Q4FY23 Review: EPL Ltd: Recovery on track

EPL’s Q4FY23 results were marginally above analysts of IIFL Capital Services estimates – driven by sharp recovery in China and steady improvement in margin. EPL is well placed in the medium term – recovery in China, ramp up in Brazil, steady execution towards getting price hikes in Europe and Americas – bode well for top-line growth and margin recovery. Analysts of IIFL Capital Services forecast Ebitda margin to recover from 16.2% in FY23 to 18.4% in FY25; resulting in 28% EPS Cagr over FY23-25. Maintain BUY rating with a target price of Rs220.

Marginal beat: 

In Q4, EPL’s net sales grew 10%, driven by broadbased growth across geographies with China rebounding to 9% growth after witnessing 8% decline in previous quarter. Ebit margin was better than expected in AMESA and EAP, resulting in a slight beat on Ebitda. Overall Ebitda margin at 16.9% (17.2% adjusted for Brazil) expanded by 153bps YoY. Sustainable tubes delivered in FY23 were 2.5x that of FY22, and contributed ~10% to EPL’s total tubes in FY23.

Recovery on track: 

China is expected to witness strong growth in FY24 on a low base as well as government efforts to accelerate economic growth. While economic environment in Americas and Europe would be uncertain due to inflation, management continues to pursue price hikes in these geographies. This should aid top-line growth and margins. EPL is also well placed to ride the sustainability theme with strong capabilities in manufacturing, research and innovations – targets to double volumes of sustainable tubes in FY24.

EPS upgrade of 2-3% in FY24/25: 

Analysts of IIFL Capital Services upgrade their EPS estimates by 3%/2% driven by higher growth in China and Americas and higher Other income (pertaining to govt grants). Recovery in China and ramp- up in Brazil would aid top-line growth in the medium term. On the other hand, steady execution towards getting price hikes in Americas / Europe would drive margin recovery. They forecast Ebitda margin to recover from 16.2% in FY23 to 18.4% by FY25. They maintain their BUY rating on the stock with a target price of Rs220.