Despite challenges in the European region, EPL registered a double-digit revenue growth of 15% YoY at Rs8.8bn (up 2% QoQ) in 3QFY22 vs. our estimate of Rs7.9bn. Revenue of AMESA/EAP/Americas grew by 35.7%/20.4%/9.5% YoY, respectively, while Europe revenue declined by 2% YoY. EBITDA fell by 12.5% YoY and 13% QoQ to Rs1.39bn (our estimate of Rs1.48bn), while EBITDA margin declined by 490bps YoY to 15.7%. The margin was impacted by a higher raw material and freight cost. However, margins are expected to recover ahead, provided the economic volatility reduces.
The company looks to achieve sustainability with a global focus for customers, with added efforts to be sustainable internally. PAT declined by 19% YoY and was flat QoQ at Rs591mn (our estimate of Rs554mn) due to the lower margin. We maintain our revenue estimates but lower the EBITDA/PAT estimates by 7%12% to factor the lower margin in 3QFY22. We also lower our EBITDA/PAT estimates by 9%/14% for FY23E and 8%/13% for FY24E, factoring the margin pressure from elevated RM prices. In view of the improvement in balance sheet and higher return ratios, we maintain our BUY rating on EPL, with a revised 1-year Target Price of Rs287 (from Rs330), keeping the target multiple unchanged at 25x FY24E EPS.
Entering the Brazilian Market
The company is looking to enter Brazil’s market following its proven model of organic expansion. Brazil’s market has an opportunity of ~3.5bn tubes with consumption tailwinds. EPL has a contract with a large Brazil MNC, though the details were not disclosed by the management. However, it stated that EPL would begin to make reasonable margins initially and eventually grow its market share and expand further. The estimated market share of personal and oral care is ~60% and 40%, respectively.
EBITDA Margin to Sustain Despite Higher RM Prices
The management expects EBITDA margin to sustain led by: (a) passing on of the price increases judiciously to customers across geographies; (b) improving product mix; and (c) improving manufacturing efficiency and increasing in-house manufacture of caps and closures. EPL is focusing on optimizing resources, driving growth through the personal care segment, and the recent acquisition of CSPL are steps in the right direction.
