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SYNOPSIS

ESS DEE (ESS DEE ALUMINIUM LTD) and India Foils Ltd. (IFL) combine is a leading provider of packaging solutions - with core competency in aluminium packaging - for the Indian pharmaceutical and Food & FMCG industry. ESS DEE was the first in India to manufacture dedicated high-end Pharma packaging products like cold form blister and child-resistant-blister packaging. ESS DEE also established presence in the prophylactics segment and have been entrusted with the task of providing specialized aluminium foil based laminates for large contraceptive brands. Net Sales and Operating Profit of the company are expected to grow at a CAGR of 22% and 182% over 2009 to 2012E respectively. During the quarter, the company has reported Net Profit increased to Rs. 380.43 million from Rs.310.32 million in previous year same quarter.

Years Net sales EBITDA Net Profit EPS P/E

FY 10 5884.58 1732.16 1020.27 36.74 13.06

FY 11E 7115.12 2283.28 1489.03 46.56 10.31

FY 12E 8182.39 2591.86 1706.25 53.34 9.00

Stock Data:

Sector: Aluminium

Face Value Rs. Rs.10.00

52 wk. High/Low (Rs.) 534.90/379.00

Volume (2 wk. Avg.) 19761.00

BSE Code 532787

Market Cap (Rs.In mn) 15383.04

Share Holding Pattern

1 Year Comparative Graph

ESS DEE Aluminium

Ltd BSE SENSEX

C.M.P : Rs.480.00 Target Price : Rs. 547.00

Date :27th April 2011 BUY

ESS DEE ALUMINIUM LTD

Result Update: Q3 FY 11

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Peer Group Comparison

Name of the company CMP(Rs.) Market

Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)

Ess Dee Alum 480.00 15383.04 36.74 13.06 3.17 20.00

Hindalco Inds 219.40 420018.9 10.93 20.07 1.51 135.00

Parekh Alum 265.00 3429.1 48.55 5.46 1.12 30.00

Hind Aluminium 48.30 304.3 6.56 7.36 0.91 15.00

Investment Highlights

Q3 FY11 Results Update

ESS DEE Aluminium Ltd disclosed results for the quarter ended December 2010.

Net sales for the quarter moved up 19% to Rs.1869.04 million as compared to

Rs.1576.95 million during the corresponding quarter last year. During the

quarter, the company has reported Net Profit increased to Rs. 380.43 million from

Rs.310.32 million in previous year same quarter. The Basic EPS of the company

stood at Rs.11.87 for the quarter ended December 2010.

Quarterly Results - Consolidate (Rs in mn)

As At Dec-10 Dec-09 %change

Net sales 1869.04 1576.95 19

Net Profit 380.43 310.32 23

Basic EPS 11.87 11.15 6

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Basic EPS of the company stood at Rs. 11.87

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Break up of Expenditure

Expenditure for the quarter stood at Rs.1329.64mn, which is around 21% higher

than the corresponding period of the previous year. Raw material cost of the

company for the quarter accounts for 64% of the sales of the company and stood

at Rs.1194.84mn from Rs.1028.73mn of the corresponding period of the previous

year. Employees cost decreased 5%YoY to Rs.68.22mn from Rs.71.76mn and

accounts for 4% of the revenue of the company for the quarter.

OPM and NPM for the quarter stood at 31% and 20% respectively from 31% and

20% respectively of the same period of the last year.

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Company Profile

Ess Dee Aluminium (EDAL) is engaged in manufacturing of aluminium foil and poly

vinyl chloride (PVC) based products. In the year 2004 the company set up aluminium

foil manufacturing in Daman.

Currently the EDAL owns 8 state of the art manufacturing plant spread across India.

Ess Dee is a leading supplier of primary packaging materials.

EDAL has clientele includes pharmaceutical companies and FMCG majors namely

Ajanta Pharma, Cadila Pharmaceuticals, Dr. Reddy's Laboratories, Pidilite Industries,

Reckitt Benckiser, Wockhardt, Kalindi Medicure, Hindustan Latex, Indico Remedies,

Zydus Cadila, Ranbaxy Laboratories are amongst others

The company also exports to customers located in Latin America, Africa, Middle East

and South East Asia.

Products

Ess Dee manufactures a range of aluminium foil-based and poly vinyl chloride based

products used for various types of packaging

Aluminium Strip Pack Foil – This is a soft aluminium foil used to protect the

packaged material for its prescribed shelf life.

Aluminium Blister Pack Foil – This is a hard aluminium foil coated with heat seal

lacquer used for protecting drugs till the prescribed shelf life.

PVC Film – This type of products are used for packaging of capsules and tablets

biscuits, cakes and food trays. It has properties like thermoforming, shape retention,

barrier and sealing.

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PVDC Coated PVC Film – this product has basic feature of PVC film but is used for

high moisture and oxygen sensitive products like vitamins and capsules.

Strengths:

State of Art manufacturing and R&D facility.

Strategic plant location facilitating PAN India presence.

Market leader in the organized segment.

Derisked business with diverse and innovative products catering to different

segments.

Reputed client base.

Opportunities:

Strong growth opportunities in china and other world markets.

The Indian and global markets are bullish and offers significant opportunities

for capital infusion to fund capex need.

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Financial Results

12 Months Ended Profit & Loss Account (Consolidate)

Value(Rs.in million) FY09A FY10A FY11E FY12E

12m 12m 12m 12m

Description

Net Sales 4515.18 5884.58 7115.12 8182.39

Other Income 43.81 155.98 261.55 300.79

Total Income 4558.99 6040.56 7376.68 8483.18

Expenditure -4443.38 -4308.40 -5093.40 -5891.32

Operating Profit 115.61 1732.16 2283.28 2591.86

Interest -153.24 -199.68 -237.36 -256.35

Gross Profit -37.63 1532.48 2045.92 2335.51

Depreciation -103.81 -174.12 -196.31 -215.94

Profit before Tax -141.44 1358.36 1849.61 2119.57

Tax -256.49 -338.09 -360.58 -413.32

Profit after Tax -397.93 1020.27 1489.03 1706.25

Minority Interest 157.74 2.04 3.28 3.35

Net Profit -240.19 1022.31 1492.31 1709.6

Equity Capital 278.25 278.25 320.48 320.48

Reserves 2823.54 3928.43 5417.46 7123.72

Face Value(Rs.) 10.00 10.00 10.00 10.00

Total No. of Shares 27.83 27.83 32.05 32.05

EPS -8.63 36.74 46.56 53.34

*A=Actual, *E=Estimated

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Quarterly Ended Profit & Loss Account (Consolidate)

Value(Rs.in million) 30-Jun-10 30-Sep-10 31-Dec-10 31-Mar-11

3m(A) 3m(A) 3m(A) 3m(E)

Description

Net Sales 1530.55 1622.21 1869.04 2093.32

Other Income 33.20 134.84 44.53 48.98

Total Income 1563.75 1757.05 1913.57 2142.31

Expenditure -1101.30 -1176.20 -1329.64 -1486.26

Operating Profit 462.45 580.85 583.93 656.05

Interest -52.93 -61.13 -61.04 -62.26

Gross Profit 409.52 519.72 522.89 593.79

Depreciation -47.88 -47.92 -49.51 -51.00

Profit before Tax 361.64 471.80 473.38 542.79

Tax -92.45 -66.62 -92.95 -108.56

Profit after Tax 269.19 405.18 380.43 434.23

Minority Interest 3.28 0.00 0.00 0.00

Net Profit 272.47 405.18 380.43 434.23

Equity Capital 278.25 294.89 320.48 320.48

Face Value(Rs.) 10.00 10.00 10.00 10.00

EPS 9.79 13.74 11.87 13.55

*A=Actual, *E=Estimated

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Key Ratio

Particulars FY09 FY10 FY11E FY12E

EPS (Rs.) -8.63 36.74 46.56 53.34

EBITDA Margin (%) 2.56% 29.44% 32.09% 31.68%

PAT Margin (%) -8.81% 17.34% 20.93% 20.85%

P/E Ratio (x) -55.57 13.06 10.31 9.00

ROE (%) -12.83% 24.25% 25.95% 22.92%

ROCE (%) 0.29% 27.21% 28.17% 25.69%

EV/EBITDA (x) 115.45 7.71 6.74 5.94

Debt-Equity Ratio 0.33 0.36 0.29 0.24

Book Value (Rs.) 111.47 151.18 179.04 232.28

P/BV 4.30 3.17 2.68 2.07

Charts:

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Outlook and Conclusion

At the current market price of Rs.480.00, the stock is trading at 10.31 x FY11E and 9.00 x FY12E respectively.

Price to Book Value of the stock is expected to be at 2.68 x and 2.07 x respectively for FY11E and FY12E.

Earning per share (EPS) of the company for the earnings for FY11E and FY12E is seen at Rs.46.56 and Rs.53.34 respectively.

ESS DEE was the first in India to manufacture dedicated high-end Pharma packaging products like cold form blister and child-resistant-blister packaging.

ESS DEE also established presence in the prophylactics segment and have been entrusted with the task of providing specialized aluminium foil based laminates for large contraceptive brands.

Net Sales and Operating Profit of the company are expected to grow at a CAGR of 22% and 182% over 2009 to 2012E respectively.

During the quarter, the company has reported Net Profit increased to Rs. 380.43 million from Rs.310.32 million in previous year same quarter.

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On the basis of EV/EBITDA, the stock trades at 6.74 x for FY11E and 5.94 x for FY12E.

We expect that the company will keep its growth story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of Rs.547.00 for Medium to Long term investment.

Industry Overview

The most commercially mined aluminium ore is bauxite, as it has the highest content

of the base metal. The primary aluminium production process consists of three stages.

First is mining of bauxite, followed by refining of bauxite to alumina and finally

smelting of alumina to aluminium. Production of 1 tonne of aluminium requires 2

tonnes of alumina while production of 1 tonne of alumina requires 2 to 3 tonnes of

bauxite.

The aluminium production process can be categorized into upstream and downstream

activities. The upstream process involves mining and refining while the downstream

process involves smelting and casting & fabricating. Downstream-fabricated products

consist of rods, sheets, extrusions and foils.

Indian manufacturers are the lowest cost producers of the base metal due to access to

captive power, cheap labour and proximity to abundant supply of raw material.

Among the different downstream activities, Aluminium Foil Packaging is among one of

the fastest growing sector. Demand for aluminium foil packaging sector is

characterized as a derived demand, which means the demand for this sector is derived

from the demand of other sector. For Aluminium packaging industry, the demand is

derived from sector likes Pharmaceuticals, Foods, Fast Moving Consumer Goods

(FMCG).

Most of the industries create wealth but the packing industry plays a unique role by

way of both creation of wealth through a wide range of manufacturing activities and

also by way of preserving wealth or value created. It serves the economy by helping

preservation of the quality and increasing the life of the products ranging from milk

and biscuits,to drugs and medicines, processed and semi-processed foods, fruits and

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vegetables, edible oils, besides domestic appliances and industrial machinery and

other need.

Pharmaceutical packaging occupies a considerable portion of the overall aluminium

packaging market in India and is growing steadily with the same pace of the industry.

Pharmaceutical packaging consists of various types of glass, pet bottles, strip and

blister packs, injectibles, ampoules, bulk packs, etc. Upward trends in medication

consumption clubbed with adoption of stricter regulations and standards governing

which boost global growth opportunities for packaging products. Pharmaceutical and

Food packaging requirements focused exclusively on preserving the quality of enclosed

products.

Initially, Packaging was merely a medium to carry a product but discovery of

aluminium foil in the flexible form along with the properties like tasteless, odorless

and opaque has further differentiate it from other substitute as a potential packaging

material. The aluminium foil packaging industry has registered a robust growth rate

over the past years and is expected to increase at a higher rate.

The Indian aluminium industry registered a growth of around 9% in FY09. Strong

growth in industrial, infrastructure, automobile, transportation and power sectors

during the first half of the fiscal were the key drivers for the demand. However,

realizations for the fiscal fell significantly on account of fall in LME prices due to the

global credit crisis, thus causing a dent in margins. On the other hand, the steep

depreciation of Indian rupee against the US dollar impacted the industry positively.

The total aluminium production in the country stood at around 1.35 m tonnes in

FY09.

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________________ ____ _________________________ Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation

for the purchase or sale of any financial instrument or as an official confirmation of any

transaction. The information contained herein is from publicly available data or other

sources believed to be reliable but do not represent that it is accurate or complete and it

should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s

affiliates shall not be in any way responsible for any loss or damage that may arise to any

person from any inadvertent error in the information contained in this report. This document

is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.

Firstcall India Equity Research: Email – info@firstcallindia.com

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