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

[Mahesh]

Discl. - Invested

Note â This post is just a representation of statistical facts and figures pertaining to 'Packaging Industry' in general and 'Paperboard Packaging' in particular of which TCPL Packaging is just a part. This in no way be considered any sort of buy/sell/hold recommendation in any form whatsoever. This post should in no way be used to construct any form of investment/disinvestment decision and should only be used as a tool for information on statistical data.

(1) Promoted by Kanoria Family â current MD (Saket Kanoria) being nephew of Krishan Kumar Modi â promoter of Godfrey Philips India (one of TCPL's largest customer) and brother-in-law of Sajjan Jindal â JSW Group.

(2) As part of other notable CSR and other activities, Promoters' Family runs Kanoria Hospital & Research Centre in Gandhinagar, Gujarat, Kanoria Centre for Arts in Ahmedabad, Gujarat and under TCPL they run a vocational school in Dharampur, Gujarat.

(3) Operating segment of the company can be broadly termed as 'Packaging', but in that broad head, it caters mainly to 'Paperboard Packaging' segment (Carton) where not many of the listed packaging companies operate.

(4) Company's main comparable peers are Parksons Packaging and Borkar Packaging (and ofcouse ITC but its production is largely meant for captive consumption as also to cater to certain niche clientle) while there are many other smaller players like International Print-o-Pac, Bharat Box, etc. and a host of unorganised players.

(5) Statistical Comparison Data of TCPL & Peers :

Parksons Packaging & Borkar Packaging to TCPL Packaging Comparison â P&L Items :

	FY14	FY13	FY12	FY11	FY10	FY09	FY08	FY07
Revenue(in ` cr.)
Parksons	409.30	361.43	306.69	264.07	195.91	150.66	115.47	91.78
TCPL	394.92	373.29	283.34	240.20	186.11	157.22	116.65	99.08
Borkar	295.71	247.93	200.70	178.14	143.29	124.93	105.69	92.86
EBITDA Margin
Parksons	16.42 %	17.86 %	17.43 %	17.38 %	19.49 %	10.91 %	19.78 %	20.24 %
TCPL	15.48 %	14.90 %	14.57 %	14.20 %	14.27 %	14.82 %	14.75 %	14.79 %
Borkar	14.10 %	14.08 %	15.94 %	15.03 %	15.58 %	16.58 %	16.63 %	16.46 %
PAT Margin
Parksons	5.44 %	6.33 %	4.86 %	5.77 %	6.17 %	Loss	4.41 %	10.07 %
TCPL	3.16 %	3.61 %	2.71 %	2.61 %	2.88 %	2.20 %	2.50 %	3.10 %
Borkar	3.59 %	3.44 %	3.16 %	2.56 %	4.11 %	4.13 %	3.48 %	2.78 %
Tax as % of PBT
Parksons	36.37 %	32.71 %	28.73 %	19.88 %	32.49 %	Loss	34.77 %	18.73 %
TCPL	36.59 %	33.57 %	32.30 %	35.12 %	31.59 %	28.68 %	19.11 %	19.10 %
Borkar	23.21 %	19.90 %	21.31 %	27.22 %	2.96 %	20.98 %	31.08 %	25.57 %
Raw Material as % of Sales
Parksons	58.56 %	58.14 %	57.89 %	58.53 %	52.42 %	59.21 %	60.15 %	57.12 %
TCPL	57.95 %	58.17 %	57.32 %	57.42 %	56.36 %	56.11 %	54.58 %	55.35 %
Borkar	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Employee Cost as % of Sales
Parksons	10.05 %	9.57 %	9.46 %	8.22 %	7.89 %	8.29 %	7.11 %	5.80 %
TCPL	7.36 %	6.50 %	6.28 %	6.33 %	6.20 %	6.06 %	6.82 %	6.25 %
Borkar	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Finance Cost as % of Sales
Parksons	2.53 %	3.27 %	5.08 %	4.46 %	4.02 %	5.52 %	5.31 %	1.84 %
TCPL	4.46 %	4.00 %	4.22 %	4.09 %	3.55 %	4.63 %	4.66 %	4.26 %
Borkar	5.69 %	5.92 %	6.06 %	6.28 %	5.40 %	5.22 %	4.96 %	5.67 %
Depreciation as % of Sales
Parksons	5.32 %	5.16 %	5.51 %	5.69 %	6.32 %	7.71 %	7.67 %	5.95 %
TCPL	6.02 %	5.45 %	6.33 %	6.08 %	6.49 %	7.08 %	6.99 %	6.67 %
Borkar	3.86 %	3.97 %	6.01 %	5.22 %	5.93 %	6.13 %	6.61 %	7.04 %
Other Expense as % of Sales
Parksons	14.83 %	14.85 %	15.21 %	16.02 %	19.38 %	24.32 %	19.45 %	19.13 %
TCPL	19.55 %	20.48 %	21.58 %	22.29 %	23.45 %	25.45 %	26.73 %	26.29 %
Borkar	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.

Parksons Packaging & Borkar Packaging to TCPL Packaging Comparison â Balance Sheet Items :

	FY14	FY13	FY12	FY11	FY10	FY09	FY08	FY07
Debt as % of Sales
Parksons	27.02 %	31.97 %	34.52 %	48.98 %	54.15 %	66.76 %	73.15 %	71.38 %
TCPL	42.09 %	41.26 %	45.32 %	40.15 %	40.95 %	41.98 %	54.60 %	42.83 %
Borkar	42.40 %	44.57 %	65.34 %	61.34 %	54.12 %	52.30 %	49.74 %	56.76 %
Sales/GrossBlock
Parksons	1.14	1.18	1.17	1.06	0.91	0.81	0.73	1.07
TCPL	1.21	1.33	1.14	1.23	1.06	1.04	0.81	0.93
Borkar	1.46	1.48	1.34	1.57	1.44	1.34	1.28	1.17
Inventories as % of Sales
Parksons	8.74 %	10.08 %	10.85 %	14.31 %	17.95 %	19.62 %	22.88 %	18.79 %
TCPL	12.01 %	12.02 %	12.87 %	12.13 %	13.35 %	14.99 %	16.33 %	12.95 %
Borkar	29.69 %	32.63 %	34.64 %	30.30 %	30.74 %	25.05 %	27.08 %	24.19 %
Debtors as % of Sales
Parksons	19.15 %	18.23 %	16.77 %	18.20 %	18.91 %	18.12 %	23.36 %	17.99 %
TCPL	18.70 %	18.82 %	16.57 %	15.51 %	15.92 %	14.38 %	16.63 %	13.92 %
Borkar	15.93 %	16.16 %	18.18 %	20.01 %	18.50 %	19.66 %	20.44 %	15.95 %
EBITDA to OCF Conversion
Parksons	96.20 %	69.51 %	103.72 %	60.03 %	78.71 %	130.71 %	34.35 %	21.25 %
TCPL	91.09 %	43.04 %	79.42 %	79.19 %	73.71 %	62.80 %	63.27 %	71.75 %
Borkar	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.	n.a.
Asset Addition (in ` cr.)
Parksons	44.21	42.48	10.29	39.25	36.52	16.19	72.72	17.63
TCPL	43.86	32.05	51.10	28.71	27.62	5.16	34.38	12.01
Borkar	35.57	17.34	36.32	14.08	5.98	10.73	3.13	7.86
Debt Addition (in ` cr.)
Parksons	-(4.95)	9.70	-(23.49)	23.26	5.51	16.12	18.95	20.52
TCPL	12.21	25.63	31.96	20.23	10.21	2.31	21.26	5.19
Borkar	14.90	-(20.63)	21.86	31.72	12.21	12.77	-(0.13)	10.83

(6) Its a capital intensive business wherein a company needs to continuously invest for growth with asset turns being in the range of 1-1.4.

(7) Entry barriers are not many as even a greenfield project can be set-up very fast within a span of maximum 1-2 years as also because of small size and light weight, transportation of finished products is also not a major issue.

(8) Cost for setting up a viable greenfield project (wherein one needs to install sufficient lines to breakeven), low asset turns involved, continuous product innovations (in the form of understanding customer's product needs and design compelling packaging) and adhering to quality demanded by large sized clientle from varied sectors act as major entry barriers.

(9) A typical viable greenfield project costs anywhere between 50-80 cr..

(10) Company has its manufacturing facilities located at Silvassa, Haridwar, Goa and Guwahati (recently commisioned) with a combined capacity of 71,400 MTPA. All the plants are ISO 9001:2008, ISO 22000:2005 certified and are also compliant with BRC/IoP Global Standard Packaging Issue 3 which is suitable for direct food contact because of which TCPL is an approved vendor to leading food manufacturing companies in India such as Nestle, General Mills, Ferero, GSK, Kellogg India, Heinz, Amul and Hindustan Unilever. In addition, company's plants at Silvassa and Haridwar are also FSC certified and SEDEX compliant.

(11) In such highly competitive industry, company has turned out belowmentioned CAGR numbers :

	3 Years' CAGR	5 Years' CAGR	10 Years' CAGR	15 Years' CAGR
Revenue	18.02 %	20.22 %	20.77 %	21.71 %
Gross Block	18.54 %	16.69 %	17.13 %	15.60 %
Debt	19.90 %	20.29 %	22.37 %	20.17 %
EBITDA	21.47 %	21.28 %	20.76 %	17.01 %
PAT	25.79 %	29.29 %	22.67 %	12.92 %

(12) From a single segment clients (Cigarette Segment), company now caters to ~60 clients from multiple segments, viz., Liquor, FMCG, etc.. Segmentwise breakup of revenues of the company is :

	1HFY14	FY13	FY12	FY11
Cigarette	25.05 %	31.08 %	31.95 %	32.50 %
Liquor	17.64 %	14.20 %	15.62 %	11.82 %
FMCG & Others	57.55 %	54.73 %	52.43 %	55.68 %

(13) Top 10 clients contribution over last few years has been :

	FY14	FY13	FY12
Contribution from Top 10 clients	60 %	70 %	75 %

(14) Company also does low-end Conversion 'Job Work' for its oldest client Godfrey Phillips wherein raw materials like Paperboard, etc. are supplied by the client and the company has to use its expertise and machinery to deliver the end product. It simply involves converting the basic paperboard into package grade material by laminating,

coating, printing outlining, etc.. Revenue contribution trend from this conversion job work over last 17 years has been :

	FY14	FY13	FY12	FY11	FY10	FY09	FY08	FY07	FY06	FY05	FY04	FY03	FY02	FY01	FY00	FY99	FY98
Low-end Conversion Work as % of Total Revenue	10.00 %	9.59 %	14.85 %	17.18 %	19.32 %	16.72 %	20.80 %	19.96 %	23.36 %	24.50 %	25.56 %	27.93 %	19.11 %	29.57 %	31.68 %	37.69 %	35.03 %

(15) Company also does exports mainly to Middle East, Europe and Africa. Revenue contribution trend from exports over last 17 years has been :

	FY14	FY13	FY12	FY11	FY10	FY09	FY08	FY07	FY06	FY05	FY04	FY03	FY02	FY01	FY00	FY99	FY98
Export as % of Revenue	15.66 %	19.48 %	17.16 %	12.91 %	12.55 %	13.28 %	18.81 %	21.33 %	23.04 %	16.12 %	7.92 %	4.69 %	1.58 %	1.88 %	0.28 %	0	0

(16) As said before, the company operates in 'Paperboard Packaging' segment where most of the listed players are not present. However, for a broad comparison, I checked the key comparison parameters of most of the Indian listed packaging companies :

	5 Years' CAGR in Revenue	5 Years' CAGR in EBITDA	10 Years' CAGR in Revenue	10 Years' CAGR in EBITDA	Trading @ P/E	Trading @ EV/EBITDA
TCPL @520	20.22 %	21.28 %	20.77 %	20.76 %	15.75	8.17
Huhtamaki PPL - Paper Products @216	15.89 %	7.43 %	11.86 %	7.83 %	16.31	9.26
Manjushree @445	32.85 %	41.80 %	30.03 %	33.72 %	15.01	6.88
Flexituff @218	32.99 %	25.03 %	25.96 %	28.44 %	26.44	8.63
Ess Dee @265	9.76 %	25.82 %	27.37 %	26.20 %	20.66	8.06
Essel Propack @117	10.77 %	19.17 %	23.87 %	14.57 %	13.05	7.14
Jindal Poly @215	27.05 %	9.33 %	25.02 %	12.36 %	13.22	4.60
Uflex @146	23.30 %	12.21 %	23.68 %	17.57 %	5.22	3.76
Polyplex @212	23.12 %	-(12.87) %	28.92 %	7.87 %	9.03	13.01
Cosmo Film @88	18.54 %	-(4.28) %	16.67 %	0.94 %	10.31	6.02
Karur KCP @53	11.18 %	4.32 %	12.01 %	8.06 %	19.35	5.81

(17) However, as said before, company's main peers seem to be unlisted players viz., Parksons Packaging, Borkar Packaging and to some extent International Print-o-Pac (IPP). Out of these three players, PE investors have invested in Parksons and IPP and the valuations at which they made investments is :

	Year of Investment	PE Player Involved	Amount Invested	Stake Acquired	@ EV/EBITDA	@ EV/Sales	@ Price/Earning (P/E)
Parksons Packaging	2006	ChrysCapital	INR 50 cr.	20.97 %	12.80	2.59	20.93
International Print-o-Pac (IPP)	2007	Blue River Capital	INR 55 cr.	25 %	8.85	1.71	26.78

(18) Last 17 Years Key Financial Data of the company :

P&L Items

	FY14	FY13	FY12	FY11	FY10	FY09	FY08	FY07	FY06	FY05	FY04	FY03	FY02	FY01	FY00	FY99	FY98
Net Revenue	394.92	373.29	283.34	240.20	186.11	157.22	116.65	99.08	77.58	65.31	59.81	48.77	49.23	33.87	24.76	20.72	22.90
EBITDA	61.17	55.64	41.31	34.13	26.56	23.31	17.21	14.66	11.57	9.57	9.27	8.67	8.44	7.18	6.03	5.79	5.46
PAT	12.50	13.50	7.70	6.28	5.36	3.46	2.92	3.08	4.18	2.31	1.62	1.20	2.70	3.19	2.33	2.02	1.81
Dividend Payout as % PAT	20.32 %	19.92 %	26.23 %	23.08 %	25.93 %	38.72 %	45.89 %	32.46 %	22.24 %	38.09 %	41.35 %	46.66 %	18.51 %	17.24 %	0	0	0

Balance Sheet Items

	FY14	FY13	FY12	FY11	FY10	FY09	FY08	FY07	FY06	FY05	FY04	FY03	FY02	FY01	FY00	FY99	FY98
Equity	8.70	8.70	8.70	8.35	8.70	7.65	7.79	5.72	5.45	5.20	5.00	5.00	5.00	5.00	5.00	5.00	5.00
Debt	166.25	154.04	128.41	96.45	76.22	66.01	63.70	42.44	37.25	23.27	22.07	24.70	26.23	12.00	9.39	10.56	11.37
Gross Block	324.19	279.16	247.89	194.61	175.07	149.79	143.71	106.14	98.14	75.44	66.66	61.83	58.12	42.74	38.95	36.83	35.30
EBITDA to OCF Conversion	91.09 %	43.04 %	79.42 %	79.19 %	73.71 %	62.80 %	63.27 %	71.75 %	90.83 %	130.09 %	120.71 %	108.88 %	5.80 %	28.41 %	58.20 %	47.64 %	68.68 %
Asset Addition (in ` cr.)	43.86	32.05	51.10	28.71	27.62	5.16	34.38	12.01	22.32	11.05	4.97	3.71	14.12	5.24	2.17	1.52	1.60
Debt Addition (in ` cr.)	12.21	25.63	31.96	20.23	10.21	2.31	21.26	5.19	13.98	1.20	-(2.63)	-(1.53)	14.23	2.61	-(1.17)	-(0.81)	NA

Discl. - Invested

Note â The above post is just a representaion of statistical facts and figures pertaining to 'Packaging Industry' in general and 'Paperboard Packaging' in particular of which TCPL Packaging is just a part. This in no way be considered any sort of buy/sell/hold recommendation in any form whatsoever. This post should in no way be used to construct any form of investment/disinvestment decision and should only be used as a tool for information on statistical data.

[Mahesh]

To add to above post,

(19) Reliance ADAG group holds ~10 % stake in the company having purchased at ~INR 50 per share which could be a overhang.

Rgds.

[Mahesh]

Scripcode :523301Company :TCPLPACK-$
Notice of Postal Ballot  20 Feb 2015 18:07 TCPL Packaging Ltd has informed BSE that the members of the Company will consider to approve the resolutions, by way of Postal Ballot.

http://www.bseindia.com/xml-data/corpfiling/AttachHis/TCPL_Packaging_Ltd2_200215.pdf

[typebharat]

Generally you have better business model companies like Accelys, MPS etc in your portfolio. Why would you invest in a packaging company? Converters are so dependent on brands and don"t have pricing power.

rgds

[Mahesh]

Hi Bharat,

Yes…true to an extent but chieflyfor smaller as well as unorganised players…having said that I must admit that there is hardly any room for significant margin improvement even for larger established players, but, maintaining of margins in a rangebound manner is infact perfectly feasible…will not be able to elaborate deeply as Iwas used to becasue of known restrictions, but will briefly mention the reasons for my investment into the company :

(1) Exceptional clean track-record of financials (all P&L, BS, CF) over last 17 years which is rare to find in any packaging company (which has so far not opted for inorganic moves). To register such healthy financials with decent organic growth speakshighly of management ability and business model.

(2) Long association with prominent brands from each segment makes switching very difficult for the brands involved unless there is some major issue.

(3) CAPEX for 20 % p.a. growth till FY17 doesn’t require any more addition to debt and I believe cash generation over next two fiscals will atleast take care of FY18 growth.

(4) Management seems confident of sustainable 20 % p.a. growth even on a larger scale and more important is its focus on profitable growth as in one of the interviews to industry publication MD has clearly stated that he doesn’t believe in playing pricing game and will stick to its pricing.

(5) Exceptional track-record of executing projects…most recent example being commissioning of Guwhati greenfield project in 1 year.

(6) Company planning to venture into pharma space as well as flexible packaging which could aid in improving margins.

(7) No unethical instance I can find in the past which suggests good corporate governance.

(8) I see this companyemerging asone of the most sought after Indian packaging company by FY20 which could help it command good valuations.

Having said all these, my investment into this company is very long term in nature and very restrictive wrt. my portfolio allocation mainly because of valuations at which it is trading at present, which although can’t be termed expensive is reasonable and atpar with other pacakging companies…

Rgds.

Discl. - Invested

Note – This post is in no way any sort of recommendation and is just part of a normal discussion. No one should use this post to devise any investment/disinvestment decision and the matter contained in this post should only be used as a tool to enhance information on a key player in Papaerboard Packaging Industry.

[vive123]

I think the company has plans for a QIP. This should dilute the equity and purpose is not known.

[shankar_4602]

Hi Mahesh,

This companyhas some Lynch characteristics too :

1.) It has a Boring name

2.) It does something very boring. Packaging is definitely a boring business

3.)It Is in a dullsectorwhich is not so profitable

4.)Not many analysts/institutions follow it.

The long term association with the clients might itself be a moat, if there are no major advantages to clients switching to competitors. The low profit margins might itself act asentry barriers to new entrants. Management also seems ethical and efficient, from their 17 yr old track record. The only maybe a small negative is that company has to increase its topline consistently to achieve EBIDTA/PAT growth since it is a low margin business.

Regards

Shankar.

[wpf123]

Hi Mahesh, thanks for sharing the details.

One basic question, can we consider any stock for investment even when it's net Profit Margin is less than 8%(like in TCPL)? Sorry for naive question as am a beginner in stock analysis :-(

Disc: Not invested. Still studying

Saket Kanoria interview in 'PrintWeek". Needs to log in to see the page:

http://www.printweek.in/Feature/389396,packaging-definition-for-25-years.aspx

Here is the transcript:

As positive sentiment surges, TCPL Packaging is ramping up its plants and systems with a new unit in Guwahati. Profits could rise to 20%âas the company strives to notch up Rs 500-crore in the next year or so.

Ramu Ramanathan (RR): TCPL Packaging has reported a sales standalone turnover of Rs 108.62-crore and a net profit of Rs 4.24-crore for the quarter ended March 2014. The company has seen 20% growth until last year. What is sustaining the 20% growth in seven years?
Saket Kanoria (SK): Last year, we grew by 6â7%. Until last year we had seen a sustained average growth of 20% year-on-year. There are several reasons for this. One is that the industry is growing at 10â12% and we have observed a volume growth of 10â12% in the industry. In addition, we have constantly picked up market share. All these factors combined have enabled us to achieve 17â18% growth. Moreover, our geographical diversification has helped us in sustaining it.

RR: Mr Kanoria, you have managed your numbers above industry levels. How do you look at the operating margin?
SK: The CAPEX cost of a new plant has become very significant. The depreciation of rupee has played a major role since we are looking at imported equipment. Also, the cost of land and building has gone up disproportionately. Therefore, the capital cost is very high and the capital-to-turnover ratio has fallen. So you need to be in a high value-added space, which is not so easy to find, in order to fill up the entire capacity. If you are in a regular space then your margin of operating has to be high in order to justify the CAPEX. So, what is high? It varies!

RR: What is your yardstick when it comes to measurement of profitability?
SK: As a company, we are operating in the 15â16% EBIDTA margin, which could be lower than a couple of our competitors but it could be higher than the general average of the industry. However, I donât think thatâs a good yardstick to measure profitability. What is a really good measure, to my mind, is the Return On Capital Employed (ROCE).

RR: How so?
SK: At TCPL, we sweat our assets a lot. So the amount of tonnage that we churn per machine is highest percentile of the industry. We calculate the absolute number on that tonnage and divide that with the CAPEX invested. This number is a relevant factor. At the end of the day, business is about how much money you put in and how much you get back. I could put Rs 100 in a business and could do a Rs 1000 turnover and make a Rs 10 profit. I can also do a Rs 150 turnover but with a Rs 15 profit. So, which one will I prefer â 1000/10 â or will I go for the 150/15 model? At the end of the day what matters is your bottomline, divided by the amount of money employed with the business. ROCE is critical and one has to be very mindful of that.

RR: There are a raft of new players coming into the packaging space. How easy or difficult is it for them to sustain?
SK: What has happened is that a typical MNC customer has got more alternatives and an expanded supply base. There are some suppliers operating in the turnover range that we are in. Also, there are some new players trying to get in. I find them to have a much more challenging task ahead. The reason being, they have to pay a higher entry price, lower their prices to compete. Plus, they donât have all facilities under one roof. They donât have multi-locational facilities. Itâs not that easy for new comers. People do aspire to reach our levels and some commercial printers are aspiring to venture into packaging. There is space for everyone and everyone will find their own level at the end of the day.

RR: In terms of scale, you are converting 4000 to 5000 tonnes of paperboard per month. Does this give you a definitive edge?
SK: This gives us extra value in terms of cost leadership. Now the manpower cost has upped significantly, so you need a scale to spread it over. Certainly, it is helping us. I donât really know how well the smaller guys are performing. If we can keep growing at the rate at which we are, then the gap will widen; it wonât narrow. Our challenge is really to be able to maintain our growth, which we aspire to do at 20%. If we can do that we are fairly comfortable.

RR: What is TCPLâs strategy for customer development?
SK: Our top 20 customers have a very dominant share of our business. We have found that those customers have actually grown to the extent that we have grown. Or you can say, we have seen a higher growth in those customers than we have grown overall. So that list has a very strong weightage. Having said that, we also focus on acquiring newer customers.

RR: Is there any segment that you havenât stepped in as far as folding carton business is concerned?
SK: In folding cartons, the segment that we donât have a major stake in is pharma, and we are trying, but not significant as yet. We have capacity constraints; unless we dedicate certain capacity for pharma, it will be very difficult.

RR: As far as capitalisation for a packaging plant is concerned, the required investment at more than $50 million sounds big? Does that throw open the doors for consolidation, as well as associate mergers in the next few months or quarters?
SK: To set up a packaging greenfield, we are talking upwards of Rs 50 crores for one line, which really isnât viable. So, we need to talk of two, so we are in the range of Rs 75â80 crores. That is quite a significant investment. But this does not necessarily mean that it will require consolidation and foreigners will set up operations in India. The existing players have excess capacity today in the overall industry.

RR: Last two years were grim. Are things looking better now?
SK: We had two pretty much rough years for the economy. With the new government in place the sentiment is quite positive and the expectation is there that economy will be on track. But we now have two external factors: of Iraq and oil price, and the delayed monsoon. This will certainly have an impact on the consumer; especially the rural market will get affected. Going forward, if we return back to 14â15% overall growth, this would require considerable investment and if the local players donât, then the doors will be opened for foreign investment.

RR: We have seen such consolidation in labels and flexible packaging segment. Is folding carton segment immune to this trend?
SK: I think the typical Indian promoter doesnât want to get out of his business as long as he can avoid it; even if he does, he wants a very good value, which the incoming guys are very reluctant to pay.

RR: TCPL signed a technical collaboration agreement with AR packaging group, AB, Sweden. In an official comment you said, âThe objective of the agreement is a strategic partnership mainly in cooperation in the manufacturing, sourcing and sales and marketing in India for the solid folding carton market.â What is the update on this?
SK: Basically, we knew each other well. At that stage, neither of us was looking at having any financial stake in each other. So we signed a technical agreement wherein we could interchange ideas and people and visit each otherâs plant and learn together. Itâs more about us learning from them than them learning from us. It is under two years now and it has given us some access to technology and to bounce off ideas and know what is going on in the Western world. They had sent one of their technical experts who helped us on some cost-cutting measures. And they have expertise in tobacco printing, which has helped us in our tobacco business.

RR: Has value-addition grown in recent years?
SK: I think that the âsales per tonneâ is the right measurement for this. People are adding lot of value, lot of UV finishes, textured finishes, foil stamping etc. Itâs a good thing for the industry. That is what is sustaining us. Otherwise the prices only kept declining, and itâs because of value- addition that we have survived.

RR: What do your customers expect from you?
SK: Customers are looking for innovation. They do come out with a lot of promotional packs every year, or twice a year, or festive packs. They are looking for suggestions and their expectation is that we have a supplier who can deliver innovation. To this end we have set up a design centre which offers graphics design services to TCPL and its customers. It has been six months and the service has been well received. We are also setting up an innovation centre in which we can incubate the packaging development process and do prototyping and such things.

RR: In terms of organisational structure how does it work at TCPL?
SK: We are a single entity with plants in Silvassa, Haridwar, Goa, and now in Guwahati. We have two sections of business, namely, tobacco and non tobacco. Tobacco is based out of Silvassa. And for non tobacco we will have four plants,including the one in Guwahati. They share the same technology, same suppliers, pre-press, inks and varnishes. We have tried to achieve fair amount of standardisation across all the locations. My philosophy is: suppose in one plant we are doing something right then it should be immediately implemented in all the plants. We have centralised purchase, marketing, pre-press and finance. Only the production centres are different.

RR: TCPL is one of the largest exporters of printed cartons from India. Exports constitute about 17% of TCPLâs annual revenues. Does the export focus also include cigarettes, liquor, food, FMCG?
SK: We have been exporting for quite some time now and itâs a significant part of our business. We have been exporting to Middle East and little bit to Europe and some to Africa. We feel export volumes will grow for us. Moreover, the decline in the rupee has certainly helped the export business.

RR: What about the training school in Dharampur where you impart vocational education to more than 500 adivasi students?
SK: That school is doing quite well. We have upgraded its facilities. Having said that, we have scope to do much more. The challenge is to find the time to do it. We need a bit of focus there. All the stationery used in TCPL is bought from the school in Dharampur. The new Companies Act has mandated CSR policy for a certain threshold and above, which we fall into. Now, mandatorily, we have to spend 2% of our profit for CSR. So we are registering a trust called TCPL Foundation. We will be doing genuine CSR activities in the villages around our factory.

RR: The big picture in the next five years...
SK: The big picture is that we would like to broaden the segments in which we operate. This is our 25th year of operation. So itâs a big year. We hope to hit Rs 500 crore. We would like to grow at 20% sustainably and to expand our product range. Established in 1990, TCPL crossed Rs 100 crores mark in 2007. It took 17 years to get to Rs 100 crore. Now in seven years, we hope to get to 500 crores.

Kanoria's Take - Manroland vs KBA

Since Manroland went into a financial crisis,they have seen a re-organisation with new owners. At TCPL, we were compelled to look somewhere else. Subsequent to that, Manrolandâs service in India was quite responsive with their current set-up on day to day basis. But I find that their attitude towards selling new machines and pricing is not very practical. They are not competitive at all. On the other hand, KBA is at the top of technology. They are very innovative. Not only do they have the best technology, they are constantly upgrading it. In terms of pricing, they are quite competitive. Now that we are getting our third KBA, we have been honoured by KBA as their âKey Accountâ. We are the first in Asia to be given this honour. This means better after-care, visits by their technical experts on regular basis, more handholding, and technical support. We have been happy to move to KBA.

Equipment update

In 2013, TCPL invested in three units at Silvassa, plus Haridwar and Goa, with a KBA, Bobst finishing kit and ancillary equipment. What is the machine update for 2014? Saket Kanoria (SK): In FY 2013â14, we have done a significant amount of investment. We have been installing balancing equipment in Silvassa and Haridwar. Soon enough, we will expand both Silvassa and Haridwar units. We are in the process of firming it up. Space is a constraint in Silvassa. In Haridwar, we have space and we have commenced construction for a new facility. Installations in the current year? SK: We are setting up a new plant in Guwahati. We expect to start production by December 2014. It is a complete line, so we will be able to produce mono cartons and micro fluted cartons. Itâs a beautifully designed plant and will be a benchmark for the industry. What is the kit at Guwahati? SK: The Guwahati unit will house a seven-colour KBA Rapida 106 along with ancillary kit. All die-cutters and folder-gluers are from Bobst. Why a plant in Guwahati? SK: We have a strong presence in the West and the North. With a plant in Goa, we have a very small presence in the south. The North-east of India offers a huge tax incentive hence more of our customers will sooner or later set up plants in the region. Also, that market is being serviced by one or two players locally. Hence we feel there is an opportunity. It will help extend our services pan India presence. Thatâs why we chose Guwahati. The status of manufacturing micro fluted cartons in Haridwar? SK: In Haridwar, we have a dedicated micro flute plant apart from an offset unit. We print in the offset unit, and shift the job to the micro flute plant for corrugation and die-cutting and despatch. In that corrugated plant, we will add a printing unit. And the plant in Goa? SK: In Goa, until last year, it was just a corrugated plant, but now we have added printing to it. You set up plants in Silvassa, Haridwar, Goa and Guwahati. Is the process of setting up a new plant far more difficult than it used to be? SK: Yes. All sorts of permits take a larger amount of time and the paperwork is considerably more. However, the service attitude of banks has definitely improved. They are much more commercial minded and more marketing savvy. If you have a credible project they are quite happy to finance. But the government can certainly make our life easier.

[sdev9]

TCPL Packaging Ltd., (formerly known as Twenty-First Century Printers Ltd) was promoted by the Kanoria family, and began commercial production in April 1990. It is one of India’s largest manufacturers of printed folding cartons, and one of the few listed packaging companies in India.

Company posted 512 Cr Turnover and posted 32.18 Cr profit . (37 Rs e.p.s) and paid 60%Dividend.
The Company has commenced commercial production at its new plant near Guwahati, Assam w.e.f. March 26, 2015
i think Company will be come in lime light after crossing 500 cr market cap. Till Now no brooking firm recommended after this Big permanence because of low liquidity. company expects 20% sales growth for next 3 years

expecting valuable comments …

sahadev

[sdev9]

TCPL Packaging Ltd.pdf (123.2 KB)

LAST 5 YEARS RESULTS

[DibyaSaha]

TCPL crossed 500cr working cap. Any view ?

[baba]

Any idea wh the major clients are other than HUL , ITC … ?

[vikskukreja]

Relaxo footwear has NP margin of less than 6%, however it has been a multi-bagger and great stock to invest in for last many years.
More than NP margins, what matters is where are expense happening, whether those expense help creating long term wealth and are depreciated fast. Also, sometimes low NP margin in itself becomes a moat to keep other businesses at bay for the fear of entering a low margin business, turning them off.

[anuj_mittal]

TCPL packaging fell today while the entire market picked up. I think this is a counter intuitive trend. The Guwahati capacity is already in play and as capacity utilization increases, the overall margins will go up. This is because, the Guwahati factory is already running and incurring the fixed costs of rent, electricity, salaries etc. Any incremental capacity utilization will directly result in the total margin being added to the bottom line.
Moreover, it shows a lot of business strength to be capacity constrained in a market which is marked by over capacity. Being from the FMCG line and having dealt with them earlier, I see a much brighter future for them.

Anuj
Discl: Invested and accumulating

[DEEPAK_AGARWAL]

On what basis the pe is calculated by screener ??
Eps of which year and price at what time ??

[ateek_balesaria]

Emami to hike paperboard investment to Rs 2,000 cr in 3 yrs

Emami expanding paper board capacity

Any one has idea how this affects the company?

Disc : Not invested yet

[kunal_patel]

I had a chat with my contact with one of the TCPL competitor, Borkar Packaging. You might find it useful:

Size of opportunity – INR 6,000crs

•   Organized – 15%/20% (ITC does mostly for internal consumption)
  

•   Unorganized – 85%/80% (Mostly jobbing work, no big player doing everything under one roof) 
  

Revenue break-up: Borkars: 320crs and Top-3 (Borkars+Parksons+TCPL: INR 1,000crs)

•   Last year grew by 20%, can comfortably grow at this rate.
  

•   They have diversified into Food and Liquor 
  

•   Innovation helps companies to gain market share but in some time other companies catch up and becomes a level playing field
  

•   Not much demand from E-commerce companies. 
  

Cost & margins:

•   65-70% RM, hence Gross margin of 30-35% ; Break up of rest; 50% fixed and 50% variable
  

•   Margins are difficult to improve as big FMCG companies continues to squeeze margins
  

•   Have EBITDA margins of 12-15%
  

•   Efficiencies can come only If a production line is running for longer time (say 5 hours for one type of product). This generally don't happen as every companies (HUL etc.) gives orders to at least 3-4 players.
  

Capacity:

•   One plant in Goa, Daman and Himachal Pradesh. Goa currently has 3 lines, has capacity of 4 lines. 
  

•   Additional line set-up costs 35-40crs, Machine is imported from Europe, Asset turnover of 1x. Takes 2 months to import the machinery
  

•   Mostly runs at 80-90% capacity
  

•   Uses Refurbished machines. Spends on machine maintenance/trainings and hence margins are similar to other companies
  

How to improve margins

•      Gross margins are difficult to improve. Giant FMCG companies squeeze margins.
  

•      Automation can improve margins. For eg: they are trying to automate final sorting of cartons where they need lot of manpower. 
  

Aseptic beverages

•      Cost is very high @ 150crs. Tetra Pak has patented the technology
  

•      Parksons acquired a company in the same segment but has not got any break through
  

Competition

•      TCPL is a good company. 2 years back he himself was thinking that TCPL is highly undervalued. 
  

•      TCPL does a lot of jobbing work for Godfrey Philips. Promoter has some connection with GP. ~20-25% of revenue must be coming from Cigarettes business.
  

•      He will get back if Parksons or TCPL has expansion plans. He thinks that TCPL has made orders for 2/3 machines.
  

•      TCPL has lot of flexible packaging business and hence their margins are better.
  

Discl: Holding TCPL from lower levels. Added more ~2months back.

[ateek_balesaria]

@kunal_patel- Thank you for amazing info.

1. TCPL completed Haridwar Plant expansion in Spetember-2015, If you can find out how much incremental sales will come from that?
2. Promoter is relative of Goldfrey’s promoter,
   3)Please do let us know about any more expansion plans
3. TCPL were also supposed to enter into Pharma foray , where margins are better, if you can ask your friend regarding the same.

[sta]

@kunal_patel do u know where do these e commerce companies buy their packing. i thought TCPL was running so high on the basis of new e commerce opportunity

[kunal_patel]

hi sta,

They buy it from different vendors. As far a I remember private companies like Pyramid Packaging (corrugated boxes), Dynaflex (Tamper evident security envelopes & corrugated boxes) supplies a significant chunk. Dynaflex in an interview in 2014 said they have relationship since the day Flipkart started in Bangalore and supplies close to 50% of their requirement (not sure about which packing material they were referring to, Please see the link here.

Also Pyramid packaging supplies a big chunk to ecom companies. Read here .

Overall its an unorganized market. Most of the players in the industry does jobbing work like some makes the paper, some does printing, few players takes the order and outsource it to vendors. Only three players TCPL, Borkars and Parkers are integrated players.

Thanks
Kunal