Company Description:
Incorporated in 2004, EDAL manufactures aluminium foils and polyvinyl film-based packaging products. It also manufactures thermoforming polyvinyl chloride films (rigid PVC films) as well as PVdC (polyvinylidene chloride)-coated PVC barrier thermoforming films for blister packaging. Along with subsidiary Flex Art Foil, it provides endto- end packaging solutions to the pharmaceutical end users. During December 2006, EDAL tapped the capital market to raise Rs 157 crore at a price of Rs 225 per share. Its recently acquired India Foils (IFL) manufactures laminated flexible packages, aluminium foils and aluminium container sheets and light gauged strips and processed laminated paper, paperboard and containers.
Valuation & Recommendation:
During Q3FY09, sales have gone by 45 per cent to Rs 103 crore whereas net profit has moved up by 11 per cent to Rs 20.1 crore. During the 9 months of FY09, sales have gone up by 54 per cent to Rs 333.5 crore and net profit by 31% to Rs 64.4 crore. OP & NP margin during the nine months of FY09 stood at 29.5% and 19.3% respectively against 30% and 22.7% (YoY).
EDAL has launched a basket of new products to tackle the spurious drug trade problem. Anti-counterfeit packaging, child resistant laminates and indigenously made alu-alu packaging and tropical blister packs are some of the new products introduced by EDAL.
EDAL has also been entrusted with the task of providing specialized aluminium foil based laminates for large contraceptive brands. India is one of the biggest sources of latex (condoms), however, the packaging is not carried out in India because the packaging becomes oily and rancid. EDAL’s facility has been approved by TTK Healthcare for the same.
With this, EDAL is well on course towards emerging as a leading player in the contraceptive laminate requirement both in the domestic as well as international markets. Going ahead, EDAL expects to dedicate 10-15% of its expanded capacity (18,000 TPA) towards packaging of contraceptives. EDAL expects the margins in this segment of business to be in the same
line as the existing business.
India has imposed 21% safeguard duty on flat rolled aluminium products from China, which will be levied till October 8 2009. The Centre has also imposed a 35% safeguard duty on aluminium foil from China. Ess Dee’s India Foils acquisition will be benefited by the government's move as Chinese aluminium products will become expensive.
EDAL has completed all formalities in Sikkim and is all set to commissioning a unit there. It has plans to set up plant in the UAE in the future. Apart from the above, the company is on the constant look out for inorganic growth options across the world especially in the European region.
EDAL is likely to benefit from the US pharma packaging shifting from glass and plastic containers to unitised packs by 2012. This is likely to open up huge market for Indian packaging material suppliers.
EDAL’s fully integrated business model, complete alignment with the pharmaceutical industry, product basket and geographical spread facilitates a unique positioning as an end-to-end packaging solutions provider, growth potential in pharma, FMCG & food industries, Increasing emphasis on quality packaging and low per capita packaging consumption all give good visibility to revenue & profitability in the coming years.
At the CMP of Rs 181, the share is trading at a P/E of 5.3x on FY09E and 4.1x on FY10E. We recommend BUY with a target price of Rs 200.
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