the laminated and extruded tubes account for 81% share i.e. 34b tubes. Of this 34b tubes, laminated accounts for two-thirds volume share. Aluminum tubes volume is ~8b globally. The global tube market, excluding in-house tubes, is 36b. EPL is a major global player with around 20% market share on blended basis, selling ~8b tubes annually. Category-wise, it has 33% market share in oral tubes; 10% in beauty & cosmetics (B&C) and pharma; and 8% in food, home and industrial tubes segment. Over the years, the industry has witnessed a shift from traditional tubes such as aluminum and rigid to laminated tubes.

Long-term focus on sustainability

Long-term focus on sustainability

The company has laid out its long-term roadmap with an aspiration to become the world's most sustainable packaging company. EPL also has modified its logo by adding 'Sustainably' at the bottom. The company will follow the 4x4 mantra with four Cs and four enablers: Management will drive profitable growth and enable product sustainability by focusing on four Cs which are: 1) Category - growth in B&C and Pharma will be faster than Oral care; 2) Customer - EPL will serve both the large global MNCs and regional players; it will intensify its focus on regional and local customers through customer segmentation; 3) Country - build wallet share in all key countries - Brazil, Sub-Saharan Africa, South East Asia, and EU; and 4) Cost - EPL is working on various cost saving activities such as caps and laminates insourcing, reducing the waste and improving organizational effectiveness. To drive Process and People sustainability, EPL has laid down four enablers which are: 1) Innovation - ambition-driven program; 2) Sales & Marketing - hunt down growth; 3) Digital Transformation - becoming future-ready and driving automation using IOT on shop floor as well as other initiatives to improve efficiencies; and 4) One EPL - enable horizontal working. Both these strategies will offer the most sustainable packaging solutions and will help EPL to become the most sustainable packaging company

Short-term focus on growth and margin improvement

Short-term focus on growth and margin improvement

The management indicated that raw material inflation is still having pressure on the margins. EPL is aiming to grow faster by capturing higher market share, acquiring small customers, aggressively gaining market share from small competitors, doubling down on sustainable offerings and continuing its excellence on service and quality. The management expects high single-digit growth in the Oral care segment while B&C and Pharma to register a high double-digit growth as EPL has low market share and wider room to grow in those areas. Price increase - EPL will pass on raw material, freight, packaging and other cost inflation to its customers. It will look for one time top-up with all the contracted customers. Further, it is looking forward for proactive price increases with noncontacted customers. The management is ensuring that the new business wins are margin accretive. Control Costs - The company is ensuring cost control across all line items in the financials. EPL has an ongoing cost rationalization program known as Phoenix. It is working on various costs saving initiatives such as insourcing of caps & laminates, reducing wastages, improving working capital and organizational efficiencies.

Brokerage Retains Buy Call for Target Price of Rs 226/share

Brokerage Retains Buy Call for Target Price of Rs 226/share

The brokerage said, "We expect EPL's earnings momentum to improve, driven by: a) growing revenue contribution from B&C and Pharma segment, b) a gradual shift to laminated tubes from aluminum tubes and rigid packaging, c) customer additions across geographies as well as greater cross-selling opportunities, and d) focus on sustainability, which will propel double-digit profitable growth. We expect a revenue/EBITDA/PAT CAGR of 9%/19%/29% over FY22-24, respectively. We value the stock at 20x FY24E EPS to arrive at our Target Price of Rs 226. We retain our BUY rating on the stock."

 

About - EPL Ltd

About - EPL Ltd

EPL Limited (formerly known as Essel Propack Limited),is the largest specialty packaging global company, manufacturing laminated plastic tubes catering to the Beauty & Cosmetics, Pharma & Health, Food, Oral and Home. The company was the first company to introduce laminated tubes in India promoted by Essel Group. They commenced their operations in the year 1984 by setting up a manufacturing facility for producing laminate tubes and laminates. The Company is a leading manufacturer globally of Laminated Plastic Tubes and Laminates. 

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.

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