Higher capacities and new products will drive Time Technoplast’s future growth. Investors with a 12-month horizon may find the stock attractive
TIME TECHNOPLAST (TTL) is one of India’s leading producers of plastic products with an annual turnover of Rs 500 crore and a market capitalisation of Rs 1,650 crore. The company focuses only on niche, technologically superior plastic products. It came out with its initial public offer (IPO) in mid-’07 to fund its expansion plans. Considering its upcoming capacities, recent acquisitions and a strong product pipeline, the scrip is expected to generate substantial returns for investors over the next 12 months.
BUSINESS: TTL has a 75% market share in the domestic industrial packaging segment. It has a technology tie-up with German major Mauser since 1993. The company’s product portfolio includes industrial packaging products such as drums and containers for chemicals producers, lifestyle products like matting and turfs, auto components such as radiators and anti-spray rain flaps, healthcare products that include auto-disable syringes and products for infrastructure such as safety nets and reinforcement for road surfacing.
TTL’s production is spread across six locations in the country, giving the company a wide reach and logistical advantage. In October ’07, the company added another vertical to its business by acquiring NED Energy, which supplies batteries to the telecom sector. In FY07, NED Energy earned a net profit of Rs 3.3 crore on sales of Rs 45.1 crore.
GROWTH DRIVERS: The company started FY08 with a plastic processing capacity of around 50,000 tonnes per annum (tpa) and plans to double this figure by the year end. Within the next two years, it aims to become the largest plastic processor in the country. It is also setting up plants abroad. Its industrial packaging facility at Sharjah was commissioned in October ’07, while its auto components plant in Poland started functioning in January ’08. To augment NED Energy’s battery manufacturing capacities of 100 million ampere hours (Ah), it acquired Bahrain-based Gulf Powerbeat with an installed capacity of 150 million Ah. It plans to add fresh capacities of another 200 million Ah by September ’08. The battery business alone can contribute Rs 160 crore to the company’s turnover in FY09. The company has several new products in its pipeline. These include ‘green batteries’ — which reduce the quantity of lead and acid — lightweight batteries, gel batteries and others. TTL is also working on new products such as plastic fuel tanks for automobiles, glass reinforced polymer cylinders for LPG and CNG and high-pressure polyethylene pipes, among others. Most of these products, which will be rolled out over the next few quarters, have huge growth potential in domestic and exports markets.
The company is also trying to develop the first commercially usable fuel cell. It has signed an exclusive agreement with Council of Scientific and Industrial Research (CSIR) for transfer of fuel cells technology. In coming months, the environment for domestic plastic producers is expected to improve, which will benefit TTL. It is expected that excise duty on plastic products will be slashed in the forthcoming Budget, that will improve polymer consumption in the country. Moreover, with the addition of several new polymer capacities, the global polymer market is expected to face a glut from the end of ’08, which will put pressure on polymer prices.
FINANCIALS: TTL’s net sales witnessed a compound annual growth rate (CAGR) of 47.5% from Rs 124.4 crore in FY04 to Rs 399 crore in FY07. PAT during the same period saw a substantially higher CAGR of 102.8% to Rs 41.1 crore. During the nine-month period ended December ’07, it reported a net profit of Rs 64.7 crore, which included extraordinary gains of Rs 13.4 crore. Net sales stood at Rs 458.4 crore, with operating margin of 21.4%. Since the last quarter of the year generates maximum sales and profits, the company may post a net profit of Rs 90 crore for the whole of FY08.
VALUATIONS: TTL’s current market price of Rs 792 discounts the projected EPS for FY08 by 18.4x. We expect the company to continue its high-paced growth in future, thanks to its expansion plans and products in the pipeline. High-performance products will enable it to maintain its market leadership, thus resulting in higher operating margins in future. We expect the scrip to generate healthy returns over the next 12 months.
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