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We attended analyst meet of Time Technoplast (TTL) to understand its business model, recent developments across business segments and the management’s stance on the much-awaited restructuring of its business. The management sounded optimistic and has guided for double-digit volume growth for the next two years. TTL also highlighted a) strong growth potential in VAP portfolio and expected potential for upcoming VAPs like CNG cylinders and cascade in particular; b) probability of improvement in its growth prospects on the back of the recent breakout of corona virus issue and c) keenness to restructure/hive off non-core operations (particularly the battery business) for which it has recently hired E&Y. The stock appears attractively valued at 5.6x its TTM earnings. Key takeaways from the analyst meet:
* Healthy growth guidance: Company has guided for 10-12% volume growth in FY20 and 15% volume growth in FY21. The higher growth expectation in FY21 is driven by likely traction from US operations and sustained double-digit growth in its value-added products. With the expected higher growth in VAPs and recent and targeted introduction of other VAPs, this would aid scalability and sustained growth in VAPs over next few years
* Business mix: In 9MFY20, India business contributed 70% to the business with overseas business contributing the rest.
* Volume mix: While India business grew 12% in volumes in 9MFY20, overseas business grew 11%. The overall volume growth for the company stood at 11%.
* VAP performance: VAPs grew 11% YoY in 9MFY20 and accounted for 20% of the revenues. Key VAPs include intermediate bulk containers (IBC), LPG composite cylinders and cross-laminated films. Recently launched VAPs include type-IV carbon wound composite cylinders, composite air tanks, diesel exhaust fluid tanks and composite leaf springs.
* CNG cylinders and CNG cascade: The management seems very optimistic for these niche products as they will open up incremental market worth of Rs6.5bn after the next two years.
* Type-IV carbon wound composite cylinder (30ltr-156ltr) is designed to replace metal CNG cylinders that are mounted on all automobiles. This product is likely to be significantly light-weight, and will increase efficiency.
* While composite air tanks would be used for vehicle air brake system in commercial vehicles (CVs), DEF (urea) tanks: Diesel exhaust fluid dispenser tanks are used in CVs.
* Company has already incurred capex of Rs1.07bn until 9MFY20 and is likely to end the year with a capex of Rs1.4bn and Rs2bn in FY21 (including Rs1bn for maintenance).
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