Time Techno: International operations post good growth

Time Technoplast Ltd’s (Time’s) Q2FY13 results were broadly in line with CRISIL Research’s expectations. Revenues grew by 22% y-o-y to Rs 4.3 bn driven by strong growth across all segments. EBITDA margin expanded by 123 bps y-o-y (71 bps q-o-q) to 17.1% due to higher utilisation of the international capacities. Interest cost grew by 50% y-o-y (15% q-o-q) and was higher than expected. PAT grew by 39% y-o-y mainly on account of higher EBITDA. The company’s domestic packaging business continues to do well and the capacities across Asia are also reporting good traction now. However, the orders for composite cylinders have not picked up and the same remains a monitorable. Driven by Time’s market leadership in the domestic packaging industry, we maintain the fundamental grade of 4/5, indicating that its fundamentals are superior relative to other listed securities in India.

Good traction witnessed in the international packaging business
While the overall packaging business grew by 18% y-o-y, the international business grew 70% y-o-y. According to the management, demand has picked up in most regions and the utilisation rate of the new international capacities has improved to 45% from 30% in Q2FY12 and 40% in Q1FY13. The company has been given the preferred vendor status for the Asian region by chemical MNCs like BASF, Clariant, Huntsman and Dow Chemicals, which is expected to further boost international packaging revenues. While the utilisation rates of the China capacities are also improving, demand remains low and is a monitorable. The Vietnam capacity is expected to be operational (after a delay of two months) by November-end.

No orders for composite cylinders in hand; other businesses doing well
Time’s composite cylinders capacity in India became operational in October 2012 and the Bahrain capacity is expected to be operational by 2012-end. It has received the ESMA (The Emirates Authority for Standardisation and Metrology) certification for its India facility which will allow the company to sell its products in GCC countries viz., Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE. However, currently the company does not have any material orders in hand. The order for 1.5 mn cylinders, which the company had bagged in Q1FY13, could not be executed due to technical reasons. Time has bid for tenders in the Middle East and South Africa, and expects some orders to materialise in H2FY13. Also, it has made an application to Petroleum and Explosive Safety Organisation in India to allow the use of composite cylinders in commercial LPG (non-subsidised). Time’s other businesses are showing good growth. Lifestyle products grew by 28%, automotive products grew by 39%, Infrastructure products grew by 25% and material handling products grew by 22% y-o-y in Q2FY13. The company has bagged an order worth Rs 1 bn for prefab shelters from a state government and we expect the same to be executed in FY14.

Broadly maintain earnings estimates for FY13 and FY14; fair value maintained at Rs 55
We have broadly maintained our earnings estimates for FY13 and FY14. We continue to use the discounted cash flow (DCF) method to value Time and maintain the fair value at Rs 55 per share. At the current market price of Rs 47, the valuation grade is 4/5.

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