Did you know? One in every three toothpaste tubes in the world is made by the same manufacturer, and that manufacturer is an Indian company - EPL.
EPL just doesn’t make toothpaste tubes, but also makes tubes for lotions, creams, ointments, medicines, sauces, pastes, and even ketchup.
With all leading brands as customers, EPL is the common link between Colgate, P&G, Unilever, L’Oreal, ITC, Patanjali, and Himalaya, amongst others.
This hidden hero has been listed on the market since 2005, appreciating by 5x since then, churning out high-quality, sustainable, and innovative packaging solutions for the big leagues in the process!
Should you be getting on this “tube” towards growth?
EPL: Tales of The Tubes
The global market for tubes is huge, with 42 billion of them made every year. With a market share of nearly 20%, EPL is the largest player in the world and produces 8 billion tubes every year.
Tubes are most commonly used for toothpaste, which makes up roughly 70% of the market. However, plastic tubes are being increasingly used in industries like beauty, personal care, pharmaceuticals, food and home/industrial products.
How Much Does EPL Manufacture?
1 in every 3 tubes
Beauty, Cosmetic and Pharmaceuticals
1 in every 10 tubes
Food, Home and Industrial
1 in every 12 tubes
Clearly, it has managed to “squeeze out” the market in its favour, thanks to 21+ plants across 10 countries, making them global leaders!
But EPL isn't just about quantity. With 75 patents under its belt, it is constantly pushing the boundaries of what's possible when it comes to materials, technology, and processes, maintaining quality throughout.
Wait, why does tube manufacturing require patents? It’s not as simple as it sounds. There is a lot of innovation in tube manufacturing, which EPL has been at the forefront of, resulting in its sustained market leadership, and foray into newer segments.
Advancements in product development include reducing the plastic content in tubes, using more sustainable materials like recyclable plastics and biogenic carbon, and eliminating the need for secondary packaging by incorporating effects like braille, see-through, glow the dark and embellishments, etc.
Even other than the innovation, there are a few other reasons why EPL continues to be an exciting company!
1. Blackstone's Midas Touch
In 2019, Blackstone, one of the largest private equity investors in the world, acquired 75% of EPL for a whopping Rs 33.4 billion, or US$ 470 million. This move was a game-changer for the packaging giant, and Blackstone wasted no time in putting its stamp on the company.
Within the first year of ownership, Blackstone recruited a new CEO and revamped the entire senior management team. These changes paid off almost immediately, with Blackstone selling 23% of EPL's shares in 2020 for Rs 18.9 billion, or US$ 252 million. This impressive move yielded a 106% IRR - more than doubling its initial investment, within just a year!
But Blackstone isn't done with EPL just yet. It still holds a majority stake in the company, with 52% ownership. This shows Blackstone’s commitment to EPL and also signals that it still sees a runway for growth.
2. Demand Back On Track
The pandemic may have slowed EPL down, but it's not out of the game yet. Despite facing challenges like the slowdown in demand and rising raw material prices, EPL is on the path to recovery. With the FMCG sector bouncing back and projected to grow at a CAGR of 10-12% over FY23 to FY25, EPL is poised to benefit as its growth is directly linked to that of its clients.
Although revenue from China has reduced by 8% YoY in 3QFY23 due to pandemic restrictions, things are looking up as the restrictions have been lifted soon, and there is a sharp rebound expected to be driven by pent-up demand, and supportive policy initiatives. And with the East Asia Pacific (EAP) region accounting for about 23% of EPL's revenue, there is expected to be a significant rise in demand.
To capitalise on the demand rebound further, EPL has identified another fairly untapped market. Brazil is an exciting next step for EPL as its rapidly growing market provides huge opportunities. The tube opportunity in Brazil is large, with its >210 million population.
At present, the leading manufacturer in the industry is a subsidiary of Amcor, headquartered in Switzerland. Nonetheless, the Amcor plants are situated in non-strategic locations, meaning they are distant from the areas where demand is high
On the other hand, EPL, a new entrant in the market, has incorporated a new subsidiary named EPL Brazil and is setting up a greenfield facility in Brazil in strategic locations, entering the market with its global brand name and manufacturing capacity to disrupt Amcor’s reign
3. Reducing Costs
Polymer and aluminium foil is the most crucial materials required by EPL to make their tubes. The prices for both polymer and aluminium foil rose 75% and 108% respectively from FY20 to FY22. Yet in the last nine months, the prices have been cooling down and are expected to continue doing so.
The prices of polymers have dropped from Rs. 140 per kg to Rs. 110 per kg in the last nine months (a drop of 28%). The drop will likely continue to pre-COVID levels of Rs. 80 per kg
Freight is a major expense for the company. In FY17 the freight costs were Rs. 66 crore and it grew at an 8% CAGR till FY20, but then grew at a 34% CAGR from FY20 to FY22 going up to Rs. 150 crore in FY22. The good news is freight costs have moved back to the pre-Covid level, leading to margin expansion across regions.
EPL's ‘Zero Waste to Landfill’ program has been successful in reducing the company's waste disposal costs. The program has resulted in a 25% reduction in waste generation and a 15% reduction in waste disposal costs.
The company’s backward integration strategy has not only increased the company's operational efficiency but also resulted in significant cost savings. By engaging in an end-to-end process that involves manufacturing plastic laminate sheets and converting them into tubes in-house, EPL has been able to reduce lead times, improve product quality, and lower costs.
4. Growth in Smaller Segments
EPL's dominance in the oral care segment is undeniable, but that's not the only area where it's thriving.
In FY11, EPL started the Personal Care and Beyond segment (PBS), which began with face care, and has since diversified into hair care, food, OTC medication, home, eye care, hand cream, hygiene products, and prescription medication - really took that “beyond” seriously!
In the decade that followed, the PBS segment recorded a 15% revenue CAGR while oral care recorded a 10% revenue CAGR.
By FY18 the revenue split was 60% oral care and 40% personal care and beyond segment (PBS), and is currently 53-47, as seen in the chart!
It's clear that EPL has been able to capitalise on the increasing demand for beauty and personal care products, as well as the growing need for pharma packaging solutions.
5. Focus on Sustainability
Sustainable packaging is all the craze, and EPL quickly tapped into the same, with the highest number of recyclable laminated tubes in the world! This now makes up 10% of its total product portfolio and will be a growing segment as the company continues to innovate!
The company is on track to achieve its target of doubling the volumes of ‘Platina’ tubes (recyclable tubes), which is the most superior 100% recyclable tube.
Due to having an international presence and diverse clientele, the company gets a sales to boost every time it does commendable feats in the sustainability area. In FY22 the company recycled 57% of its total waste produced.
EPL is experiencing increasing demand for its products globally, along with a reduction in raw material prices and recent price hikes, which is expected to result in continued improvement in profit margins. The company's earnings momentum is expected to increase, driven by several factors:
A growing revenue contribution from the high-growth Beauty and Pharma segments.
A gradual shift to laminated tubes from aluminium tubes and rigid packaging.
New customer additions across geographies and greater cross-selling opportunities.
A focus on sustainability is expected to fuel double-digit profitable growth.
Looking forward, EPL is expected to achieve a CAGR of 12% in revenue, 20% in EBITDA, and 34% in PAT from FY23-25. The stock can be valued at a PE of 19x FY25E EPS given:
EPL’s global leadership in oral care tube packaging
Strategic Expansion in Brazil
Strong R&D towards making more sustainable products
This gives it a target price of Rs. 210, with the potential of 31% upside.
Overall, EPL has demonstrated its resilience in the face of challenges. With its impressive growth trajectory, and promising future prospects, this company won’t leave any gains on the table, much like how you don’t leave even a bit of toothpaste from your Colgate tubes!
Disclaimer: Investment in securities market are subject to market risks. Read all the related documents carefully before investing. The securities quoted are for illustration only and are not recommendatory. Registration granted by SEBI, membership of BASL (in case of IAs) and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors.