Essel Propack soars 13% on heavy volume; stock nears record high of Rs 319

The company's focus on 'capital efficient consistent earnings growth' would help improve the return ratios going forward, analysts believe

Shares of Essel Propack (EPL) zoomed 13 per cent to Rs 305, in intra-day trade, on the BSE on Tuesday on the back of heavy volumes as expectations grew that the company may post strong growth in Europe and China.

The stock is trading close to its record high of Rs 319 touched on August 21, 2020. The counter has seen huge trading volumes with a combined around 379,000 equity shares changing hands on the NSE and BSE till the time of writing of this report.

At 11:30 am, it was quoting at Rs 299, up 11 per cent, as against 0.57 per cent rise in the S&P BSE Sensex. In the past three months, the stock has rallied 75 per cent as compared to 16.7 per cent gain in the benchmark Sensex index.

For April-June 2020 quarter (Q1FY21), Essel Propack reported a 14 per cent year on year (YoY) increase in its consolidated net profit at Rs 45.62 crore as against Rs 40.03 crore in the corresponding quarter of the previous fiscal.

The company’s revenue from operations climbed 17.72 per cent YoY to Rs 741 crore, led by strong performance in the overseas business with improved market share and addition of new clients in the China, Americas & Europe.

Earnings before interest, taxes, depreciation, and amortization (ebitda) margins improved 260 basis points to 19.8 per cent from 17.2 per cent. Continued momentum in EBITDA margin led by better product mix, operating leverage including optimized operating costs.

According to the management, the growth momentum is likely to continue in the overseas business (around 70 per cent of topline) supported by addition of new clients, market share gains and launch of new product categories.

ICICI Securities revised its FY21E/FY22E earnings estimates by 17 per cent, 20 per cent, factoring in the company’s strong growth outlook in Europe and China. "This, along with efficient capital allocation (with rationalisation of capital expenditure) and reduction in net debt gives strong comfort on the balance sheet front," the brokerage firm had said in Q1 results update.

Analysts at the brokerage believe improved profitability along with balance sheet condition in the challenging scenario is encouraging. "During the period, gaining market share and improving wallets share from existing clients shows the increased competitiveness of EPL. Further, the company’s focus on ‘capital efficient consistent earnings growth’ would help improve the return ratios, going forward,” it said.