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Time Technoplast (TTL) is expected to benefit from its ongoing expansion plans and recent acquisitions in the
industrial packaging space. Apart from the traction seen in its mainstay ‘drums segment’, other segments too are on
a firm footing and are expected to deliver healthy growth. Volume growth, driven by expanded capacities in
existing and new product categories, is likely to translate into healthy CAGR of 23% and 21% in revenue and PAT
respectively over FY11-13E. We value TTL at 10x FY13E earnings of Rs 7.6 and arrive at a TP of Rs 76 (18% upside),
implying 6.4x FY13E EV/EBIDTA.
Investment Rationale
Industrial packaging, key growth driver: Time Technoplast (TTL) is the largest
domestic player in the polymer-based industrial packaging segment. It
manufactures range of polymer drums and containers and has a strong market
share of 75%. Besides being a market leader in India, through its overseas
acquisitions and by replicating its Indian business model, it has gained market
leadership in UAE, Thailand and Taiwan.
With major user industries such as specialty chemicals, FMCG and paints
expected to grow at 12-15% CAGR over the next few years, we believe the
industrial packaging industry is likely to grow at around 15% CAGR over the
next few years. Also, replacement of metal drums with polymer drums will
act as an additional trigger. We expect this segment to grow at 24.7% CAGR
over FY11-FY13E, aided by organic growth (domestic & global) and overseas
acquisitions.
Other business lines on strong footing: In the quest to diversify, TTL has
successfully established a meaningful presence in some other segments
like (A) technical products (lifestyle, auto components and healthcare) and
(B) infrastructure products (industrial batteries, HDPE pipes and prefabs).
Revenues of both these segments are expected to grow at of 13% and 17%
CAGR respectively over the next two years. This will be led by 19.5% revenue
CAGR of lifestyle segment in technical products and 37% revenue CAGR of
HDPE/FRP pipes segment in infrastructure products.
New product launches hold great potential: TTL is introducing two new
products viz composite cylinders and material handling systems. Composite
cylinders can be a potential substitute to metal gas cylinders. Further,
through its JV with Schoellar Acra, it has introduced foldable crates for the
first time in India, which reduces the return freight cost for end users.
Capex cycle over by FY12, return ratios to improve from FY13: TTL has spent
over Rs 4.5bn to increase its capacities by approximately 2.4 times over the
past three years. The management has guided for a capex of Rs 1.2bn, of
which Rs 550mn will be used for composite LPG cylinders and the rest to set
up facilities for industrial packaging. The capex cycle is expected to end by
FY12 and, going forward, we believe this shall drive operating earnings,
translating into better return ratios.
Concerns
Volatility in prices of key raw materials
HDPE is a key raw material required to make drums and cylinders. Raw material
costs account for 64% of revenues and a significant rise here may cause shortterm
volatility in margins. However, the management is of the opinion that it
shall be able to pass on the impact of increase in input costs, though with a
time lag of 2-3 months. This has in fact resulted in TTL maintaining its margins
over the past five years.
Approval pending for composite cylinders
TTL has started a pilot project at Daman for LPG composite cylinders, with a
capacity at 1mn cylinders, per annum, for which it has already received TUV
certification. This facility will, however, require the approval of the Chief
Controller of Explosives, Nagpur, before it starts rolling out cylinders in India.
Since regulatory approvals are time consuming, we have not factored in the
potential revenues from this facility in our FY13 estimates.
Valuation
TTL is expected to benefit from its ongoing expansion plans and recent
acquisitions in the industrial packaging space. Apart from the traction seen in
its mainstay ‘drums segment’, other segments too are on a firm footing and
are expected to deliver healthy growth.
Volume growth, driven by expanded capacities in the existing and new product
categories, is likely to translate into healthy CAGR of 23% and 21% in revenues
and PAT respectively over FY11-13E. We value TTL at 10x FY13E earnings of Rs
7.6 and arrive at a TP of Rs 76 (6.4x FY13E EV/EBIDTA), implying an upside of
18% from the current levels.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Time Technoplast (TTL) is expected to benefit from its ongoing expansion plans and recent acquisitions in the
industrial packaging space. Apart from the traction seen in its mainstay ‘drums segment’, other segments too are on
a firm footing and are expected to deliver healthy growth. Volume growth, driven by expanded capacities in
existing and new product categories, is likely to translate into healthy CAGR of 23% and 21% in revenue and PAT
respectively over FY11-13E. We value TTL at 10x FY13E earnings of Rs 7.6 and arrive at a TP of Rs 76 (18% upside),
implying 6.4x FY13E EV/EBIDTA.
Investment Rationale
Industrial packaging, key growth driver: Time Technoplast (TTL) is the largest
domestic player in the polymer-based industrial packaging segment. It
manufactures range of polymer drums and containers and has a strong market
share of 75%. Besides being a market leader in India, through its overseas
acquisitions and by replicating its Indian business model, it has gained market
leadership in UAE, Thailand and Taiwan.
With major user industries such as specialty chemicals, FMCG and paints
expected to grow at 12-15% CAGR over the next few years, we believe the
industrial packaging industry is likely to grow at around 15% CAGR over the
next few years. Also, replacement of metal drums with polymer drums will
act as an additional trigger. We expect this segment to grow at 24.7% CAGR
over FY11-FY13E, aided by organic growth (domestic & global) and overseas
acquisitions.
Other business lines on strong footing: In the quest to diversify, TTL has
successfully established a meaningful presence in some other segments
like (A) technical products (lifestyle, auto components and healthcare) and
(B) infrastructure products (industrial batteries, HDPE pipes and prefabs).
Revenues of both these segments are expected to grow at of 13% and 17%
CAGR respectively over the next two years. This will be led by 19.5% revenue
CAGR of lifestyle segment in technical products and 37% revenue CAGR of
HDPE/FRP pipes segment in infrastructure products.
New product launches hold great potential: TTL is introducing two new
products viz composite cylinders and material handling systems. Composite
cylinders can be a potential substitute to metal gas cylinders. Further,
through its JV with Schoellar Acra, it has introduced foldable crates for the
first time in India, which reduces the return freight cost for end users.
Capex cycle over by FY12, return ratios to improve from FY13: TTL has spent
over Rs 4.5bn to increase its capacities by approximately 2.4 times over the
past three years. The management has guided for a capex of Rs 1.2bn, of
which Rs 550mn will be used for composite LPG cylinders and the rest to set
up facilities for industrial packaging. The capex cycle is expected to end by
FY12 and, going forward, we believe this shall drive operating earnings,
translating into better return ratios.
Concerns
Volatility in prices of key raw materials
HDPE is a key raw material required to make drums and cylinders. Raw material
costs account for 64% of revenues and a significant rise here may cause shortterm
volatility in margins. However, the management is of the opinion that it
shall be able to pass on the impact of increase in input costs, though with a
time lag of 2-3 months. This has in fact resulted in TTL maintaining its margins
over the past five years.
Approval pending for composite cylinders
TTL has started a pilot project at Daman for LPG composite cylinders, with a
capacity at 1mn cylinders, per annum, for which it has already received TUV
certification. This facility will, however, require the approval of the Chief
Controller of Explosives, Nagpur, before it starts rolling out cylinders in India.
Since regulatory approvals are time consuming, we have not factored in the
potential revenues from this facility in our FY13 estimates.
Valuation
TTL is expected to benefit from its ongoing expansion plans and recent
acquisitions in the industrial packaging space. Apart from the traction seen in
its mainstay ‘drums segment’, other segments too are on a firm footing and
are expected to deliver healthy growth.
Volume growth, driven by expanded capacities in the existing and new product
categories, is likely to translate into healthy CAGR of 23% and 21% in revenues
and PAT respectively over FY11-13E. We value TTL at 10x FY13E earnings of Rs
7.6 and arrive at a TP of Rs 76 (6.4x FY13E EV/EBIDTA), implying an upside of
18% from the current levels.
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