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Rerating likely to continue

Recent developments in Time Technoplast (TTPL) augur well for the sustainability of its earnings. The developments are: 1) Recent order win of Rs416mn from a leading gas distribution company (outstanding orderbook now at Rs536mn) for TTPL’s newly launched product ‘CNG cascades with Type-IV carbon fiber composite cylinder’, which falls under the value-add product (VAP) segment (TTPL is the only company to have received PESO approval for the product); 2) Likely PESO approval for its CNG cylinder for onboarding on vehicles, which would allow the company to sell directly to vehicle OEMs; and 3) Revocation of pledge shares by promoter companies to 4.2% from 17.8% over the last 3-4 months. Faster than expected order wins and recent revocation of pledge shares makes the stock an ideal rerating candidate. Maintain BUY.

* Valuation and outlook: Our initiating coverage highlighted the opportunity in CNG cascades and the concerns over quantum of pledged shares. To our surprise, the above developments have come faster than we expected. We are yet to build-in numbers due to limited capacity of the recently launched product and would consider revenues once TTPL augments capacity for the same. The product is also RoCEaccretive as it is a VAP and has margins equivalent to LPG composite cylinders. We thus raise our earnings multiple from 10x to 11x with a revised target price of Rs102 (earlier: Rs93), on FY22E earnings. Key risks to upside: capital allocation and sustained high levels of debt.

* Strong order wins for the new VAP product. TTPL is the only company in India that has got approval for composite cylinder product and has been able to garner orders from a gas distribution company for manufacturing CNG cascades. With the advantage of being lighter and carrying more gas than the metal alternative (despite higher cost), the orderbook for the product is expected to be strong in the short to medium term.

* Present opportunity holds TTPL in good stead. TTPL can currently clock revenues of Rs600mn-700mn by utilising its LPG cylinder capacity. It expects this market to reach Rs90bn in next four years with higher usage of CNG in India and aims to garner 30% market share in it. As per the company, capex of Rs800mn can generate Rs3bn worth of revenues and the capacity creation could take around 6-8 months. Due to increase in demand for the product, TTPL has now guided for double the market size than the Rs6bn-8bn per annum estimated previously. EBITDA margin for the product is also likely to be similar to its VAP portfolio.

* Reduction of pledged shares by promoters from 17.8% to 4.2% in last 3-4 months. The pledge was created by the promoters to secure a loan on a property owned by them. The pledge was an overhang on valuation for long and the recent reduction has cleared the air on the company’s intent and may help rerate the stock in the near term.

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