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TIME TECHNOPLAST LTD
PRICE: RS.45 RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.55 FY13E P/E: 8.2X
We recently met the management of Time Technoplast. Presented are few
highlights of the meeting.
q We project earnings to decline 7% in FY12 as the company would take
MTM hit on Rupee depreciation, higher overheads to new manufacturing
units and higher interest cost (up 39% in FY12). We project earnings to
rebound in FY13 as the company's manufacturing units get ramped up.
q The company had to take forex loss of Rs 70 mn in Q2 FY12. Since the
rupee has depreciated further by 6.6% in the quarter, the company
would have to take a further hit in Q3 numbers. However, the quantum
of MTM hit is likely to be lower than in Q2 FY12.
q Near-term growth forecast to be weak. We recommend ACCUMULATE.
Key Highlights
n TTL's products are based on the polymer platform primarily to replace metals, reduce weight, to give superior strength and overall performance utility to its customers. The company has access to major plastic moulding technologies including blow moulding and injection moulding.
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
Industrial Packaging
n The company indicated that it has not seen major slackening in demand for industrial packaging products. Output for the month of November 2011 was as
high as in March 2011 (typically the peak month). The company expects to see
the industrial packaging business growing at 20% in the medium term.
n The company enjoys dominant market share in the industrial packaging business
in India. The company's multilocational advantage enables it to respond to customer needs in an efficient basis. Also the company keeps coming out with innovations in its product offerings
User breakup for packaging products
No. User Segment share of business (%)
1 Speciality Chemicals 31
2 FMCG 29
3 Paints & Inks 12
4 Pharmaceuticals 5
5 construction chemicals and Adhesives 13
6 Lube oils & Addictives 5
7 Food 3
8 Others 2
Total 100
Source: Company
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.
Infrastructure products
n The battery business (included in infrastructure products) is likely to remain flat in
the current year mainly due to weak demand from the telecom segment.
n The pvc pipes business has been going through a slowdown and the company
has also been cautious in taking orders in view of the cash flow issues with several infrastructure projects.
Forex MTM hit on raw material import
n The company uses both high density (90%) and low-density (10%) polyethylene
as its key raw material. Although polyethylene is a derivative of crude its co-relation with the crude prices is ~20%.
n The company imports 65% of its raw materials requirements while the balance
35% is procured locally. To that extent, the company had to take forex loss of Rs
70 mn in Q2 FY12. Since the rupee has depreciated further by 6.6% in the quarter, the company would have to take a further hit in Q3 numbers. However, the
quantum of MTM hit is likely to be lower than in Q2 FY12.
n The MTM hit was included in raw material costs in the quarterly numbers and
contributed 100 bps increase in material cost to sales ratio.
Higher overheads on new plants
n During the year, the company is in the process of setting up manufacturing
plants in Asia and Middle East. It has commissioned three plants at Thailand,
Bahrain and China (Tianjin) and is in the process of completing four more unit at
Egypt, Malaysia and China before end of FY12.
n As several plants are getting completed, the overhead costs related to commissioning is higher. Consequently, for the H1 FY12, other expenditure rose 40%
yoy to Rs 904 mn.
Composite cylinder plant
TTL is setting up 1mn cylinder facility at Daman which is expected to be operational
by Jan 12. 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 in Middle East, Bangladesh and Vietnam.
Financial outlook
n Through a mix of organic and inorganic, the company has grown at a CAGR of
34% between FY07-FY11. The company expects to grow at a CAGR of 20-25%
between FY11-13.
n The company reported consolidated gross revenues of Rs 7.5 bn in H1 FY12 and
is optimistic of reaching a turnover of Rs 17 bn in FY12.
n We have forecast revenue of Rs 15.4 bn in FY12 taking into account the slowdown in industrial production.
n Exports account for 11% of consolidated revenue and should scale up to 30% of
revenues by FY15. The company is setting up several plants at locations in
Middle East and East Asia.
n On the profitability front, the company's margins may see an adjustment due to
rise in share of overseas revenue. We have built in lower margins going ahead.
Nearing end of capex cycle
n The company had undertaken a capex/acquisitions of Rs 2.5 bn in FY11 and has
guided for capex of Rs 2.8 bn in FY12 towards new factories and expansion
plans.
n Owing to the accelerated pace of capacity additions, the company has incurred a
capex of Rs 7.0 bn between FY07-11. Consequently, free cash flow has been
impacted.
n With the capacity expansions in FY12, the company does not have major capex
plans in FY13 and expects to spend around Rs 1.0 bn mainly towards modernization and debottlenecking.
n The current capacity can potentially generate revenues of Rs 22 bn at the higher
end.
Maintain ACCUMULATE on account of sluggish near-term earnings growth
We project earnings to decline 7% in FY12 as the company would take MTM hit on
Rupee depreciation, higher overheads to new manufacturing units and higher interest cost (up 39% in FY12). We project earnings to rebound in FY13 as the
company's manufacturing units get ramped up.
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 9.1x and 8.2x FY12 and FY13 earnings respectively.
We arrive at a DCF based target price of Rs 55 (Rs 62 earlier). We maintain ACCUMULATE on the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
TIME TECHNOPLAST LTD
PRICE: RS.45 RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.55 FY13E P/E: 8.2X
We recently met the management of Time Technoplast. Presented are few
highlights of the meeting.
q We project earnings to decline 7% in FY12 as the company would take
MTM hit on Rupee depreciation, higher overheads to new manufacturing
units and higher interest cost (up 39% in FY12). We project earnings to
rebound in FY13 as the company's manufacturing units get ramped up.
q The company had to take forex loss of Rs 70 mn in Q2 FY12. Since the
rupee has depreciated further by 6.6% in the quarter, the company
would have to take a further hit in Q3 numbers. However, the quantum
of MTM hit is likely to be lower than in Q2 FY12.
q Near-term growth forecast to be weak. We recommend ACCUMULATE.
Key Highlights
n TTL's products are based on the polymer platform primarily to replace metals, reduce weight, to give superior strength and overall performance utility to its customers. The company has access to major plastic moulding technologies including blow moulding and injection moulding.
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
Industrial Packaging
n The company indicated that it has not seen major slackening in demand for industrial packaging products. Output for the month of November 2011 was as
high as in March 2011 (typically the peak month). The company expects to see
the industrial packaging business growing at 20% in the medium term.
n The company enjoys dominant market share in the industrial packaging business
in India. The company's multilocational advantage enables it to respond to customer needs in an efficient basis. Also the company keeps coming out with innovations in its product offerings
User breakup for packaging products
No. User Segment share of business (%)
1 Speciality Chemicals 31
2 FMCG 29
3 Paints & Inks 12
4 Pharmaceuticals 5
5 construction chemicals and Adhesives 13
6 Lube oils & Addictives 5
7 Food 3
8 Others 2
Total 100
Source: Company
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.
Infrastructure products
n The battery business (included in infrastructure products) is likely to remain flat in
the current year mainly due to weak demand from the telecom segment.
n The pvc pipes business has been going through a slowdown and the company
has also been cautious in taking orders in view of the cash flow issues with several infrastructure projects.
Forex MTM hit on raw material import
n The company uses both high density (90%) and low-density (10%) polyethylene
as its key raw material. Although polyethylene is a derivative of crude its co-relation with the crude prices is ~20%.
n The company imports 65% of its raw materials requirements while the balance
35% is procured locally. To that extent, the company had to take forex loss of Rs
70 mn in Q2 FY12. Since the rupee has depreciated further by 6.6% in the quarter, the company would have to take a further hit in Q3 numbers. However, the
quantum of MTM hit is likely to be lower than in Q2 FY12.
n The MTM hit was included in raw material costs in the quarterly numbers and
contributed 100 bps increase in material cost to sales ratio.
Higher overheads on new plants
n During the year, the company is in the process of setting up manufacturing
plants in Asia and Middle East. It has commissioned three plants at Thailand,
Bahrain and China (Tianjin) and is in the process of completing four more unit at
Egypt, Malaysia and China before end of FY12.
n As several plants are getting completed, the overhead costs related to commissioning is higher. Consequently, for the H1 FY12, other expenditure rose 40%
yoy to Rs 904 mn.
Composite cylinder plant
TTL is setting up 1mn cylinder facility at Daman which is expected to be operational
by Jan 12. 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 in Middle East, Bangladesh and Vietnam.
Financial outlook
n Through a mix of organic and inorganic, the company has grown at a CAGR of
34% between FY07-FY11. The company expects to grow at a CAGR of 20-25%
between FY11-13.
n The company reported consolidated gross revenues of Rs 7.5 bn in H1 FY12 and
is optimistic of reaching a turnover of Rs 17 bn in FY12.
n We have forecast revenue of Rs 15.4 bn in FY12 taking into account the slowdown in industrial production.
n Exports account for 11% of consolidated revenue and should scale up to 30% of
revenues by FY15. The company is setting up several plants at locations in
Middle East and East Asia.
n On the profitability front, the company's margins may see an adjustment due to
rise in share of overseas revenue. We have built in lower margins going ahead.
Nearing end of capex cycle
n The company had undertaken a capex/acquisitions of Rs 2.5 bn in FY11 and has
guided for capex of Rs 2.8 bn in FY12 towards new factories and expansion
plans.
n Owing to the accelerated pace of capacity additions, the company has incurred a
capex of Rs 7.0 bn between FY07-11. Consequently, free cash flow has been
impacted.
n With the capacity expansions in FY12, the company does not have major capex
plans in FY13 and expects to spend around Rs 1.0 bn mainly towards modernization and debottlenecking.
n The current capacity can potentially generate revenues of Rs 22 bn at the higher
end.
Maintain ACCUMULATE on account of sluggish near-term earnings growth
We project earnings to decline 7% in FY12 as the company would take MTM hit on
Rupee depreciation, higher overheads to new manufacturing units and higher interest cost (up 39% in FY12). We project earnings to rebound in FY13 as the
company's manufacturing units get ramped up.
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 9.1x and 8.2x FY12 and FY13 earnings respectively.
We arrive at a DCF based target price of Rs 55 (Rs 62 earlier). We maintain ACCUMULATE on the stock.
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