The Hindu Business Line : Essel Propack: Book Profits

The company's consolidated revenues and earnings have grown at 10 per cent and 23 per cent respectively over the past three years while, as a standalone entity, its revenues have grown at 10 per cent over the same period.

Essel Propack's valuation, however, is based on earnings that may be considered overstated; the company does not amortise `goodwill' created on acquisition of companies. Besides, its cash flows declined in FY-04. Essel Propack derives 75 per cent of its standalone revenues from the collapsible laminated tubes business. It has over the years been consolidating its leadership position in the tubes business on a global scale.

It is estimated to control 30 per cent of the global laminated tubes market. Essel Propack supplies to leading FMCG companies — Unilever, Colgate and Procter & Gamble.

In August 2004, Essel Propack acquired Arista of the UK; recently it bought Telcon Packaging also of the UK. It plans to spend $15 million (about Rs 66 crore) on expanding its capacity in the US. Essel Propack began operations at its Russian facility in March. The European acquisitions and the Russian operations would provide further impetus to its consolidated earnings.A lower raw material component has contributed to the substantial difference in operating margins.

Essel Propack, unlike its peers, has low interest costs; its `other income' primarily consists of interest, which is more than sufficient to meet the financial expenses. Essel Propack's vertical integration model has enabled it maintain a dominant position in the domestic market.

However, as a monopoly in the domestic market, Essel would have to look at product innovation to expand its revenues. The low research and development component do not suggest much progress on this front. Essel Propack has been maintaining an operating margin in excess of 33 per cent over a 10-year period. Raw materials forms about 40 per cent of its revenues.

Global polymer prices have risen by about 30 per cent compared to 2004. With the recent surge in the current prices of crude, global prices of polymers are expected to hold on at current levels. This could affect its consolidated operating margin, which stands at 27 per cent. Essel Propack's domestic operations have, however, been able to maintain the operating margin in the first half.

Essel Propack's return on net worth as a consolidated entity has been inching forward over the past three years and, now, stands at 12 per cent.

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