IPO Analysis- Time Technoplast

Nicely packaged for the long term

Sandeep Singh

Posted online: Monday , May 21, 2007 at 1243 IST
Updated: Wednesday, June 29, 2005 at 1257 hours IST -->

Time Technoplast lacks visibility, it doesn’t have the stature that comes from size and scale, it doesn’t own big or successful brands, its business is boringly industrial in nature, its business will probably never see a dramatic jump in size, but don’t write it off on any of those counts. Behind this non-descript profile is an industrious company, which is growing steadily, has a promising and experienced management steering it and whose IPO prospectus is one of the most transparent ones we have come across in recent times.

A good packageThe company lurks silently in your daily life, manufacturing a diverse range of polymer-based packaging products like lubricant oil drums, paint drums, jerry cans, pails, containers, radiator tanks. Even as it steadily diversifies in the packaging space, it is also expanding into other polymer-based products like garden furniture under the brand Regal, turfs and matting, and, most recently, syringes that have to be disposed off after use because they are fitted with a mechanism that locks up instantly after use.
Formed in 1989, Time grew steadily, with sales reaching Rs 150 crore in 2004-05. In July 2006, it acquired Tainwala Polycontainers, a competitor, and added about Rs 100 crore in sales. Now, Time is looking to raise Rs 113-123 crore from its IPO, partly to pay off the short-term loan it had taken to fund the Tainwala buyout and partly to expand its production capacity by about 33 per cent. On both counts, it should emerge stronger. Consumption of virtually everything that is packaged in products made by it is on the rise. Naturally, that will boost demand for its products.
About 70 per cent of Time’s revenues come from packaging. This includes 20-250 litre drums made of high density polyethelene (HDPE), and used in industries like chemicals, FMCG, pharmaceuticals, food and lube oil. The company also makes 5-25 litre coni pails that are used to store paints, lube oil and additives.
Time also manufactures polymer-based products for the auto industry (radiator tanks, fuel tanks, air ducts and vents, anti-spray mats), construction (safety and warning nets), healthcare (syringes, blood sampler and face mask) and lifestyle products like garden furniture, turf and mats.
The company is now scaling up its non-packaging segments, where it’s getting help from a regulatory ruling. Taking the lead from developed nations, the Automobile Research Association of India (ARAI), in April 2005, said that all heavy vehicles with a capacity of over 7.5 tonnes should have an anti-spray mat fitted adjacent to their tyres to prevent rainwater from being sprayed. The cost for each truck is about Rs 3,000. Time, which supplies this mat to truck manufacturers, recorded sales of Rs 40 crore in 2005-06 from this product alone. Internationally, this requirement is also mandatory for cars and two-wheelers, and might happen in India too.
Solid and steadyTime is setting up new manufacturing facilities in Baddi-Thane, Silvassa, Sharjah and Poland. The company basically faces two risks. One, rising polymer prices, which will reduce Time’s margins.
Two, the company is unable to sell more due to competition from imports and domestic peers like Essel Propack, Supreme Plastics and Balmer Lawrie Van Leer. That seems unlikely, as its products, which are made in a technical tie-up with Mauser of Germany, are being sold to about 500 industrial clients and its distribution network covers 345 cities across the country. Imports are a no-go in some segments like drums, which are large and so entail huge transportation costs.
The company’s financial performance over the years is not strictly comparable. Till 2004-05, the numbers are for Time only. For subsequent periods, it also includes those of Tainwala, which it acquired in July 2006. Already, for the nine-month period to December 2006, the first operating year for the combined entity, revenues have equalled those for 2005-06, while net profit has topped the previous year’s number.
Net margin has increased steadily, from 3.9 per cent in 2002-03 to 10.5 per cent for 2006-07. The outlook remains good, as the revenue share of the lower-margin packaging business will come down and that of the higher-margin auto components, healthcare and lifestyle will increase.
Time has set a price band of Rs 290-315 for its IPO. On 2005-06 earnings, that’s a PE of 24.8-26.9. Annualising the net profit for the nine-month period to 2006-07, the PE works out to 17.0-18.4. For a company that is unlikely to show breakout years, that’s not striking. But for a well-managed company that is well-placed to consolidate and grow 15-20 per cent a year, that’s a decent price to buy the business for the long term.

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