Plastic money

IPO REVIEW

Combining technology and plastic, Time Technoplast has built a business which cannot be easily replicated.

In a consumption-led economy, plastic is money. And it is true in another way too. With applications ranging right from flexible packaging to lifestyle and healthcare products, plastic sells almost everywhere, meaning there is enough money to be made by plastic producers.

Time Technoplast, one of the leading plastic utility manufacturers, has approached the capital market to fund its expansion. The company hopes to garner between Rs 114- 124 crore through a public offer of 39 lakh shares constituting 18.74 per cent of the equity priced in the band of Rs 290 and Rs 315 per share.

Earlier this year, the company did a placement of shares with Zephyr Peacock India fund at Rs 275 and India Business Excellence Fund managed by Motilal Oswal Venture Capital Advisors at Rs 325 a share.

Well moulded
Time Technoplast makes plastic products using blow moulding, injection moulding and extrusion processes.

The company has a joint venture to manufacture intermediate bulk containers (IBCs) of 1,000 litre capacity with Mauser Group of Germany, which is also its technology partner.

Being a technology driven company, it owns brands such as Time Mauser and Conipails for industrial packaging, Ecopet for Pet sheets used in consumer goods and pharmaceutical packaging, 3S Rainflaps (anti-spray mud-guards for large vehicles), air ducts, plastic fuel and radiator tanks for automobiles, Regal for garden and household furniture and Meadowz, DuroTurf and DuroSoft in categories like instant lawns and entrance mats.

Recently, the company has also ventured into manufacturing healthcare products such as auto-disposable syringes, blood sampling devices and other medical devices under the brand name Genex.

It plans to produce safety and fencing nets for the construction industry too. The company boasts of a high-profile clientele, which includes the top companies in specialty chemicals, consumer goods, paints and inks, pharmaceuticals and automotive industries.

Steady growth
The company plans to increase its polymer processing capacity from the current 65,000 tonne to 100,000 tonne. It intends to set up a new plant in Thane (Himachal Pradesh), and augment its injection moulding facility in Silvassa.

In addition, the company will also set up a packaging manufacturing plant in Sharjah, UAE as well as an auto-component and lifestyle product manufacturing facility in Poland. It has earmarked Rs 90 crore for this expansion. The rest will go towards loan repayment.

The expansion makes sense given the strong growth prospects. Thanks to double digit growth in industrial production over the past one year, the demand for industrial packaging too has increased. A gradual shift from metal-based packaging to plastic packaging over the past few years is also driving growth in the segment.

Going forward, demand for industrial plastics will be driven by the momentum in the economy, especially industrial growth, as more than half of the plastic demand comes from the packaging segment.

Plastic consumption could grow anywhere between 12 to 24 per cent given that the demand for polymers, from which plastic is derived, is linked to the petrochemical industry, which usually grows at 1.5-2.5 times the country's GDP growth.

Bigger the better
At home, the company is left with just one close competitor Balmer Lawrie Van Leer, after it acquired a 75 per cent stake in another competing company Tainwala Polycontainers in July 2006 for Rs 40 crore. Tainwala, now called TPL Plastech, recorded sales of Rs 42.8 crore and net profit of Rs 1.3 crore last fiscal.

"Currently, we have six manufacturing facilities across the country so that we remain close to our clients. Since our products are large in size it would be expensive to transport our products," says Anil Jain, managing director, Time Technoplast.

And this is good news because "the difficulty in transporting such products makes the company immune to competition from imports" says Jain.

Besides, the unorganised sector in the country is not able to meet the requirements of large corporate players, according to Jain.

In other categories such as lifestyle products, there are players like Supreme Industries and National Plastics, while in the healthcare segment, it has to prove its mettle against players like Becton Dickinson (BD) and Hindustan Syringes and Medical Devices.

The company has grown its topline at a compounded rate of 31 per cent per year, through the past five years, and its operating profit has grown at a compounded rate of 28 per cent for the same period.

Valuations
Considering the company's diverse product mix, it is not strictly comparable to any single player.

Among the listed companies operating in the sector are Balmer Lawrie Van Leer, Sintex Industries, Supreme Industries, National Plastics, and a large number of unorganised players.

However, looking at the valuations of its peers, which range from a price-earnings multiple of 10.8 times trailing 12-month earnings for Supreme Industries to 40.3 times for National Plastics, the issue appears fairly priced at the lower end of the price band. 
 

PEER STANDING
P/E (x)*	FY07
Balmer Lawrie Van Leer	11.9
National Plastic	40.3
Sintex Industries	18.5
Supreme Industries	10.8
* Based on trailing 12-M EPS

Further, the company has just entered new segments such as healthcare products and construction equipments, which are high-margin businesses. These businesses will start contributing marginally to the topline from FY08 onward.

Thus, its profitability is expected to improve gradually from the current level of operating profit margin of 19 per cent. 
 

POLYMER PROFITS
Rs crore	FY06	FY07E	FY08E
Net Sales	262.40	390.00	448.50
Operating Profit	53.20	78.00	112.13
Net Profit	25.00	40.95	49.34
Post-issue EPS (Rs)	-	19.50	23.49
P/E (x) @ Rs 290	-	14.87	12.34
P/E (x) @ Rs 315	-	16.15	13.41

"Its product line in the auto-components business is more promising, but it will gain a critical mass only by FY09," says Surender Singh Khalsa, analyst, Anand Rathi.

"However, at Rs 315 per share, the growth from these segments is factored in," adds Khalsa. The issue appears worth subscribing.

Issue opens: May 18, 2007
Issue closes: May 23, 2007