Buy Time Technoplast Ltd For Target Rs. 100 - ICICI Direct
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Higher margin leads strong bottomline growth…
Time Technoplast (TTL) reported strong bottomline growth of 40% YoY in Q4FY21 led by improved EBITDA margin (up 63 bps YoY) and 9% YoY drop in interest outgo (gross debt fell 11% YoY in FY21). On the topline front, TTL’s topline growth was at ~4% YoY led by 7% growth in the value added product categories. For FY21, value added products (~20% of topline) recovery was faster at 87% vs. 83% business recovery in the established product segments.
Overall revenue recovery was 84% of its pre-Covid level. In the short-term, business recovery will be again challenged by lockdown related demand disruptions in Q1FY22. Hence, we revise our revenue, PAT estimates downward by 5%, ~12%, respectively. However, the management sees a significant growth opportunity in the next four to five years led by newly introduced CNG cascade/on-board/oxygen cylinders.
TTL has received all necessary approvals for its Cascade and On-board CNG cylinders. These are value product categories with EBITDA margin profile higher by 100-200 bps vs. company level margins. On the balance sheet front, FY21 debt was down 11% to | 677 crore as debt was repaid through improved cashflow from operations (CFO up 18% YoY).
Focus on customer acquisition in Cascade
TTL sees multi-fold growth opportunities in this product category in the next four to five years with the government thrust on developing more CNG stations (~4x jump in CNG stations in the next five to six years) and replacement demand. The CNG cascade cylinders are lightweight (25% of steel cylinders) and can carry 2x CNG compared to equivalent cascade of steel cylinders (thereby reducing operating costs by ~50%). The company has received increased enquiries of CNG cascade from various gas distribution companies and sees significant demand due to its less payback period. The current order book is at | 53 crore to be executed in FY22.
More launches in composite cylinder category
TTL has received government approval for on-board (vehicle) composite cylinder applications in May 2021. The products can be used in buses, trucks, cars and the company is looking to reach its various OEMS including Tata Motors, Ashok Leyland for presentations. TTL sees ~| 500 crore of annual revenue potential from this product category. On the other hand, the company is also awaiting government clearance for its newly launched oxygen composite cylinder.
Valuation & Outlook
We introduce our FY23 estimates and model revenue CAGR of 16% in FY21- 23E on a favourable base and new launches. We believe improved product mix would help drive EBITDA margin, going forward, which will drive PAT at CAGR of 50%. We maintain BUY rating on the stock with a revised target price of | 100 (valuing at 6x EV/EBITDA FY22E, earlier TP | 75).
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