Essel Packaging, the largest producer of collapsible tubes in the country, has reported a jump of 34 per cent in sales for 1997 over the previous fiscal. Though growth in net profit is negligible at less than 2 per cent due to higher provision for taxation, it must be noted that the previous year's net profit included profit on sale of assets and higher other income.Due to lower prices of polymer, the main raw material, profitability margins for 1997 have increased over those in the previous year. In 1995-96, margins came under pressure due to devaluation of the rupee by almost 12 per cent and hardening of polymer prices.

For 1996-97, growth in total expenditure was proportionately lower than growth in sales. While expenditure increased 23 per cent to Rs 77.18 crore, net sales rose 38.5 per cent to Rs 122.46 crore. Though operating profit improved 27 per cent (excluding profit on sale of assets) to Rs 46.32 crore, operating profit margin (OPM) was stable at 37.5 per cent. A lower interest liability improved profit margin at the gross level. Thus, GPM improved from 33.9 to 35 per cent and gross profit increased by 27 per cent to Rs 43.34 crore. Depreciation increased from Rs 12.95 crore to Rs 16.75 crore on account of addition to the gross block.

The company is currently executing a major expansion plan to increase its capacity to 1050 million tubes per annum. The project is being financed through a preferential issue to the promoters at a premium of Rs 97 aggregating Rs 23 crore, a rights issue at a premium of Rs 215 in March 1995 aggregating Rs 87 crore and term loans of Rs 40 crore. On completion, the company will become the second largest manufacturer of lamitubes in the world.

Higher depreciation and a higher provision for taxation of Rs 5.75 crore (Rs 70 lakh) put pressure on profit margin at the net level. The net profit rose marginally from Rs 20.44 crore to Rs 20.84 crore while net profit margins (NPM) dropped from 19 to 16.87 per cent. On a equity capital of Rs 15 crore, the earnings per share works out to Rs 13.89. The scrip currently trades at Rs 109, discounted by latest earning per share (EPS) by 7.84 times. The current market price is very near to the book value at Rs 108. Thus, there is scope for appreciation in medium to long term.

The company has rewarded its shareholders with a dividend of 45 per cent. Essel Packaging has a impressive customer base with over 90 per cent of its sales of laminated tubes to multinationals like Colgate Palmolive , Hindustan Lever, Ponds India, Procter & Gamble, etc. The company has the advantage of the all-important in-house web technology which is a major input and cost component in lamitube manufacturing. As of now, the company does not face any major competition in the country.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.