Nomura has issued a buy rating on EPL with a target price of ₹325, raising it from the previous ₹300 while retaining its 'Buy' rating. According to the brokerage's latest analysis, the stock is positioned for strong growth driven by robust operational performance across key geographies. The firm has raised its FY27-FY29 earnings estimates by 3% to factor in the higher guidance and expects a 12.5% EPS compound annual growth rate over FY26-FY29.
EPL's Q1FY27 sales grew 25% year-on-year, beating Nomura's forecast and Bloomberg consensus estimate of 17%. As reported by Nomura, this growth was driven by a step-up in sales growth, led by East Asia Pacific, largely China, which grew 34% year-on-year. The Americas grew 29%, Europe 20%, while Africa, Middle East and South Asia grew 17% YoY, with India growing 20% year-on-year. Excluding commodity pass-through pricing, underlying revenue growth was 20% year-on-year, reflecting strong growth acceleration led by B&C segments.
Personal Care & Beyond (B&C) grew 25% year-on-year, while Oral Care grew 24%, supported by price hikes. The company's B&C now contributes 54% of EPL's sales, up from 43% in FY19, with recyclable tubes accounting for 44% of volumes, compared with 10% in FY23. Reported OPM stood at 18.8%, while underlying OPM was 19.6%, with 15% year-on-year growth adjusted for commodity-inflation-led pricing pass-through. Despite margin contraction, EBITDA grew 15% year-on-year, ahead of Nomura's and consensus estimates of 14% and 11% respectively.
EPL is targeting an increase in ROCE from 18% to 25% by FY29. The company's newly entered geographies continue to perform well, with Brazil's growth exceeding the Americas' average and the Thailand plant gaining traction. Management expects FY27 capex to be elevated given B&C investments in frontline capabilities, innovation and capabilities. The company is actively seeking inorganic opportunities for geographic/capability expansion, with the proposed merger with unlisted Indovida having received Competition Commission approval and remaining on track for completion within the timeline.
Nomura highlighted that EPL's ability to target high-teens sales growth while sustaining a 20% operating profit margin despite elevated raw material prices was "a rarity". The brokerage noted that higher raw material prices were managed well with much less impact, with the company successful in passing most cost increases through pricing actions. EPL expects its FY27 tax rate to be 20%-22%. The key risk to the investment case is "slower growth in B&C", though the company's diversified geographical presence and robust segment-wise growth patterns provide a solid foundation for the projected growth trajectory through FY28.
