Time technoplast


(narender) #1

Time technoplast (it’s a well run company operationally, except for lagging profits):

Please do comment/ highlight, if you as a reader find the analysis lacking/ wrong.

Estd. in 1989 and employing c.3,600; it is a polymer product marketer/ manufacturer making multiple products like bin, drum, containers can etc. I found this report on google and the analyst summarises the company’s operations nicely.

http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3018654

Below is my observation around the company:
Although, every analyst report talks about industrial packaging, lifestyle and other segments; the actual ones disclosed in annual report are polymer (earlier in 2011 yielding 15 odd percent EBIT, now three year average is 10.2%) and the other one being composite, consistently yielding c.9.7%. That said, Time doesn’t define the two segments anywhere in terms of product lines, business or any parameter!!

Their primary business is industrial packaging from which it derives three quarters of its revenues. In terms of geography, it derives c.two third of this industrial business domestically and remaining third is from overseas. In the segment, its customer profile is primarily chemical companies, contributing more than half of the segment’s revenue and the other big chunk is fmcg. Both these business are expected to do good in terms of sales volumes (remember the high PEs of the two industries). In terms of geography, Time has now moved out from Korea, China and Poland; and now focusing only on high growth geographies, which is very good decision i think, especially for its volume growth story.0

The other key segment is infra (c15% of revenues), comprising of pipes, prefabs etc. If we continue to believe in the Indian infra story, I do not foresee any volume growth concerns here and thus increasing profitability. The pipes business grew by 15% in FY16. Battery business they are willing to sell.

The two other small businesses (5% each) are lifestyle (mats etc) and automotive components. The former might see some increasing competition (essentially commodity, limited specs) but its auto business might continue to flourish where spec requirement is high.

The other business is its composite cylinder; first I noticed its mention around some report of 2011 (yes 2011). The business over the years languished with company shifting its bases; now entire 700k/annum capacity in India. These cylinders are in different sizes, slightly (c.20%) more expensive than the regular ones; and given the kind of product it is, it requires a lot of approvals in each country. This business is finally now gaining traction with some volume visibility and approvals from c.25 countries. Although adoption by the markets is yet to be tested (trial quantities so far); but as a consumer if given an offer, I would like to have an explosion proof and more aesthetic cylinder; even at a few extra rs and just the Indian replacement demand is more than 20 mm a year. This business represents a huge opportunity, but only in a few years time, after the early adoption stage. The other competitor to them domestically is Supreme with 400k capacity.

Management: In terms of management, what I really like is that all of the executive directors have professional background, with some working in prominent companies of their time. All of them prior to forming Techno, were working in Prestige HM Polycontainers; and if you note from company’s website, they are performing the same functions now as back then in HM-polycontainers; one from finance, marketing and production!!! The other good thing I like is lack of equity dilution (in terms of new issues/ esops etc) over the years.

In terms of its shareholding: promoters hold c.58.5%; while DIs hold 8.7% and FIIs hold 19.5%. The amount of institutions shares has been around 30% for few years now.

Operational/ financial metrics:
• Revenue CAGR over last three years is 11.2% (noting FY16 flattish due to commodity prices (volume growth was 10%) and 14.2% over five years. With the company present in high growth geography, volume and thus revenue growth should remain elevated over the medium term, with a possibly good kicker coming from cylinders in two-three years time.
• EBITDA margins have remained relatively constant over three years (c.14%) but this should improve (reasons below) with increasing operational leverage with volume ramp-up.
• The Company has been good at cash flow generation and that is after deducting cash interest from operating cash flow. The company has consistently reduced its free cash flow deficit (CFO less cash interest, capex and dividends) over last five years; turning positive in FY15 and FY16 is expected to be no different.
• Working capital management has been very good with cash conversion cycle hovering around 95 days over past few years (increased in FY16 to 106, but lets wait for annual report). Lately, from my work experience I understand that business and competition intensity is increasing in India and a cost of this in domestic market has been increasing working capital cycle; which thankfully this company has avoided so far.
• In terms of asset turnover as well; Time has shown improvement increasing from 0.9 in FY13 to 1.04 in FY16.
• The only area it has lagged in is profitability, which along with increasing equity base has resulted in low ROE of c.10.5% over last few years.
• Liquidity of the Company looks fine and debt appears to be very manageable at 772 crs with current cash flow and growth outlook (AA- rating by crisil).

Key driver in growth going forward would be:
• Expected good volume growth of overseas units, which will mean better capacity utilization (FY16: 65%, of overseas units) and lower fixed costs/unit.
• Above is true for Indian business as well but the volume growth is lacking its overseas operations; although was at good 10% yoy in FY16 and capacity utilization at 85%
• FY16, they discontinued certain business, because of which results were not comparable; accounting for which FY16 revenue, EBITDA and PAT would have grown 5.1%, 6.9% and 8.7% yoy.

  • Increasing focus on growth from internal accruals, which should improve balance sheet, and limit interest outgo.
  • Possible improvement in incremental margins in the industry itself, with demand getting picked up.

Quote from the concall on future growth ”Anil Jain- So I would close on the note that we have set out targets for ourselves FY-2021 the turnover of this company and the profits et cetera will be double of what we have done in FY’15-FY’16 and our ROCE should be in excess of 20%.” This appears to me a manageable target and during the call he also mentioned of keeping the debt max at current levels and fund the future growth from internal cash. This also looks believable with good cash flow generation and tight working capital control so far; which if happens would be a double bonanza for equity investors with growth and same debt levels; a significant jump to EPS.

The Company is currently trading at a trailing PE of 12 in mid 60s; lower than its peers on relative valuation multiple, with good operational record, making me think its slightly undervalued and might get rerated in the medium term with hopefully better results. Also, the stock has seen remarkable upward momentum in short term, and may be its prudent to wait for some time to settle down before adding positions(but just my view).

Disclosure: I am invested in the stock at an average price point of INR50.6/ share (c.5% of my portfolio), invested over last two months.


(narender) #2

the company has reported 1q results, as per which on a continued basis volume growth was 13% and pat growth was 15%. with increasing focus on improving roce and managing debt at current levels (further capex to come from internal cash generation), the story still remains as intact from two-three year perspective!

http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/4A7F72DF_D090_468E_ACB2_AB987714C2B6_184501.pdf


(TT) #3

What I find to be a little disconcerting in this company is the lack of willingness to get rid of debt completely. In a recent interview on CNBC, the promoter said they would further pare debt by 40 crore this fiscal. I find 40 crore out of 800 crore to be a very tiny number especially when cash profit is around 5 times that number. Also, as per numbers on screener, the interest outgo is around 26% of the EBIDTA. As a shareholder, I am extremely uncomfortable to find that a fourth of my money (if you take the logic that you are an owner of the business) is going to external creditors. Not to mention repayment of debt would lead to outsized growth in net profit and the PAT margin.

I would like to see some change in attitude in this regard before giving the business a higher rating.


(narender) #4

agree with your points on debt, especially about interest eating away fourth of a ebitda…and in some way that is the story i see building up here…

what i find an interesting buildup is only now this company its getting free cash flow positive…so far it didnt have capacity to pay down debt; and even now, it cant pay down debt and have growth capex, but it intends to keep debt at same level, which with growing numbers will result in improving credit metrics…

a good side kicker could be its cylinder business if it materializes soon… its been a few years with the story…


(Aditya Mehta) #5

So, the cylinder business is picking up pace although it still contributes less to the overall revenue. But still given the ability of management to innovate new product like Launch of Composite cylinder for automotive LPG represent great future opportunities and company is quite active in launching new product.

  • Also the upcoming capacity to produce 1.4million cylinders p.a. is going to come up by october 2017 and they already have order book for this capacity.

  • Big trigger could be demand of composite cylinder in domestic market which could contribute huge in terms of revenue as there are only two players manufacturing comp cylinder 1.Time techno 2.Supreme industries.
    If the demand for these cylinder increases in place of steel cylinder , as these cylinders are lighter and safer, then Cylinder business could also become as major as its IBC tanks business.
    Till now major demand for these cylinder is from overseas market and they are leader in those markets.

  • The product Portfolio is also huge , although major portion of revenue comes from IBC tanks but if the demand for other product starts increasing on a similar then revenues could touch new heights.

  • Ashish Kacholia who is fond of Plastic companies have picked up 1.11% stake in company 03-May


(narender) #6

Friends,
Since i started the post. As a disclosure, sold out my holding in recent past after the run-up in stock price.


(Aditya Mehta) #7

Still Thanks for starting this post.
As might create some value for other investors.:grinning:


(ishandutta2007) #8

More importantly he allocated close to 10% of his portfolio which means his conviction is very high.


(Sarabjeet Singh) #9

Results are out for Q2-FY18.

http://www.bseindia.com/xml-data/corpfiling/AttachLive/c9ba8cdc-4a2e-4b00-9d8a-d8d0d8d46c1e.pdf

Disc : Invested


(ishandutta2007) #10

All plasic companies lost EBITDA margin last quarter owing to increase in crude.
Time technoplast has been able to hold on to its EBITDA margins.

About valuation, I would say rerating is already been done in last one year with PE expanding 3x in anticipation that going forward it will be able to grow like other plastic companies.
Now if it fails to grow like other plastic companies PE may construct.


(ishandutta2007) #11

What made you take a position in such a low growth company in 2016 in first place?
You mentioned about 65% gowth of overseas units in FY16, possibility of better margin due to discontinuing other business etc. Did those happen? I dont see any big growth in topline in recent time?


(narender) #12

Hi ishan,

I exited my position, as mentioned in one of my posts earlier. Dont track it now.

When i entered, this was full of optionalities (domestic growth, overseas growth, margin expansion and cylinder business); with possibly limited downside; business was making money and share price was around 50 for a long long time.


(ishandutta2007) #13

any idea why those optionalities didnt play out ? or are they still in pipeline ?


(Sarabjeet Singh) #14

Guys, could majority of Gas companies going towards Piped supply in major cities be a threat to the Cylinder business going forward ?


(Aditya Mehta) #15

It is a threat to cylinders that is obvious.
But the truth is that this thing is going to take decades in order to reach every single household in India.
Can we imagine underground gas pipelines in a country where most of the cities lack even full fledged sewerage systems?
Be Rational.
Even if they make it possible in major cities , still there will be alot of demand for composite cylinders (if replaced).

57,000 Homes to get piped natural gas by year-end


(Sarabjeet Singh) #17

(Aditya Mehta) #18

Seems like mgt will miss guidance of 20% growth in revenue but bottomline growth is visible.
As Q4 has always been their best quarter they still need to tap near abt 1100cr in revenues to achieve revenue target of 20%.
If this happens then we will see major rerating.


(Aditya Mehta) #19

Just saw the price graph of TPL plastech in which Time Technoplast holds 75%. It had lost nearly 60% from the peak. So, this might be the reason behind the fall in price. Now need to know wat is the reason behind fall of TPL Plastech.?


(Sarabjeet Singh) #20

@Aditya942000 thanks for providing much needed answer. I was wondering without any negative news why is it falling.
Though TPL had clarified that plastic BAN in MH wont affect it, but maybe mkt is not taking this info from management at face value. And suspecting it.

But TPL is a very small company and total mcap loss for them was about 280 Crore from its peak. Whereas Time Techno lost more than that in its mkt cap. So I guess this could be one factor , but there is more to it.
Will update if find something else.


(kartik.jajal) #21

Time Technoplast has submitted clarification to the exchange on 26-04-2018 regarding some rumour spreading over social media, but they didn’t mention what was the rumour. does anyone have idea what was the rumour ? That could be one of the factors in price fall.

Thanks.