TCPL Packaging Ltd. -- Statistical Facts & Figures -- Views Invited

(rahulparekh22) #83

Anyone knows what is TCPL’s exposure to the cigarette industry in revenue terms and I would like to know if anyone has any views on the possible negative impact on TCPL coming from the volume issue on the smoking industry due to GST

(blueeyedinvestor) #84

The company supply 15% volume to Godfrey Philips. As said earlier Q1 can be bad due to demonisation…but I don’t see much change in cigarette consumption. … cess impact will be only for a while on the volume…

(Rajat Setiya) #85

Hi Guys,

Thanks for the detailed discussion on TCPL. Have few queries, would appreciate any response. I’m going to attend the AGM on 9th, if you have any queroies you can send thanks.

  • Since FY06, cumulative cash taxes (as reported in CFS) paid as a % of PBT come to just 22% while cumulative taxes as reported in P&L come to ~30%. Why is tax outflow not matching with P&L over such a long period of time?

  • Over rhe last 2 years, gross margins have increased by ~4%, is that because of lower raw material costs or better realiztions?

  • Other expenses and employee costs increased at a much faster pace in FY17, any understaing on what drove them?

  • What is the current revenue potential of the company post the recently completed capex?



(Prathamesh333) #86

@ Rajat - Question 2 Realisation

Quest 4 - Rs 1000 Cr

(zygo23554) #87

My queries -

  1. How different is the margin from the flexible packaging unit expected to be compared to the usual EBITDA margin? Will these be sold to the same set of customers or can this capability be offered to new customers?

  2. Who are they sourcing paperboard from - domestic or imports?

  3. Any insights on what kind of expansion is competition like Parksons and Borkar packaging doing? Is the industry building capacity as a whole or is TCPL alone in doing an aggressive capex? What is the approx capacity utilization of TCPL right now?

  4. For FY18 and 19 does the company intend to do more capex? If not what is their plan to to deploy operating cash flow of more than 70 Cr per year? Also what will be the intended use of the proceeds of the QIP recently concluded? Was this driven by the promoter or the investors? (EDIT - Through my network/channels I have enough info to conclude this was driven more by the investors who bought into the QIP than by the promoters)

  5. What exactly does the management mean by sales from conversion activity? How is the scope of this activity different from the full fledged activity they offer other customers? When is this expected to go to say under 2% of overall sales?

  6. Exports are to a different set of customers or the same set they are servicing in India as well?

  7. Spend of Ink has been increasing per MT over the last 7 years, has gone up from 3073 per MT in 2009 to 4967 per MT in 2016? Other than the INR depreciation aspect, by how much is the USD cost per MT gone up? How big a differentiation is this in their business? Does the supply of ink come from the same set of vendors like KBA, Bobst and Heidelberg?

  8. How does company manage integration with ad agencies (who design the art work and packaging for customers) and actual packaging operations at customer factory (most likely a CNC machine which automatically folds the cartons around the end product)? - Key question in my view since this can be a moat for a business like this which is built around minimal down time for customers

  9. Of an annual paperboard packaging market of 10,000 Cr what exactly is TCPL’s addressable market size right now? Within their 5 largest customers what is their share of wallet?

(narender) #88

Hi Rajat,

yes, during AGM please will you follow-up on:

  • Current capacity utilization? in tonnes (FY16 they processed 56,614MT. I do not have FY17 data).

  • Expected capex: Both maintenance and growth separately. Noting poor growth in FY17 and high capex, I believe they will have ample capacity to cater to customers. Low capex plans, if it is the case, will be hugely beneficial for cashflow and balance sheet.

  • Expected revenue and profits from the flexible packaging plant. Commentary is not very upbeat in AR.

On your queries,

  1. That could be due to deferred tax liability.
  2. Employee expense: Increase in employees from 1323 at FYE16 to 1598 at FYE17
    Other expense: multiple reasons (note 24), but key ones being freight and labor.

The company conveniently removed tonnage processed from its annual report this year. This number was historically reported in Director’s report every year (FY15: 48,917 MT; FY16: 56,614 MT); but missing this year.

(amit) #89

hi Rajat

  1. it will be good to understand business model and what makes them different . Also check how do they measure 20% ROCE . I had read that they dont put new capex unless it proves 20 % ROCE. What is thier competitive advantage and how do they see themselves 10 years from now

  2. When do they see FCF at company level. Can we det data on volumes and average realization per MT of packaging.

  3. Why was QIP done for DSP . Rational behind same.

(blueeyedinvestor) #90


The industry in which TCPL is not a unique or complex. Generally you need Rs 30 to 40 Cr only to put up new capacities. But to secure and maintain relation with marquee FMCG clients is something really tough and at same time to show ability to grow margins on per kg basis is further more challenging which TCPL has showcased over last decade. They have now capacities across all four corners of the country which can suffice growing consumer demand. Hopefully this should give them major edge over others. Further if we give some credit to management commentary and if they really maintain and go by their words, then FY18 should not see any major capex and hence should be FCF positive. Besides regarding QIP, we need to understand DSP bought some 3,00,000 shares which would not have been possible to buy from open market given the limited float or illiquid nature of the stock and hence they must have approached management to buy incremental stake. My only frustration in such case is the Management should have reduced its holding and should have issued them the shares instead of issuing fresh shares.

(arsh13) #91

How was the AGM; much appreciate if you can please share your thoughts / notes for those of us who couldn’t attend. Many thanks

(Learner79) #92

I think sales from conversion activity means when customer provides the raw material. As mentioned by @Mahesh in the opening post, this could be for Godfrey Phillips customer. I am not very sure but I think sales from conversion activity could be roughly around 6.4% of their FY17 turnover because in the latest annual report, you can see a line item “Conversion Charges” around 42.51 crs under REVENUE FROM OPERATIONS head.

Disclosure : Invested hence my views could be biased

(Learner79) #93

TCPL has announced Q1FY18 results. Please refer the link below. Seems to be another soft quarter probably due to destocking in the month of June?

Sales down 1.69% YoY
Operating Profit down 19.99% YoY
Net Profit down 59.44% YoY

(sarangg) #94

Soft quarter for TCPL, but atleast no degrowth given overall muted volumes for FMCG customers

(blueeyedinvestor) #95

Disappointing results for Q2FY18. Just wondering why management cancelled the concall. Very surprising.


Any updates on the recent developments in TCPL packaging?

Stock price is consistently doing down.


Paper prices have been increasing for the last year or so. TCPL hasn’t been able to pass on inflation in paper cost to it’s customers.
Vijay Kedia sold his position in last quarter (1.34%) last quarter. Blackrock AIF still holds.
Liquidity is a big encumbrance for mutual funds to enter this stock.
Capital allocation is key point going ahead and market is wary of any fresh capacity expansion.


Results out yesterday.
Disappointed by results.

@Yogesh_s and @zygo23554 are you guys still invested or tracking this business?

(zygo23554) #99

What is worrying is the steep fall in EBITDA margins through H2, H1 margins were lower than usual too. In the past 10 years they have never clocked such low margins (below 13%)

What is encouraging - Management appears to be have decided to consolidate since debt levels are more or less the same as last year. Next FY one should expect to see a reduction in debt and minimal capex over the next 18-24 months. Also sales growth for H2 is in excess of 20% which means the slower growth rate one saw through 2017 may be behind us now.

What is most likely happening in my opinion (will need to get this verified over the next week or so) -

Possibility 1 -

The investments into flexible packaging are being sweated well, else 22% growth in sales through H2 would not have happened. Since these are early days, margins here may be lower than what they can do over the medium term. In which case the EBITDA margins should trend back closer to 14% over a few Q’s as the utilization levels and acceptance by customers improves. Higher WC days will also trend down to lower levels as the scale of operations stabilizes

Possibility 2 -

The company has very limited pricing power and all escalation in paperboard prices will have to be absorbed by the company. Flexible packaging offers much lower margins than their usual business and the 15%+ EBITDA margins we have seen over the last 7-8 years is a story of the past

To me the whole decision hinges on whether the dip in EBITDA margins is a temporary blip or a trend that will continue over the medium term. I really do not see too much of a problem in growth delivering 12-13% over the medium term. A drop in EBITDA margin from 16% to 12-13% is very steep for an assets heavy business like this one which is just coming off considerable capex

Will be interesting to see how market prices in this result over the next week or so. I will see anything less than a 10% fall from CMP as a pretty encouraging sign since 2018 has been a howler of a result

(sarangg) #100

Some of the lower profitability can also be attributed to the one-time write off they took this quarter (mentioned in the footnotes) due to the shutting down of a customer (receivables write off), but still margin is much lower than historical run rate.

I am willing to bet that this will eventually be passed on, and this just the ‘lag’ adjustment period, since RM costs are equal across producers and margins are already not too fat.

(blueeyedinvestor) #101

One should not forget and get carried away with higher growth in H2, given the same came on lower base on account of demo effect. Sustainability will be a challenge for most of the business from Q2FY19 onwards when the base effect will go away and higher raw material cost starts biting hard. TCPL needs to show the strength of passing on higher raw material cost and also if they can manage the growth better, since consumption story will largely have positive effect to some extent given 3rd normal monsoon in a row.

(ragsingh0305) #102

does this company conducts earnings call and if yes, any1 has earnings transcript?

From the above discussion and from my understanding I can think of a few Questions that would be interesting to ask which can yield a good insight on the company’s future prospects;

  • Maintenance level capex
  • Any near term expansion plan or debt reduction plan
  • Revenue at near full capacity, say 85%-90%
  • How much of the RM material cost it can pass and what is the lag
  • what is the revenue break up amongst the following end markets; Ciggarete, Liquor, FMCG, and Food & Beverage
  • Top three customers and proportion of revenue derived from them

would be interesting to see the amount of free cash that company can generate which might help them to reduce debt levels. working capital management is quite good, maintenance level capex we need to find, dividend of about 8-9 crores.