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  • Stock Recommendation | TIME TECHNOPLAST LTD - BUY - Target Price : 145

    Publish date: NOVEMBER 22, 2018

    Time Technoplast reported weak numbers for the quarter as increase in commodity prices and INR depreciation led to decline in gross margins. Increase in cost of borrowings aided to decline in profits.

    □ Volume growth was at 11% during Q2FY19 with the Indian and overseas markets growing at 11% and 12% respectively in volume terms.

    □ Although at the start of the fiscal, the company had planned for 15% growth in volumes, but considering the slippage in growth in H1FY19, the management is now guiding for 12-13% volume growth.

    □ The company has taken price increases for its products, this along with the recent softening in HDPE prices should result in bounce back in EBITDA margins, the management indicated.




    At CMP, TTL is trading at P/E of 12.8x and 10.1x FY19E and FY20E earnings respectively, which is attractive as it is at a discount to midcap index valuation. In recent months, the TTL stock has been derated in line with general sell-off in the midcaps and smallcaps universe. At the current price, valuations are attractive. Hence, we continue to maintain our positive stance on the company. We value the stock at 13x FY20 earnings and arrive at a price target of Rs 145 (Rs 195 ealier, based on 15x FY20E).


    ■ The company reported consolidated net revenues of Rs 8.3 bn in Q2FY19, up 14.2% YoY.
    ■ Volume growth was at 11% during Q2FY19 with the Indian and overseas markets growing at 11% and 12% respectively in volume terms.
    ■ The management reflected optimism in the demand scenario on account of the ongoing shift in manufacturing of chemicals from developed countries to India.
    ■ The company's overseas business accounted for 31% of sales.
    ■ Share of value added products like (IBCs and Mox films) in Q1FY19 rose to 20% as compared to 18% on a y-o-y basis.

    ■ The operating margin for the quarter stood at 13.0%, a decline of 210 bps on a YoY basis.
    ■ Despite to commodity related cost pressure in HDPE, gross margins for the quarter was contracted by 240%. The company’s main feedstock is the HDPE, wherein the average prices have increased by 20% in H1FY19 on a y-o-y basis. Add to this, the depreciation in INR, which has collectively led to the margin loss.

    ■ Geography-wise, the EBITDA margins in India is more or less same as in the overseas locations. However, net profit margins are higher in overseas due to lower tax rates.
    ■ Interest cost reversed its declining trend and rose 15% y-o-y to Rs 239 mn in Q2FY19.
    ■ Tax rate stood at 25.4% in Q2FY19 as against 23.6% in corresponding quarter of the previous fiscal.
    ■ Net profits declined by 25% y-o-y to Rs 316 mn as significant margin contraction offset healthy growth in revenue. ■ Gross debt on consolidated basis stands at Rs 8.2 bn (as against Rs 7.77 bn in FY18).


    The company undertook capex of Rs 1.1 bn in Q2FY19 consisting of Rs 829 mn and Rs 276 mn on capacity expansion and value added products respectively.


    ■ The company has envisaged capex of Rs 2.0 bn in FY19.

    ■ Although at the start of the fiscal, the company had planned for 15% growth in volumes, but considering the slippage in growth in H1FY19, the management is now guiding for 12-13% volume growth.

    ■ The company has taken price increases for its products, this along with the recent softening in HDPE prices should result in bounce back in EBITDA margins, the management indicated.

    ■ The company fixes its product price based on the INR at the start of the month.

    ■ Change in product price in its packaging business gets passed on customers typically with a lag of 30-35 days.

    ■ Although there has been some slack in demand for industrial packaging in H1FY19, but demand growth for MOX films and composite cylinders remain robust, the management opined.


    At CMP, TTL is trading at P/E of 12.8x and 10.1x FY19E and FY20E earnings respectively, which is attractive as it is at a discount to midcap index valuation. In recent months, the TTL stock has been derated in line with general sell-off in the midcaps and smallcaps universe. At the current price, valuations are attractive. Hence, we continue to maintain our positive stance on the company. We value the stock at 13x FY20 earnings and arrive at a price target of Rs 145 (Rs 195 ealier, based on 15x FY20E).


    TTL's products are based on the polymer platform and has access to major plastic moulding technologies including blow moulding and injection moulding.

    The key product categories for the company are Industrial packaging products, lifestyle products (door mats, chairs, syringes), technical products (automotive components), infrastructure products (pipes and monolithic construction) and new products (composite cylinders). The largest segment is the industrial packaging accounting for 59% of revenues.

    The company enjoys dominant market share in the industrial packaging business in India. The company’s multi-locational advantage enables it to respond to customer needs in an efficient basis. Also the company keeps coming out with innovations in its product offerings.


    BUY - We expect the stock to deliver more than 12% returns over the next 12 months
    ACCUMULATE - We expect the stock to deliver 5% - 12% returns over the next 12 months
    REDUCE - We expect the stock to deliver 0% - 5% returns over the next 12 months
    SELL - We expect the stock to deliver negative returns over the next 12 months
    NR - Not Rated. Kotak Securities is not assigning any rating or price target to the stock. The report has been prepared for information purposes only.
    SUBSCRIBE - We advise investor to subscribe to the IPO.
    RS - Rating Suspended. Kotak Securities has suspended the investment rating and price target for this stock, either because there is not a Sufficient fundamental basis for determining, or there are legal, regulatory or policy constraints around publishing, an investment rating or target. The previous investment rating and price target, if any, are no longer in effect for this stock and should not be relied upon.
    NA - Not Available or Not Applicable. The information is not available for display or is not applicable
    NM - Not Meaningful. The information is not meaningful and is therefore excluded.
    NOTE - Our target prices are with a 12-month perspective. Returns stated in the rating scale are our internal benchmark.


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