Stock Pick from Containers & Packaging

CHOICE SCRIP

Here Is Why

• No major capex and better utilisation will improve returns.

• TTL will improve its EBIDTA margin due to lowering of raw material prices on account of decrease in crude oil prices.

• Expectation of good demand from key end-user industries like specialty chemicals and FMCG.

Time Technoplast Ltd.: Packaged To Perform Better

Time Technoplast Limited (TTL) is a market leader in the industrial packaging segment. It manufactures its products under five broad segments - industrial packaging, infrastructure products, automotive products, lifestyle products, and healthcare products. Geographically, India contributes around 70 per cent of the company’s revenue. Over the past five years (FY10-14), TTL’s return ratios have declined significantly i.e. its RoE and RoCE have declined from 17 to 10.3 and 17.5 to 12.8 per cent respectively due to higher capex cost and lower utilisation. The company has spent Rs 1,000 crore over FY10‐14 in capex mostly to set up capacities across overseas’ locations for its packaging business.

However, there is no major capex expected in the next three years apart from on account of maintenance. This should lead to better asset turnover as volume picks up. The RoE and RoCE are expected to easily improve by 300 to 400 bps over the next two years. We believe that volume-led growth for TTL will lead to an improvement in its utilisation levels too. The company’s Indian business was operating at 75 per cent utilisation level in FY14 and there will be some positive movement ahead with an increase in demand from key end-user industries like specialty chemicals, pharmaceuticals and FMCG.

On similar lines, the company is consolidating its international operations in non-performing geographies which should see its utilisation levels go up from the 50 per cent level seen in FY14. We believe that the company will improve its EBIDTA margin in view of the lowering of raw material prices due to a decrease in crude oil prices. Hence it may improve its EBIDTA margins from 14 per cent in FY14 to around 16 per cent by FY17. We do not expect any growth in depreciation and interest costs as the company seeks to restrict capex and reduce debt, leading to a PAT growth of at least 25 per cent in the next two years.

On the financial front, in 9M FY15 the company’s sales grew by 15 per cent to Rs 1,805.67 crore. Its EBITDA margin fell by 20 basis points to 14.2 per cent which saw its EBITDA growing 14 per cent to Rs 242.47 crore while the PAT went up 16 per cent to Rs 76.75 crore. The company is planning to raise funds through the QIP to the extent of Rs 150 crore for reducing its debt of Rs 860 crore in FY14, aiming to bring it down to Rs 500 crore by FY17. Over the last four years the company has been a consistent dividend payer of Rs 0.45 paise.

On the valuation front, TTL is trading at a TTM PE ratio of 10.25 and on the basis of price-to-book value it trades at 1.1x. Given the growth prospects of the company, the scrip demands higher valuation. Therefore we recommend a buy on this counter with a 40-45 per cent return perspective in the next one year.