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Niche products open up big opportunities

Time Technoplast (TTPL) has highlighted strong opportunities in its result conference call for its newly-approved products in type-IV CNG composite cylinders (for cascades at CNG stations and onboard commercial vehicles). Orderbook for these products is already at Rs530mn and the company has filed tenders worth >Rs2bn in past three months. VAP segment continues to do well with lower decline (-12.6%) compared to the established products segment (- 16.8%) in FY21. Pipes continued to remain a drag on overall revenues but the company expects sharp recovery in FY22. Benefit of shift of chemical business from China to other Asian countries for the packaging segment, higher VAP mix, and big opportunities in CNG cylinder segment would continue to aid strong recovery in revenue. Selling of non-core assets (kept aside Rs600mn as assets held for sale), lower capex and target RoCE of 20% in next three years to aid rerating in the stock going forward. Maintain BUY.

Valuation and outlook:

Factoring-in the largely in-line Q4FY21 performance and impact of Q1FY22 on revenues due to lockdown, we reduce our revenue and earnings estimates by -1.7%/-0.2% respectively for FY22E. We now roll over to FY23E and expect TTPL to report revenue and PAT CAGRs of 17.4% and 60.4% respectively over FY21-FY23E. We maintain our BUY rating on the stock with a revised target price of Rs130 (earlier: Rs102), valuing it at 11x FY23E earnings. Key risks to upside: Capital allocation and limited moderation in debt.

Revenues increased by 13.9% QoQ to Rs9.52bn (I-Sec: Rs9.7bn). TTPL reported 13.9% QoQ increase in revenues to Rs9.52bn (I-Sec: Rs9.7bn). This was result of faster recovery in VAP revenues while the established products business was hit due to sustained covid impact on the pipe segment. With a strong orderbook at Rs2bn, the pipe segment is likely to recover sharply in FY22E. VAP mix increased to 20% in FY21 vs 20% YoY led by higher focus on increasing VAP sales. With strong orderbook in pipe / LPG composite cylinder segment and new opportunities in recent launches like CNG composite cylinders, TTPL expects revenues to recover sharply over the next two years. We estimate a revenue CAGR of 17.4% over FY21-FY23E.

EBIDTA margin at 13.6% (I-Sec: 14.2%), up 20bps QoQ, led by superior product mix. EBIDTA margin came in at 13.6% (I-Sec: 14.2%), up 70bps YoY and 20bps QoQ, led by superior product mix with faster recovery in VAP revenues and passing on of higher input costs. Going forward, we expect EBITDA margin to rebound to 15% by FY23E from 12.9% in FY21 on the back of operating leverage and higher VAP mix.

RoCE targeted at 20% in next three years led by better mix and selling of noncore businesses / assets: Company targets to achieve an RoCE of 20% in next three years from the current 15-16% led by better mix (higher sales of VAP) and sale of non-core assets / businesses (or restructuring existing processes). TTPL has already kept aside Rs600mn as assets held for sale.

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