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ESSEL PROPACK

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Essel Propack Established in 1982 is the largest specialty packaging global company, manufacturing laminated plastic tubes catering to the FMCG and Pharma space. Essel Propack Ltd was promoted by Essel Group until 2019 when Blackstone Group bought a majority of 51% stake for over USD 460 million or about Rs 3,200 crore which further triggered an open offer for Blackstone group to acquire another 26% stake through open market at 139Rs per share. Currently Blackstone Group through its company EPSILON BIDCO PTE.LTD holds 75% stake in the company.

Essel Propack is the world’s largest manufacturer of laminated plastic tubes with units operating across countries such as USA, Mexico, Colombia, Poland, Germany, UK, Egypt, Russia, China, Philippines and India. Employing over 2852 people representing 25 different nationalities, Essel Propack functions through 20 state of the art facilities and in eleven countries. The company caters packaging needs to diverse categories that include brands in Beauty & Cosmetics, Pharma & Health, Food, Oral and Home. Many of the customers for Essel Propack have been with the company for one or two decades. A couple of customers have been with the company for three decades.

Essel Propack is One of the only two global players in the tube space, and the world’s largest manufacturer of laminated tubes as well as Market leader in Oral care tubes which consist of toothpaste, almost any toothpaste you may use — be it Colgate or Patanjali or Promise or Pepsodent, the tube will be made by Essel Propac. It has a 40% market share in packaging tubes.

Parent History-:

The Blackstone Group Inc. is an American multinational private equity, alternative asset management, and financial services firm based in New York City. As the largest alternative investment firm in the world, Blackstone specializes in private equity, credit, and hedge fund investment strategies. Blackstone was founded in 1985 as a mergers and acquisitions boutiques. As of 2019, the company’s total assets under management were approximately US$545 billion dollars. In April 2019, Blackstone disclosed it was converting to a corporation from a publicly traded partnership.

Earlier this year, Blackstone has committed half a billion dollars to Aadhar Affordable Housing Finance and Mphasis where Blackstone group has committed close to $1 billion. You may recall another public listed company — Mphasis — where we committed close to $1 billion in 2016.

Blackstone’s Approach-:

Blackstone’s approach to any investment is a business building approach and that is why we see them committing very large amounts of dollars and putting global Blackstone resources behind their investments. Currently they are committing almost half a billion dollars to Essel Propack. 

Their thesis here is to accelerate the growth of the company along two vectors; the first vector is newer-end segments, which is beauty, cosmetics and pharmaceuticals and the second growth vector is emerging markets which is India, China and Latin America. They can take a leadership position in the oral-care segment and accelerate the growth both in end markets and geographies since they have a very large global network in the consumer sector and also have owned other packaging companies. Blackstone group also emphasis to enhance some of the long standing relationships of Essel Propack with its customers. (about more than three decades old). In addition, being a private equity firm — probably one of the largest globally —they also have large capital resources. Further Blackstone Group is very confident of enhancing the revenue growth of the company.

On the cost side, productivity improvement productivity improvement measures is something which Blackstone has a lot of expertise in.

For example, lean manufacturing; they have several GE Six Sigma lean experts who go into manufacturing companies and improve the operations of those companies. They also have sector experts. For example, Harish Manwani, who was the chief operating officer of Unilever globally before he retired as chairman of Hindustan Unilever is a senior operating partner at Blackstone. People like Harish Manwani and Other including 80 such executives globally who can work with the company both in driving revenue synergies and in driving better productivity or cost optimization.

One of the foremost criteria of Blackstone is that they don’t put any capital or cash in the company unless the management can deliver at least a 15% return on that capital. That is one of the reason Blackstone Group takes pride on being very efficient capital allocators.

Their Belief if simple, they are not believers in building a big war chest for acquisitions and things of that nature, but being very prudent in capital allocation and if that capital allocation is not available or acquisition opportunities or deployment opportunities are not available to earn that 15% plus return, then that cash better off with the shareholders. 

Medium and Long Term Strategy-:

With a view to FY 2021-22, company will continue its focus on strategy of Mission 20:20:20 ( i.e. 20 % EBDITA margin , 20% ROCE and 20% ROE) , whereby targeting Non oral care revenue share of 50% and Revenue growth 15% CAGR and PAT growth of 20% CAGR.

Segment Financial Highlights-: 

Financials-:

The consolidated net debt as at end of FY19 was ` 49982 lakhs lower by ` 6376 lakhs compared to previous year end. Financial parameters such as Debt Service Coverage Ratio, Interest Coverage Ratio and Debt Equity Ratio are all at healthy levels both on Standalone and Consolidated basis.

During FY 19, the Company’s consolidated revenue was up 11.7% y-o-y at ` 2707 crores (exclusive of duty recovery) vs 192.53 crores. 

Quarterly-:

Net Sales at Rs 730.54 crore in September 2019 up 6.39% from Rs. 686.69 crore in September 2018.

Quarterly Net Profit at Rs. 59.29 crore in September 2019 up 11.09% from Rs. 53.37 crore in September 2018.

EBITDA stands at Rs. 154.36 crore in September 2019 up 18.37% from Rs. 130.41 crore in September 2018.

Essel Propack EPS has increased to Rs. 1.88 in September 2019 from Rs. 1.69 in September 2018.

Sectorial & Global Outlook-:

The company is already growing at 11% top line year-on-year whereas the entire sector grows at about 1 or 2%. It is already a fast growing company.

The world market for tubes is huge, about 36 billion in the countries Essel Propack operates. Of this, oral care tubes account for 14 billion, Beauty & Cosmetics account for 12 billion and Pharma & others account for 10 billion. The non-oral care tube market represents much higher value, three times or more as compared to oral care tube market. 

Having established global leadership with its laminated tubes for the oral care category, Company began to pursue a considerably bigger market opportunity in the non-oral care category.

Comments-: Being largest specialty packaging global company and with the PE backing of Blackstone who are in for very long term with a strong belief of company being able to Deliver at least 15% Return on Capital , Essel propack is worth Exploring for Long Term.