Time Technoplast - A rerating candidate - ICICI Securities

We expect Time Technoplast (TIME) one of the largest Indian polymer processors to sustain its growth momentum (FY08-FY20: revenue CAGR of ~15%) with demand and margin levers in place for both its A) established products: i) Asia (ex-China) gradually becoming a manufacturing hub for chemicals which would offer incremental growth opportunities to TIME which has plants spread across Asia and ii) strong order book position in its plastic piping segment and B) value-added products (VAP): i) Incremental revenue from recent commissioning of its plants (manufacturing IBCs) in USA, ii) expected growth traction in its LPG Composite Cylinders (CC) and MOX films segment, and iii) incremental revenues from its expected new product launches. Besides sustaining the growth momentum, selling of non-core assets and revocation of pledge could be another catalyst for further rerating. Initiate coverage with a BUY. Key risks to upside: sustained higher capex and capital allocation.

- Initiate with a BUY and target price of Rs84. We expect TIME's revenue/EBITDA/PAT to grow at CAGR of 1.3%/3.3%/6% over FY20-FY22E, respectively. The major overhang for TIME's benign valuations we believe is the market's concerns on 1) its sustained capex drive to the tune of Rs2-2.5bn p.a., 2) Higher debt on books, 3) capital allocation woes and 4) promoters pledge. With some of these issues likely to be addressed by the company in the form of: 1) lower capex to the tune of Rs1-1.5bn p.a. over the next two years, 2) likely debt repayment driven by higher FCF generation and selling of non-core assets and 3) revocation of pledge, we assign a 10x PE multiple to TIME and arrive at a target price of Rs84.

- Established products - new growth opportunities emerge for plastic drums. TIME is already the biggest (in size) plastic drums manufacturer worldwide. Apart from the conventional growth opportunity w.r.t. conversion of steel drums to polymer drums, we expect a new growth opportunity to emerge in the form of Asia (ex-China) gradually becoming a manufacturing hub for chemicals sector. With the operations of TIME spread across Asia, it may be one of the prime beneficiaries of this shift. Besides traction in its core polymer drum segment, TIME may also sustain its growth momentum in plastic piping segment with its existing robust orderbook in place.

- Value-added products to sustain growth momentum. TIME's VAP portfolio has seen strong revenue CAGR of 23.6% over FY15-20 with the company materially scaling up its products like CC and MOX films successfully. In CC, it already has a decent orderbook while it continues to get incremental orders from new customers (particularly exports). In MOX films, new applications and export opportunities are likely to be growth drivers for future growth. In IBC, too, the company has been able to clock a decent growth in the past and with new plants in USA, TIME can generate revenue of US$35-40mn at full capacity utilisation in the next three years.

- New VAP development paves way for future long-term growth: TIME has a proven track record of developing niche products and scaling it successfully in the past led by its strong R&D capabilities. It is currently in the process of launching a number of niche value-added products (namely CNG Type-4 cylinders, CNG cascade, Composite Air Tanks, DEF Tanks, Composite Leaf Springs and PU based CC) which are under different stages of approval. These new products may generate incremental demand and drive incremental margins post FY22.

Shares of TIME TECHNOPLAST LTD. was last trading in BSE at Rs.37.2 as compared to the previous close of Rs. 36.95. The total number of shares traded during the day was 34367 in over 657 trades.

The stock hit an intraday high of Rs. 37.6 and intraday low of 36.85. The net turnover during the day was Rs. 1276871.

Source : Equity Bulls

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