Buy Time Technoplast - Motilal Oswal

Time Technoplast Ltd (TIME.IN; Mkt Cap USD 218m, CMP Rs 48, Buy)

Q3FY11 results were above our estimates with positive surprise on sales as well as margins.

The results do not factor in benefits of the Solutia acquisition as the Oct-Dec quarter of Solutia's business will be consolidated with the Jan-Mar-11 results of Time Technoplast.

Revenue growth of 31% was driven by 35% rise in polymer products segment whereas composite products grew by 15% during the quarter. Polymer products growth has been driven by scale-up of the pipes business and growth in the consumer packing business.

Operating margins rose 20 basis points at 19.6% due to margin expansion in the polymers business.

Higher Interest and depreciation and rise in tax rate slowed down profit growth to 26%.

Given the higher than estimated earnings, we have scaled up our estimates marginally.

The company's 6,000 tonne China plant has commenced trial production and is in line to start commercial production in March 2011.

The company acquired a 90% stake in Yung Hsin Contain Industry Co. Ltd, a large industrial packaging player in Taiwan for an enterprise value of $17 million - 1xsales and 6-7xEBITDA. Other Plants in ASEAN region are online to be commissioned in 1HFY12.

We believe that as an MNC industrial packaging and consumer products company, Time Technoplast trades cheap at 5.2xFY12 EV/EBITDA vs a ~5 year historical average of 8.8x. The stock and our earnings both factor in pessimism on rising crude oil and equity dilution. We would recommend adding exposure to this stock aggressively at current levels. Reiterate BUY for a target of Rs. 75.

Source : Equity Bulls

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