Essel Propack sinks 6% as nearly 24% equity changes hands via block deal

According to media reports, Epsilon Bidco Pte. Ltd, a Blackstone entity which owns 75 per cent of Essel Propack, was looking to sell up to 23 per cent stake, to garner as much as $251 million

Shares of Essel Propack tanked up to 6.2 per cent to Rs 256 on the BSE on Friday after 83.2 million shares changed hands on the NSE and BSE. At 9:15 am, 74.55 million shares, representing 23.63 per cent stake in the company, changed hands on the BSE at Rs 260 per share, data show.

According to media reports, Epsilon Bidco Pte. Ltd, a Blackstone entity which owns 75 per cent of Essel Propack, was looking to sell up to 23 per cent stake, representing around 72.5 million shares of the company, to garner as much as $251 million. The names of the buyer and seller, however, could not be ascertained immeidately.

At 9:54 am, the stock was quoting 5.4 per cent lower on the BSE at Rs 258 apiece. In comparison, the S&P BSE Sensex was ruling 0.36 per cent higher. So far in the financial year 2020-21, the stock price has rallied 76.5 per cent till Thursday as against 33 per cent gain in the Sensex, BSE data show.

Last year, Blackstone had acquired 51 per cent stake in Essel propack for $460 million (Rs 3,211 crore). Blackstone bought 51 per cent in the specialty packaging company from promoter Ashok Goel at Rs 134 a share for Rs 2,157 crore. The deal also triggered the mandatory open offer for a 26 per cent stake in the company. 

"There is a strong liquidity in the market and thus PE firms are seeing this as a good time to create some liquidity in their listed holdings by selling part of their stakes. They also have some loans at the Mauritius level, which were taken to fund the acquisition and they could use the proceeds to pare down that debt," a report by business daily Mint said quoting sources.

During April-June quarter of FY21, the tube-packaging company reported a 13.96 per cent increase in consolidated net profit to Rs 45.62 crore, as against a net profit of Rs 40.03 crore in the April-June period a year ago. Revenue from operations climbed 17.72 per cent to Rs 741.49 crore, as against Rs 629.83 crore in the corresponding quarter of the previous fiscal.

"ESEL managed to keep its units running even during the pandemic as the products are classified as essential services. In 1QFY21, ESEL reported strong set of numbers; revenue grew 18 per cent YoY despite the partial lockdown across multiple geographies. EBITDA grew 35 per cent YoY due to higher share of Personal care products... We believe earnings momentum would continue on the back of (a) increasing revenue share from Personal care, (b) new launches (hand sanitizers) and recyclable tubes (Green Maple Leaf & Platina), (c) kicking-in of operating leverage (namely, Europe region), (d) increasing shift from plastic to laminated tubes, and (e) market leadership position in the Oral care segment," said analysts at Motilal Oswal Financial Services in a September 9 report.

The brokerage believes the stock has further upside despite the recent rally. "Over the last 3 years, ESEL has traded at an average P/E of 19x. We expect revenue/EBITDA/PAT CAGR of 11%/15%/24% over FY20-23E and value the stock at 26x Sept'22 EPS," it said. It's target price is set at Rs 314, with a 'buy' rating.

Those at JM Financial believe that Essel Propack seems to have concentrated core strength in the laminated tubes packaging business catering to low growth FMCG end -segment. An insight into market segmentation, however, reveals a much larger opportunity - still remains a small player with a single-digit market share in personal care space (or Non-Oral-Care) which is 1.6x in size relative to oral care (Essel accounts for c.35% of global market share ).

"Overall we expect it to deliver a double-digit revenue growth trajectory over FY20-23 while the earnings CAGR would be higher at 26 per cent on scale benefits. Despite the recent rally, the stock still remains an attractive consumer proxy play trading at c.24x FY22 earnings (implies c.1x PEG) while our branded FMCG universe (ex-ITC) trades at over 50x," the brokergae said in a report dated September 8. It, too, has 'Buy' call on the stock with a target price of Rs 310.