ICICI Direct recommended hold rating on Time Technoplast with a target price of Rs 47 in its research report dated September 01, 2020.
ICICI Direct's research report on Time Technoplast
We believe the Q1FY21 performance was in line with management commentary provided in Q4FY20 wherein the company mentioned a challenging demand scenario in H1FY21E owing to lockdown. The management expects a faster demand recovery in coming quarters post ease in lockdown restrictions. Time Technoplast’s (TPL) Q1FY20 volume, value fell ~43%, 45% respectively. While domestic business (~70% of topline) was hit by regional lockdowns, overseas businesses (~30% of topline) were less impacted in Q1FY21. TPL reported ~51%, ~25% YoY fall in volume of domestic, overseas business, respectively. However, gross margin in Q1FY21 was up 54 bps YoY (167 bps QoQ) led by better mix and benign raw material prices. The company’s contribution from value added product category increased to 21.3% in Q1FY21 (vs. ~19% in FY20, 18.6% in FY19). However, lower operating leverage dragged overall EBITDA margin down 320 bps YoY (~153 bps QoQ) at 11.4%. Finally, the company reported a net loss of ~ Rs 12 crore after providing Rs 25 crore, ~Rs 37.5 crore for interest, depreciation charges, respectively. With positive cashflow from operation of ~Rs 36 crore in Q1FY21, TPL is focusing on rationalisation of various fixed costs and improving collections thereby reducing working capital requirements. We believe a recovery in economic activity would help drive revenues, EBITDA margin from FY22E onwards. We also expect a rationalisation of capex plans coupled with comfortable D/E (0.4x in FY20) to help the company to pass through the challenging phase in FY21E.
Outlook
We believe EBITDA level profit with better gross margin despite revenue loss for almost a month is encouraging. Further, marginal debt reduction via positive CFO of Rs 36 crore, curtailed capex in FY21, focus on collection may keep overall D/E below 0.5x. We maintain HOLD rating on the stock with a revised target price of Rs 47 considering its market leadership position in the industrial packaging segment and a strong client base.
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