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TIME TECHNOPLAST (TTL)
PRICE: RS.65 RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.72 CONS. FY12E P/E: 11.7X
q TTL reported strong numbers on the revenue front driven by commissioning
of new facilities in international locations. Higher HDPE prices resulted
in decline in margins. Interest costs have shot up significantly as
the company is in a capex mode. As a result, PBT has remained flat for
the quarter. However, lower tax rate has helped the company report
modest increase in profits.
q At CMP, TTL is trading at P/E of 11.7xFY12e, which we believe is reasonable.
We arrive at a DCF based target price of Rs 72 (unchanged). In view
of the moderate upside, we maintain Accumulate on the stock.
n For Q1FY12, the company reported revenues of Rs.3.7 bn, up strong 39.5% YoY.
During the year, the company commissioned new projects like high pressure
pipes, battery and prefabricated shelters, which are making meaningful contributions
to the revenues. Standalone revenues grew 22% yoy to Rs 2.0 bn, accounting
for 57% (vs 66% in Q1 FY11) of the consolidated revenues.
n Thus, the revenues from the international geographies have been the major
growth driver. During the year, new manufacturing facilities are coming
onstream across Asia and Middle East.
n The operating margins during Q1FY12 was down 240bps YoY. In absolute terms
EBIDTA for Q1FY12 is up 24% YoY to Rs.644 mn. The company uses both high
density (90%) and low-density (10%) polyethylene as its key raw material and
imports 65% of its requirements. Although polyethylene is a derivative of crude
its co-relation with the crude prices is ~20%. During the quarter, average HDPE
prices were up 10.4% yoy but down sequentially.
n Interest costs have risen 78% yoy due to a combination of higher leverage and
increase in cost of borrowings. The company has a debt-equity ratio of 0.7x as of
FY11, which we expect to rise to 0.77x in FY12. Interest expenses are expected
to rise 51% due to a combination of higher cost of funds and higher borrowings.
n Tax rate during the quarter stood at 19% lower than our expectations and the
was the major reason for reported profit being higher than our estimates. The
company has guided for a blended tax rate of 23% in FY12.
n NPAT for the Q1FY12 was at Rs.285 mn up 5.9% YoY thereby translating into
quarterly EPS of Rs.1.4.
Business Update
n The key product categories for the company are Industrial packaging products,
lifestyle products (door mats, chairs, syringes), technical products (automotive
components), infrastructure products (pipes and monolithic construction) and new
products (composite cylinders). The largest segment is the industrial packaging
accounting for 59% of revenues.
n Indian market is 15 mn drums and 50% is now polymer drums. However in Asia
market is 96 mn drums with only 6% penetration in polymers drums, implying
massive headroom for upside in penetration in the asian markets.
n The primary driver is shift from metal drums to plastic due to various advantages
like lower weight, corrosion proof, better strength, ease of handling and now
lower cost as metal prices have been steadily going up whereas HDPE prices are
more stable.
n TTL is setting up 1mn cylinder facility at Daman which is expected to be operational
by Dec 11. The composite cylinder has several advantages over the conventional
metal one. TTL is awaiting approval from the CCE for its composite
cylinder, until then it plans to export the same.
n The pipes division reported revenues of Rs 750 mn in FY11 and is expected to
reach Rs 1300 mn in FY12. However, in recent weeks, offtake has slowed down
due to slack infrastructure activity. The company is also adding facilities at
Pantnagar and Baddi, which can take the overall revenue from pipes to Rs 1800
mn.
n We expect the contribution of overseas business to increase from 11% in FY11 to
15% in FY13E. TTL has been expanding facilities across India (14 locations) to
service customer in an efficient and timely manner. In order to replicate its success
in India to high growth Asian and Middle East countries it has acquired and
set up facilities in Bahrain, Taiwan, China, Thailand, Poland, Romania, and
Czech Republic (0.5 mn composite LPG cylinders).
Expansion projects update
n After successful implementation of its operations in North China (Tianjin), company
is setting up a greenfield project in South China (Guangzhou) for industrial
packaging, a joint venture (50:50) with a local partner- a leading packaging
company in China.
n In order to cater to the growing demand of matting products "Astroturf" in the
ASEAN region, the company has set up a project for the manufacturing of turfs
in its existing facility at Thailand. This facility has commenced production during
the quarter.
n Company has set up greenfield project for industrial packaging at Bahrain, in
order to cater to the Saudi Arabia market. Phase I (Bulk Packaging) production
has commenced and Phase II (Intermediate Bulk Containers) is at advance stage
of implementation.
Financials:
n During FY06-11 TTL posted 37.2% CAGR in revenues and 35.3% CAGR in PAT.
For FY11, Time reported 26.1% growth in revenue backed by higher volumes
from existing and newer products. The company expects to maintain growth momentum
in FY12-13 given that several new plants are coming onstream in the
near future.
n However, on the profitability front, the company's margins may see a decline
due to rise in share of overseas revenue. We have built in lower margins going
ahead.
n The company had undertaken a capex of Rs 1.8-2.0 bn in FY11 and has guided
for capex of Rs 1.8 bn in FY12 towards new factories and expansion plans. This
has crippled cash flow generation.
n We project earnings growth of 7.8% in FY12 to Rs 1.16 bn.
Key Risks
Delay in capacity expansion & commercialization of new products. Currency fluctuation
& pricing of key raw material i.e. HDPE
Valuations and recommendation
At CMP, TTL is trading at P/E of 11.7xFY12e, which we believe is reasonable. We
arrive at a DCF based target price of Rs 72. In view of the moderate upside, we
maintain Accumulate on the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
TIME TECHNOPLAST (TTL)
PRICE: RS.65 RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.72 CONS. FY12E P/E: 11.7X
q TTL reported strong numbers on the revenue front driven by commissioning
of new facilities in international locations. Higher HDPE prices resulted
in decline in margins. Interest costs have shot up significantly as
the company is in a capex mode. As a result, PBT has remained flat for
the quarter. However, lower tax rate has helped the company report
modest increase in profits.
q At CMP, TTL is trading at P/E of 11.7xFY12e, which we believe is reasonable.
We arrive at a DCF based target price of Rs 72 (unchanged). In view
of the moderate upside, we maintain Accumulate on the stock.
n For Q1FY12, the company reported revenues of Rs.3.7 bn, up strong 39.5% YoY.
During the year, the company commissioned new projects like high pressure
pipes, battery and prefabricated shelters, which are making meaningful contributions
to the revenues. Standalone revenues grew 22% yoy to Rs 2.0 bn, accounting
for 57% (vs 66% in Q1 FY11) of the consolidated revenues.
n Thus, the revenues from the international geographies have been the major
growth driver. During the year, new manufacturing facilities are coming
onstream across Asia and Middle East.
n The operating margins during Q1FY12 was down 240bps YoY. In absolute terms
EBIDTA for Q1FY12 is up 24% YoY to Rs.644 mn. The company uses both high
density (90%) and low-density (10%) polyethylene as its key raw material and
imports 65% of its requirements. Although polyethylene is a derivative of crude
its co-relation with the crude prices is ~20%. During the quarter, average HDPE
prices were up 10.4% yoy but down sequentially.
n Interest costs have risen 78% yoy due to a combination of higher leverage and
increase in cost of borrowings. The company has a debt-equity ratio of 0.7x as of
FY11, which we expect to rise to 0.77x in FY12. Interest expenses are expected
to rise 51% due to a combination of higher cost of funds and higher borrowings.
n Tax rate during the quarter stood at 19% lower than our expectations and the
was the major reason for reported profit being higher than our estimates. The
company has guided for a blended tax rate of 23% in FY12.
n NPAT for the Q1FY12 was at Rs.285 mn up 5.9% YoY thereby translating into
quarterly EPS of Rs.1.4.
Business Update
n The key product categories for the company are Industrial packaging products,
lifestyle products (door mats, chairs, syringes), technical products (automotive
components), infrastructure products (pipes and monolithic construction) and new
products (composite cylinders). The largest segment is the industrial packaging
accounting for 59% of revenues.
n Indian market is 15 mn drums and 50% is now polymer drums. However in Asia
market is 96 mn drums with only 6% penetration in polymers drums, implying
massive headroom for upside in penetration in the asian markets.
n The primary driver is shift from metal drums to plastic due to various advantages
like lower weight, corrosion proof, better strength, ease of handling and now
lower cost as metal prices have been steadily going up whereas HDPE prices are
more stable.
n TTL is setting up 1mn cylinder facility at Daman which is expected to be operational
by Dec 11. The composite cylinder has several advantages over the conventional
metal one. TTL is awaiting approval from the CCE for its composite
cylinder, until then it plans to export the same.
n The pipes division reported revenues of Rs 750 mn in FY11 and is expected to
reach Rs 1300 mn in FY12. However, in recent weeks, offtake has slowed down
due to slack infrastructure activity. The company is also adding facilities at
Pantnagar and Baddi, which can take the overall revenue from pipes to Rs 1800
mn.
n We expect the contribution of overseas business to increase from 11% in FY11 to
15% in FY13E. TTL has been expanding facilities across India (14 locations) to
service customer in an efficient and timely manner. In order to replicate its success
in India to high growth Asian and Middle East countries it has acquired and
set up facilities in Bahrain, Taiwan, China, Thailand, Poland, Romania, and
Czech Republic (0.5 mn composite LPG cylinders).
Expansion projects update
n After successful implementation of its operations in North China (Tianjin), company
is setting up a greenfield project in South China (Guangzhou) for industrial
packaging, a joint venture (50:50) with a local partner- a leading packaging
company in China.
n In order to cater to the growing demand of matting products "Astroturf" in the
ASEAN region, the company has set up a project for the manufacturing of turfs
in its existing facility at Thailand. This facility has commenced production during
the quarter.
n Company has set up greenfield project for industrial packaging at Bahrain, in
order to cater to the Saudi Arabia market. Phase I (Bulk Packaging) production
has commenced and Phase II (Intermediate Bulk Containers) is at advance stage
of implementation.
Financials:
n During FY06-11 TTL posted 37.2% CAGR in revenues and 35.3% CAGR in PAT.
For FY11, Time reported 26.1% growth in revenue backed by higher volumes
from existing and newer products. The company expects to maintain growth momentum
in FY12-13 given that several new plants are coming onstream in the
near future.
n However, on the profitability front, the company's margins may see a decline
due to rise in share of overseas revenue. We have built in lower margins going
ahead.
n The company had undertaken a capex of Rs 1.8-2.0 bn in FY11 and has guided
for capex of Rs 1.8 bn in FY12 towards new factories and expansion plans. This
has crippled cash flow generation.
n We project earnings growth of 7.8% in FY12 to Rs 1.16 bn.
Key Risks
Delay in capacity expansion & commercialization of new products. Currency fluctuation
& pricing of key raw material i.e. HDPE
Valuations and recommendation
At CMP, TTL is trading at P/E of 11.7xFY12e, which we believe is reasonable. We
arrive at a DCF based target price of Rs 72. In view of the moderate upside, we
maintain Accumulate on the stock.
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