EPL shares have witnessed sharp volatility in the last four months, hitting their one-year high of ₹193.4 apiece and one-year low of ₹147 apiece in December and February, respectively.
Over the last one year, the shares have fallen from ₹183.40 apiece to ₹158.60 apiece, correcting by approximately 13.55%, and in the last two-year period, they have lost nearly 23.75% of their value.
EPL Ltd (formerly known as Essel Propack Limited) is the world's largest specialty packaging company, specializing in the manufacture of laminated plastic tubes for a wide range of industries.
EPL caters to a variety of industries such as beauty, pharma, food, oral care and home care. Its operations are spread across the globe in 11 countries and 20 manufacturing units.
The stock, however, seems to be well-positioned for a strong turnaround due to a decline in raw material costs and a revival in demand, according to recent estimates made by the domestic brokerage firm Motilal Oswal.
Demand is recovering across geographies
The company has been facing challenges for the last few quarters amid lockdown-led demand slowdown across key geographies. However, with the pandemic now behind us, demand is improving across all regions, according to the brokerage.
Furthermore, the brokerage expects the demand from China will also revive soon as pandemic-related restrictions are gradually lifted.
In Europe, the oral care segment is seeing good growth, while the non-oral care segment is still facing demand growth challenges.
Demand is robust in the Americas. Even the demand for travel tubes is coming back now. The Americas region has a higher mix of the oral care segment. The company is gaining market share in this region, it said.
India is also delivering good growth; however, rural demand is not improving, thereby hurting demand for the FMCG sector, the brokerage noted.
Softening raw material costs
In a sign of relief for EPL, the freight cost is returning to pre-Covid levels. Key raw material (polymer) prices have also eased sequentially, but they are still higher than the pre-Covid level.
The company is in talks with clients regarding pricing increases due to inflation. Pricing for the contracted customers is based on defined formulas, and their revisions happen with a lag effect.
The company is witnessing major benefits with non-contracted customers, whom it is regularly in touch with for price revisions, said the brokerage.
Outlook
With the demand recovery visible across geographies along with the softening in raw material prices and price hikes across regions in recent months, the brokerage expects the sequential recovery in the margin to continue.
According to Motilal Oswal, the company's earnings momentum is expected to improve further due to several factors such as a growing revenue contribution from the B&C and pharma segments, a gradual shift to laminated tubes from aluminum tubes and rigid packaging, customer additions across geographies, and greater cross-selling opportunities.
Additionally, a focus on sustainability is also expected to fuel double-digit profitable growth.
The brokerage has retained its 'buy' call on the stock with a target price of ₹215 apiece, which reflects an upside of 35.56%.
09 analysts polled by MintGenie on an average have a 'strong buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.
