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INCREASED DEMAND FOR DETERGENTS & SANITIZATION PRODUCTS AND CAPEX TO DRIVE GROWTH

The Covid-19 pandemic brought with it a need for frequent cleaning and sanitization. This increased the demand for detergents and disinfectants significantly. One of the key raw materials in the production of such detergents and disinfectants is Linear Alkyl Benzene (LAB). TPL is the 3 rd largest manufacturer of LAB in India supplying its product ‘Superlab’ to large FMCG players. The company’s revenues have grown aggressively over the last 1 year and demand for LAB remains strong. Due to this, the company has charted a capital expansion plan of Rs. 435 cr towards upgradation of the existing facilities and increase in capacities of LAB and Caustic Soda.

ROBUST BALANCE SHEET TO TACKLE ECONOMIC UNCERTAINTIES AND AID REVENUE GROWTH AND MARGIN EXPANSION

TPL has a robust balance sheet that can enable the company to tackle any uncertain situations due to Macro factors in the economy. The company’s Debt:Equity ratio as on FY22 is 0.06 with no long term debt and has consistent healthy operating cash flows, resulting in a strong cash balance. The cash conversion cycle for the company is at under 60 days for FY22 and under 30 days during the pre-pandemic period. The company has also maintained a healthy dividend payout ratio of over 15%. Over FY22, the company has delivered revenues of Rs. 1,805.6 cr with an EBITDA margin of 13.7%, up from 8.2% in FY18.

OUTLOOK & VALUATION

We have forecasted a revenue growth of 22.9% CAGR over FY21-24E where we expect revenue for FY24E at Rs. 2,125 cr, EBITDA at Rs. 297.5 cr at an EBITDA margin of 13.5% and PAT of Rs. 202.4 cr. We estimate FY24E EPS at Rs. 22.5 and assign a PE multiple of 6x to arrive at a target price of Rs. 135, which is an upside of ~47% from today’s price of Rs. 92. Hence, we reinstate coverage on Tamilnadu Petroproducts Ltd. with a BUY rating, over an investment horizon of 18-24 months.

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