Investment Ideas
Strategy should be to accumulate investment idea like Essel Propack Ltd.
Essel Propack Ltd (EPL): CMP @ Rs. 52
l We recommend a BUY on Essel Propack Ltd (EPL) with price target of Rs76/Share.
Our optimism emanates from our belief that EPL is all set to leave behind the tumultuous CY06-08 period and turn profitable in CY09E and thereafter scaling new highs in CY11E. We expect EPL to deliver earnings CAGR of 132.4% in CY09-11E period driven by strong surge in volumes, value and profitability. Alongside, strong earnings performance - we expect the valuations to retrace to CY06 levels - average 1-year forward PER of 13.3x during CY06. EPL's current valuations of PER of 7.8X CY11E earnings, thus presents a lucrative value proposition.
l We are enthused by EPL's region specific strategy in tubes business - taking measuresto address the issues and capitalize the opportunities specific to each regional segment. Consequently, we expect tubes revenue to grow at 10.9% CAGR and total revenues to grow at 10.2% CAGR in CY09-11E period. Similarly, region specific cost rationalization exercise is likely to result in 570 bps jump in EBIDTA margins to 22.0% in CY11E, driving 27.9% CAGR in EBIDTA over CY09-11E period. The above twin factors is expected to help EPL return to black with net profit of Rs. 1,049 mn in CY11E (surpassing CY06 peak profitability) - against a net loss of Rs. 883 mn in CYO8.
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