EPL stock rockets 12% to 35-month high on strong Q1 results; should you invest now?

Shares of EPL, a prominent global specialty packaging company, surged 12% in the morning trade, reaching a 35-month high of ₹243 per share. This spike came after the company reported a healthy set of numbers for the June-ending quarter, coming in line with analyst estimates.

The company reported an 11% year-on-year increase in consolidated revenue, reaching ₹1,007 crore. The EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) margin improved by 90 basis points year-on-year to 18.4%, driven by stronger margins in the Americas and Europe. EBITDA rose 17% year-on-year to ₹190 crore, while adjusted PAT (Profit after Tax) increased by 18% year-on-year to ₹64.2 crore.

Revenue grew across regions, with AMESA, EAP, Americas, and Europe seeing year-on-year increases of 9%, 14%, 19%, and 9%, respectively. EBITDA margins expanded by 610 basis points to 15.8% in the Americas and by 230 basis points to 13.6% in Europe. Conversely, margins contracted by 280 basis points to 19% in AMESA and 90 basis points to 21.9% in EAP.

EBITDA grew by 94% in the Americas, 31% in Europe, and 10% in EAP, while it declined 4% in AMESA during the quarter. Revenue in the Oral Care and Personal Care segments increased by 15% and 6% year-on-year, respectively, with the Personal Care segment contributing approximately 47% of the total revenue, compared to 49% in the previous year.

Outlook

The company noted encouraging margin progression and expects to achieve a 20% margin mark soon. It anticipates that the gross margin for Q1 will be sustainable moving forward and is focused on improving margins in the EU and India.

In Brazil, EPL is experiencing strong momentum due to new customer acquisitions. The company has begun supplying to two new multinational customers and one local customer, in addition to an anchor customer. The Brazil plant is operating at 65–70% capacity.

The company said that the margins in the AMESA region contracted due to higher investments aimed at improving performance and driving future growth. However, EPL expects margins to improve with increased sales, and Egypt is not anticipated to be a drag on the AMESA performance going forward.

Should you buy the stock after Q1?

Following the company's June quarter results, domestic brokerage Motilal Oswal has reaffirmed its 'buy' rating on the stock, setting a target price of ₹275 per share.

The brokerage anticipates robust sales growth and margin expansion for EPL, driven by cost rationalisation measures, margin improvement in Brazil, and operating leverage. It projects a revenue, EBITDA and adjusted PAT CAGR of 8%,16% and 30% over FY24–26.

Motilal Oswal has largely maintained its earnings estimates for FY25 and FY26. According to the brokerage, the stock is valued at 20 times FY26E EPS, reflecting a 20% discount to the five-year average forward P/E of 24.7 times.

EPL, recognised as the world's largest specialty packaging company, specialises in producing laminated plastic tubes for diverse sectors, including beauty, pharma, food, oral care, and home care. From CY12 to CY20, the company's shares saw a remarkable upward trajectory, delivering nearly 1900% in returns.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.