Hold Time Technoplast; target of Rs 42: ICICI Direct

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ICICI Direct's research report on Time Technoplast

Time Technoplast’s (TPL) Q4FY20 performance was marred by lockdown in March 2020, resulting in ~Rs 190 crore of revenue loss. Consolidated topline fell 15% YoY led by ~11% decline in sales volume. Polymer products (~70% of topline) de-grew ~15% YoY while composite product fell ~17% YoY. On the operating margin front, TPL has passed on lower raw material prices to end customers leading to flattish gross margin YoY. However, lower operating leverage (in the wake of volume decline) pulled down EBITDA margin by ~280 bps YoY in Q4FY20. As a result, TPL reported a sharp fall in PAT by ~48% YoY. For FY20, topline remained flat with volume growth of ~4% YoY. Value added products (VAP) grew 3% YoY in FY20, with its share in topline increasing to ~19% in FY20 (vs. 18.6% in FY19). TPL’s continued focus on increasing pie of VAP in FY20, led to ~50 bps increase in consolidated gross margin in FY20. According to the management, the company will face demand challenges in H1FY21E owing to lockdown. They see a possible recovery in demand from H2FY21 with a recovery in economic activities. TPL also guided at rationalisation of various fixed costs to safeguard operating margins. We believe a recovery in economic activity would help drive revenues from FY22E onwards with a recovery in operating margins. We also believe a rationalisation of capex plans coupled with comfortable D/E (0.4x in FY20) would help the company to pass through the challenging phase in FY21E.

Outlook

We believe TPL would not face any liquidity issues due to pandemic owing to its strong MNCs client base and comfortable D/E of ~0.4x. We also believe being a market leader in the packaging segment, it would benefit from chemical MNCs looking for China+1 strategies and investing in Indian markets. We upgrade our rating from REDUCE to HOLD with a revised target price of Rs 42 as we believe all near term challenges are factored in at CMP.

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