Crisil Report Sep 2013

CRISIL IERIndependentEquityResearch

Enhancing investment decisions

Time Technoplast Ltd

Detailed Report


Explanation of CRISIL Fundamental and Valuation (CFV) matrix

The CFV Matrix (CRISIL Fundamental and Valuation Matrix) addresses the two important analysis of an investment making process Analysis of Fundamentals (addressed through Fundamental Grade) and Analysis of Returns (Valuation Grade) The fundamental grade is assigned on a five-point scale from grade 5 (indicating Excellent fundamentals) to grade 1 (Poor fundamentals) The valuation grade is assigned on a five-

point scale from grade 5 (indicating strong upside from the current market price (CMP)) to grade 1 (strong downside from the CMP).

CRISIL Fundamental Grade Assessment

CRISIL Valuation Grade Assessment

5/5 Excellent fundamentals 5/5 Strong upside (>25% from CMP) 4/5 Superior fundamentals 4/5 Upside (10-25% from CMP) 3/5 Good fundamentals 3/5 Align (+-10% from CMP) 2/5 Moderate fundamentals 2/5 Downside (negative 10-25% from CMP) 1/5 Poor fundamentals 1/5 Strong downside (


Weathering the local headwinds

Fundamental Grade 4/5 (Superior fundamentals)

Valuation Grade 5/5 (CMP has strong upside)

Industry Containers and packaging

1

September 17, 2013

Fair Value 47 CMP 29

For detailed initiating coverage report please visit: www.ier.co.in CRISIL Independent Equity Research reports are also available on Bloomberg (CRI ) and Thomson Reuters.

After consolidating its leadership position in the domestic industrial packaging market, Time Technoplast Ltd (Time) forayed into the international market over FY08-13 by establishing manufacturing facilities in 10 countries. The company has been able to establish and ramp up operations in four countries and is slowly ramping up sales in the more-recently entered six geographies. Its other businesses (35-40% of revenues) industrial batteries, HDPE pipes and prefabricated shelters, lifestyle and auto products are yet to attain scale. We expect the packaging business to continue to account for a majority of Times revenues (62% in FY13), but expect profitability to be under pressure due to rising costs and weak demand in the domestic market. We maintain our fundamental grade of 4/5.

Domestic packaging: Market leader but margin under pressure By virtue of its leadership in the domestic industrial packaging market with a 70-75% share, Time has largely been able to pass on the increase in raw material prices to its clients in the past. However, it was unable to pass on the recent rupee depreciation-led increase in polymer prices completely. As domestic demand is sluggish, Time has not been able to increase the prices significantly. We expect raw material prices to remain high and the demand to be weak. Hence, we expect Times overall EBITDA margin to decline by 200 bps over FY13-15 to 14.5%.

Overseas packaging: Growth in Asia aided by strategic vendor status In the overseas packaging business, Bahrain, Taiwan, Thailand and UAE have been driving growth, while the facilities in other regions (China, Egypt, Indonesia, Malaysia, South Korea, and Vietnam) are currently operating at low utilisation rates as they have been commissioned only in the last one year. We expect the established geographies to drive Times revenues in the near term. At the same time, the new geographies are expected to start contributing from FY14 onwards aided by Times strategic vendor status with various global chemical companies. However, their contribution is expected to remain small over the next two years; the ability of the company to ramp up sales in these regions is a key monitorable.

No major capex planned over FY13-15 but low margin to keep returns suppressed Time incurred a capex of 8.6 bn during FY10-13 mainly to set up overseas facilities, set up composite cylinder facilities in India and Bahrain and expand domestic capacity. Its return ratios declined over the same period due to low utilisation of international capacities. While capex is expected to moderate over FY13-15 and utilisation of international capacities is expected to pick up, return ratios are expected to remain low due to decline in profitability.

Valuations: Current market price has strong upside We continue to use the discounted cash flow method to value Time and revise the fair value to 47 per share as we have increased the cost of equity. This fair value implies P/E multiples of 10.9x FY14E EPS and 8.2x FY15E EPS.

KEY FORECAST

( mn) FY11 FY12 FY13 FY14E FY15E Operating income 12,591 15,095 17,757 21,369 24,639 EBITDA 2,364 2,444 2,920 3,029 3,567 Adj net income 1,077 898 1,035 909 1,201 Adj EPS () 5.1 4.3 4.9 4.3 5.7 EPS growth (%) 18.5 (17.0) 15.2 (12.2) 32.1 Dividend yield (%) 1.9 1.6 1.6 1.6 1.9 RoCE (%) 16.8 13.3 13.8 12.4 13.8 RoE (%) 17.1 12.2 12.5 9.9 11.8 PE (x) 5.8 7.0 6.1 6.9 5.2 P/BV (x) 0.9 0.8 0.7 0.7 0.6 EV/EBITDA (x) 5.1 5.7 5.0 5.0 4.3

NM: Not meaningful; CMP: Current market price

Source: Company, CRISIL Research estimates

CFV MATRIX

KEY STOCK STATISTICS NIFTY/SENSEX 5851/19804

NSE/BSE ticker TIMETECHNO/

TIMETECNO Face value ( per share) 1 Shares outstanding (mn) 210 Market cap ( mn)/(US$ mn) 6,293/98 Enterprise value ( mn)/(US$ mn) 14,569/228 52-week range ()/(H/L) 54/28 Beta 1.0 Free float (%) 38.1 Avg daily volumes (30-days) 17,240 Avg daily value (30-days) ( mn) 0.53

SHAREHOLDING PATTERN

PERFORMANCE VIS--VIS MARKET

Returns

1-m 3-m 6-m 12-mTime -14% -22% -32% -29%NIFTY 6% 0% 0% 4%

ANALYTICAL CONTACT Mohit Modi (Director) [email protected] Kamna Motwani [email protected] Bhaskar Bukrediwala [email protected] Client servicing desk +91 22 3342 3561 [email protected]

1 2 3 4 5

1

2

3

4

5

Valuation Grade

Fund

amen

tal G

rade

Poor Fundamentals

ExcellentFundamentals

Stro

ngDo

wns

ide

Stro

ngUp

side

61.9% 61.9% 61.9% 61.9%

10.8% 10.4% 10.4% 10.8%8.7% 8.7% 8.7% 8.7%

18.7% 19.1% 19.1% 18.7%

0%10%20%30%40%50%60%70%80%90%

100%

Sep-12 Dec-12 Mar-13 Jun-13Promoter FII DII Others


2

Table 1: Time Business environment

Product / Segment Industrial packaging Infrastructure products Lifestyle products

Automotive components

Other products (composite cylinders,

healthcare and material handling products)

Revenue contribution (FY13)*

62% 17% 10% 8% 2%

Revenue contribution (FY15E)*

62% 17% 10% 7% 4%

Product / service offering

Manufactures polymer drums, barrels and containers, and intermediate bulk containers (IBCs). These are used in the chemicals, specialty chemicals, paints and FMCG industries

HDPE pipes used for water treatment and sewage projects

Telecom, UPS and other industrial batteries

Prefabricated shelters

Turfs and matting used in households, dustbins and moulded furniture

Anti-spray rain flaps made of polymers, fuel tanks, de-aeration tanks and radiators

Composite cylinders, material handling products such as crates, pallets, bins, etc. and healthcare products such as syringes, facemasks, etc.

Geographic presence

Domestic (~75%): Pan India International (~25%): Mainly Asian countries where penetration of polymer drums is low - UAE, Thailand, Taiwan, China, Indonesia, Egypt, Bahrain South Korea, Malaysia and Vietnam

India Domestic (74%): Pan India

International (26%): Poland, Romania and Thailand

Domestic (66%): Pan India International (34%): Poland and Romania (Time sells only anti-spray rain flaps in these countries)

Healthcare and material handling products are sold only in India

The company has two composite cylinder facilities one in India and one in Bahrain. The India facility is likely to cater to the domestic market. The Bahrain facility is yet to commence operations; it is expected to cater to the Middle East countries such as Saudi Arabia, Qatar, the UAE, etc. apart from Bahrain


3





Market position Domestic: Market leader in India with ~70% share International: Largest industrial packaging company in the UAE, Taiwan and Thailand. It is a small player at other locations since it has recently entered these markets

HDPE pipes: Time has a small market share in India. The industry consists of a large number of organised and unorganised players Industrial battery: Time is one of the smaller players in the domestic market. It also faces competition from Chinese imports

India: Time does not have a significant market share in this segment. This industry is highly fragmented with many unorganised players Europe: Times brand Astroturf is the market leader in Europe

Only Indian player which makes polymer de-aeration tanks for commercial vehicles. It works directly with the automobile manufacturers. However, the market is currently very small In anti-spray rain flaps, Time has a small market share in India. Many unorganised players are present in this segment

Composite cylinders: One of the few players with this technology Material handling: Time has a small market share. The market consists of both organised and unorganised players

Sales growth (FY11-FY13 2-yr CAGR)

27% 3% (mainly due to decline in revenues from

industrial batteries due to slowdown in telecom

capex)

26% 33% N.M.

Sales forecast (FY13-FY15E 2-yr CAGR)

15% ~18% (the company has won a contract worth 1.2

bn for prefabricated shelters, executable over FY13-15 which is driving

sales growth)

12%

4% Low revenues from this segment but expected to grow at 61% as the composite cylinder revenues are expected to start from FY14


4





Demand drivers

Growth in end-user industries including FMCG, chemicals, pharmaceuticals, etc.

Substitution of metal drums with polymer drums in the domestic market; current penetration of polymer drums in India is 55%

Increase in penetration of polymer drums in Asian countries where Time has set up manufacturing facilities

HDPE pipes Investments for water

infrastructure development

Replacement of ductile iron pipes with polymers for water transportation pipes

Industrial batteries Replacement demand

for telecom batteries

Increase in demand for UPS due to high power deficit in India

Rise in income levels

Increase in construction activity for housing and commercial properties is expected to lead to more spends on interiors and would drive demand for turfs and matting

Increasing acceptance of innovative polymer products in the automotive sector in India

Government of Indias directive to make use of anti-spray flaps compulsory for all commercial vehicles (earlier they were mandatory only for vehicles weighing >7.5 tonnes)

Composite cylinders Acceptance of

composite cylinders by public oil marketing companies (OMCs) in India

Demand from the Middle East

Material handling products Increase in retail

penetration to drive demand for material handling

Key competitors

Domestic: Balmer Lawrie Van Leer, Sintex Industries International: Greif, Shutz and Mauser

Pipes: Jain Irrigation, Supreme Industries Battery: HBL Power Systems, Amara Raja, Exide Industries

Highly fragmented industry with many unorganised players

Highly fragmented industry with many unorganised players

Composite cylinders: Currently only few players have the technology to manufacture composite cylinders from polymers Material handling: Nilkamal Ltd, The Supreme Industries Ltd and a number of unorganised players

Key risks Slowdown in end-user industries

Inability to ramp up utilisation rates in international capacities

Competition in international markets

Competition from larger players manufacturing industrial batteries

Competition in the pipes segment

Competition from the unorganised segment

Slowdown in the automotive sector in India and Europe

Inability to convert users of metal cylinders to composite cylinders

Increase in polymer prices: Polymer prices (in US$) have been on an upward trend. Further, in rupee terms prices have increased due to the recent depreciation of the rupee vs the US$. The company was unable to pass on the increase in prices in the domestic market as the demand growth is muted. This impacted the EBITDA margin in Q1FY14. Any price increase (due to increase in global prices or further depreciation of the rupee) is expected to further pressurise Times EBITDA margin

Source: Company, CRISIL Research


5

Grading Rationale

Weathering the local headwinds

After consolidating its leadership position in the domestic industrial packaging market, Time

forayed into the international market over FY08-13 by establishing manufacturing facilities in

10 countries. The company has been able to establish and ramp up operations in four

countries and is slowly ramping up sales in the more-recently entered six geographies. Times

other businesses (35-40% of revenues) industrial batteries, HDPE pipes and prefabricated

shelters, lifestyle and auto products are yet to attain scale. We expect the packaging

business to continue to account for a majority of Times revenues (62% in FY13), but expect

profitability to be under pressure due to rising costs and weak demand in the domestic market.

Domestic packaging: Market leader but margin under pressure

By virtue of its leadership in the domestic industrial packaging market with a 70-75% share,

Time has largely been able to pass on increase in raw material prices to its clients in the past.

However, it was unable to pass on the recent rupee depreciation-led increase in polymer

prices completely. As domestic demand is sluggish, Time has not been able to increase the

prices significantly. We expect raw material prices to remain high and the demand to be weak

with GDP growth not expected to go back to historical levels of 8-9% in the near term. As a

result, Times EBITDA margin in the domestic market is expected to remain under pressure;

we expect Times overall EBITDA margin to decline by ~200 bps over FY13-15 to 14.5%.

Cost pressure to continue - polymer prices expected to remain firm

Times key raw materials are polymer-based: high density polyethylene (HDPE) and

polypropylene (PP). The cost of procuring polymers in India has increased significantly over

the past one year due to increase in polymer prices in US$ coupled with rupee depreciation

(currently ~63/US$). In Q1FY14, HDPE prices were up 7.5% and PP prices were up 2% y-o-y

in US$ terms. In rupee terms (landed cost of imports), HDPE prices were up 13% and PP

prices were up 7% y-o-y in Q1FY14. Even the cost of locally-procured polymers has increased

as there is parity between landed cost of imports and domestic prices. Further, with increase

in crude oil prices recently, polymer prices in US$ are expected to remain firm in the near

term.

Landed cost of imported raw

materials has increased sharply due to rupee

depreciation


6

Figure 1: PP price trend in rupee and US$ Figure 2: HDPE price trend in rupee and US$

Note: These prices are of polypropylene homo-polymer

Source: CRISIL Research Source: CRISIL Research

Demand unlikely to improve significantly in the near term

Domestic demand for industrial packaging is expected to remain muted in the near term due

to slow economic growth. Indias GDP growth has slowed down over the past two years

GDP grew by 5% in FY13 vs 6.2% in FY12 and 9.3% in FY11. This has impacted growth of

the chemical and specialty chemicals industry, which is the main consumer of industrial

packaging. As per the Ministry of Finance, chemical and chemical products grew by less than

5% in FY13. The impact of this slowdown was seen on Times domestic packaging revenues,

which grew by only 9% in FY13 vs CAGR of 17% over FY09-12. CRISIL Research expects

GDP growth to remain low at 4.8% in FY14. As a result, we do not expect any major recovery

in the chemical industry and, hence, in demand for industrial packaging in the near term.

Focusing on IBC opportunity in India

Since growth in demand for polymer drums in India is expected to remain muted in the near

term and Time already commands 70-75% market share, which limits the scope for share

expansion, it has recognised IBCs as the new area of growth in the domestic market. This

segment, though small, is growing at a healthy pace led by demand from chemical MNCs who

have set up operations in India. Also, IBCs are preferred for exporting chemicals. Time had a

90,000 IBC (pieces) capacity in Daman which it fully utilised in FY13. It has increased its

capacity by 2.5x to cater to the growing demand - It has doubled its IBC capacity in Daman to

1,80,000 IBCs and has also set up a 60,000 IBC capacity in Hosur, Tamil Nadu to cater to the

South India market, which it was unable to tap earlier due to high cost of transportation from

Daman to this region.

75,000

80,000

85,000

90,000

95,000

100,000

105,000

1,250

1,300

1,350

1,400

1,450

1,500

1,550

1,600

1,650

Q1F

Y12

Q2F

Y12

Q3F

Y12

Q4F

Y12

Q1F

Y13

Q2F

Y13

Q3F

Y13

Q4F

Y13

Q1F

Y14

()(US$)

PP Prices in US$ PP Prices in

0

20,000

40,000

60,000

80,000

100,000

120,000

1,250

1,300

1,350

1,400

1,450

1,500

Q1F

Y12

Q2F

Y12

Q3F

Y12

Q4F

Y12

Q1F

Y13

Q2F

Y13

Q3F

Y13

Q4F

Y13

Q1F

Y14

()(US$)

HDPE prices in US$ HDPE prices in

CRISIL Research expects

Indias GDP to grow by 4.8%

in FY14

IBCs are rigid polymer

containers of 800-1,000 litres capacity used for long

distance transportation of

bulk materials


7

We expect the penetration of IBCs to increase in India led by its advantages over polymer

drums in long distance transportation of bulk materials. Further, Indian chemical exports are

expected to get more competitive due to rupee depreciation and, hence, are likely to record

good growth, which would add to the demand for IBCs. Driven by these factors, we expect

Times IBC revenues to grow. However, given the aggressive expansion, Time may not be

able to optimally utilise its IBC capacity over the next two years.

Why are IBCs gaining acceptance in India?

Though cost of IBC is higher compared to the cost of polymer drums used to transport same

amounts, IBC has the following advantages:

Less time required for filling and handling

It can transport more material in the same space, hence freight cost is lower

Can be reused as most countries have IBC reconditioning facilities

Further, its resale value is similar to that of drums (resale value of one IBC is equal to that of

five-six drums). IBCs are also being used as substitutes for tankers mainly as they need not

be returned to the suppliers and, hence, there is no return freight unlike in case of a tanker.

Also, since IBCs are smaller in capacity compared to tankers (generally over 3,000-litre

capacity), they can be reused for transporting smaller orders as well.

Overseas packaging: Growth in Asia aided by strategic vendor status from chemical MNCs

Time has expanded its industrial packaging business to 10 countries, mostly in Asia. Its

operations in Bahrain, Taiwan, Thailand and UAE (referred to as established geographies

from hereon) have been driving growth, while the facilities in other regions (China, Egypt,

Indonesia, Malaysia, South Korea, and Vietnam, referred to as new geographies from hereon)

are currently operating at low utilisation rates as they have been commissioned only in the last

one year. We expect the established geographies to drive Times revenues in the near term.

At the same time, the new geographies are expected to start contributing from FY14 onwards

aided by Times strategic vendor status with various global chemical companies. However,

their contribution is expected to remain small over the next two years; the ability of the

company to ramp up sales in these regions is a key monitorable.

Established geographies: Expect robust sales growth to continue

Time set up operations in the UAE in FY07 and Bahrain in FY12 and has been able to ramp

up its utilisation levels led by growth in the petrochemicals industry in the Middle East. Also, it

entered Thailand and Taiwan through acquisitions. Revenues from these geographies have

grown at 40.5% CAGR over FY11-13 and the polymer drums capacities are currently

operating at a blended utilisation of 78%. However, the utilisation of IBC capacities is ~20% as

the company has recently added this product.

Revenues from established

geographies have grown at

40.5% CAGR over FY11-13


8

Since the aforementioned geographies are already using polymer drums, we believe it is likely

to be easier for the company to grow in these areas. Further, these geographies are also

expected to witness steady economic growth, which should support demand for industrial

packaging and in turn benefit Time, which is the largest industrial packaging player in most of

these geographies. Hence, we expect these geographies to continue to drive Times

international revenues in the near term.

Table 2: Details of established geographies

Year of commencement of operations Mode of entry Name of the company Market position

UAE (Sharjah) FY07 Greenfield capacity Elan Incorporated FZE Largest industrial packaging company in the UAE

Thailand FY07 Acquisition Pack Delta Public Co Ltd (acquired in FY07) and YPA (Thailand) Ltd (acquired in FY10)

Largest industrial packaging player in Thailand with 60% market share

Bahrain* FY12 Greenfield capacity Gulf Powerbeat W.L.L. NA

Taiwan FY11 Acquisition Yung Hsin Contain Industry Co Ltd Holds 90% stake in the largest industrial packaging company in Taiwan

* Bahrain packaging facility was set up in the premises of Gulf Powerbeat (industrial battery company) which was acquired by Time in FY09 Source: Company

Table 3: Financials of established geographies Revenue ( mn) PAT ( mn) PAT margin

FY12 FY13 FY12 FY13 FY12 FY13 Elan Incorporated 529 684 99.77 107.90 18.9% 15.8% Gulf Powerbeat 182 420 3.99 44.32 2.2% 10.6% YPA Thailand 208 310 (28.97) (38.25) -13.9% -12.3% Pack Delta* - 1,037 - 95.13 - 9.2% Yung Hsin 837 1,004 3.98 8.87 0.5% 0.9%

* Pack delta was a JV with Mauser until FY12 Note: Profitability in Yun Hsin is low and YPA Thailand is currently loss-making. The company has indicated that both these companies were acquired and it is working on increasing operating efficiencies to improve profitability. Source: Company

New geographies: Mixed bag; may exit South Korea if sales dont pick up

The traction in new geographies has been mixed. As per the management, there is good pick-

up in Indonesia and Malaysia. However, demand in China (the largest Industrial packaging

market in Asia) has been low due to slowdown in the Chinese economy. Also, competition in

China is more than in other Asian countries as all the big packaging companies are present in

China. Further, cultural differences between India and China are hampering Times marketing

efforts. The company is also finding it difficult to ramp up utilisation levels in South Korea.


9

The new geographies did not contribute significantly to revenues in FY13 as most of them

have been commissioned recently; the blended utilisation rate was 11% for polymer drums

facilities and 7% for IBC facilities. We expect the utilisation rates to gradually increase in

Indonesia and Malaysia. However, we remain cautious of Times progress in China, Korea,

Vietnam and Egypt. The management plans to continue its operations in China as it is the

largest chemical manufacturing country in Asia and, hence, has good potential. It may exit

South Korea if sales do not pick up in a few months. The company has consciously made low

initial investments of US$5-6 mn each in the overseas facilities to test the markets the land

and building are on lease and the machinery is movable. Hence, we do not expect significant

losses if the company exits a geography; however, the same is a key monitorable.

Strategic vendor status with chemical MNCs to aid sales growth: Time has been given

the strategic vendor status by chemical MNCs including BASF, Clariant Chemicals, Dow

Chemicals and Huntsman. The company has received this status due to consistent quality

and timely services. By virtue of this status, Time would now be able to supply packaging

materials to all the global locations of these chemical companies. Since these companies are

present in Asia and the Middle East, in one or more geographies where Time has set up

manufacturing facilities, we believe that this status is likely to aid sales growth in new

geographies.

Table 4: Presence of global chemical companies in Asia and the Middle East

Revenue contribution from Asia Pacific in 2012

Revenue contribution from the Middle East and Africa in 2012

Manufacturing presence at Time's locations in Asia, the Middle East and Africa

BASF 19% 8%* China, India, Indonesia, Malaysia, Saudi Arabia, Singapore, South Korea, Taiwan, Thailand, the UAE, Vietnam and Egypt

Huntsman NA NA China, India, Indonesia, Korea, Malaysia, Singapore, Thailand, Taiwan, Vietnam, Egypt and the UAE

Dow Chemicals 18% NA China, India, Thailand, the UAE, Saudi Arabia, Egypt

Clariant Chemicals 23% 9% China, India, Thailand, Indonesia, Malaysia, Singapore, Korea, Vietnam, Taiwan and Egypt

* Includes revenues from South America Source: Company annual reports

Why has Time chosen Asia for expansion?

Time has strategically chosen Asia (all except one international facility are in Asia) for

expansion due to the following reasons:

Penetration of polymer drums in Asia (excluding India) is 6%, hence there is a large

untapped market

Asia is becoming the hub of chemical production due to cost advantages it currently

accounts for over 50% of global chemical sales. Since the chemical industry is the

primary consumer of industrial packaging products, there is good demand for industrial

packaging in Asia


10

The large packaging MNCs Mauser, Grief and Shutz do not have significant

presence in Asia (except in China), hence Time can benefit from first-mover advantage in

most of these geographies

Handling conditions in Asia are similar to that in India where Time has successfully

converted metal drum users into polymer drums

The GDP growth of most of these countries is expected to improve over 2013-15 as per

the International Monetary Fund (IMF), hence the demand for industrial packaging

products is expected to be buoyant.

Table 5: Packaging MNCs not well entrenched in Asia Table 6: Improved GDP = industrial packaging demand up

Company Plant location

Grief China, India, Israel, Jordan, Kuwait, Malaysia, Pakistan, the Philippines, Qatar, Saudi Arabia, UAE and Vietnam

Mauser China, India, Malaysia and Singapore

Shutz China, Japan, Australia, Malaysia and Korea

% 2010 2011 2012 2013 2014 2015 Bahrain 4.7 2.1 3.9 4.2 3.3 3.6 China 10.4 9.3 7.8 8.0 8.2 8.5 Egypt 5.1 1.8 2.2 2.0 3.3 5.5 India 11.2 7.7 4.0 5.7 6.2 6.6 Indonesia 6.2 6.5 6.2 6.3 6.4 6.4 Korea 6.3 3.6 2.0 2.8 3.9 4.0 Malaysia 7.2 5.1 5.6 5.1 5.2 5.2 Saudi Arabia 7.4 8.5 6.8 4.4 4.2 4.4 Taiwan Province of China 10.8 4.1 1.3 3.0 3.9 4.4 Thailand 7.8 0.1 6.4 5.9 4.2 4.0

Source: Company websites Source: IMF

Other businesses (38% of revenues) yet to attain scale

Times other businesses lifestyle products, industrial batteries, auto components, HDPE

pipes and prefabricated shelters and material handling collectively constituted ~38% of

revenues in FY13. However, the contribution of individual businesses was less than 10%.

Further, the company does not have a strong competitive position in most of these businesses

and, hence, EBITDA margin is lower than that of the packaging business. While we expect

most of these business segments to grow in line with end-user industries, they are unlikely to

contribute significantly to overall revenues.

Lifestyle products (10% of revenues) domestic demand stable, IKEA order to drive international sales

Revenues from lifestyle products grew at a two-year CAGR of 26% over FY11-13; while

domestic revenues grew at 13%, overseas revenues grew 5x (over a small base). The

company enjoys healthy margin in overseas locations, but domestic margins are lower due to

stiff competition from the unorganised segment.

Time has received a large matting order from IKEA in Poland which is expected to drive its

international sales; it has increased capacity by ~33% in Poland to service the IKEA order.

Further, the demand in the domestic market is stable. We expect this segment to grow at 12%

over the next two years with international sales growing faster than domestic sales, led by the

IKEA order.

Time has received a large

order for matting from IKEA


11

Industrial battery (9% of revenues) muted growth, looking to divest

The sales in this segment have fallen over the past few years as demand for telecom batteries

(which account for a majority of the sales) has slowed down due to muted telecom capex. To

counter this, Time has shifted focus to other products viz. uninterrupted power supply (UPS)

batteries, solar batteries and railway batteries. However, sales have not picked up significantly

(sales grew by 3-4% in volume terms in FY13) and EBITDA margin has remained low. The

company has indicated that it is in discussions with a few interested buyers and may sell this

business if it gets desirable valuations. Since this is not Times core business (plastic

processing) and has been dragging the overall returns of the company, we believe that it

would be beneficial for the company to exit from this business.

Auto components (8% of revenues) slowing CV growth to impact sales

Under this segment, Time manufactures fuel tanks, de-aeration tanks and anti-spray rain flaps

(under the brand name Clearpass) mainly for commercial vehicles. In FY13, sales from this

segment grew by 33% led by 30% growth in the domestic market and 39% growth in the

overseas markets. In the domestic market, the company executed new orders from Tata

Motors while in the international market, the company saw good demand for the anti-spray

rain flaps. However, considering the slowdown in demand for commercial vehicles globally, we

do not expect rapid growth in this segment over the next two years.

HDPE pipes and pre-fabricated structures (8% of revenues) dependent on government spending

For both HDPE pipes and prefabricated shelters, Time is dependent mainly on government

orders. In FY13, HDPE pipes revenues grew by 34% y-o-y. Also, the company secured an

order worth 1.2 bn from the Madhya Pradesh government for supply of 2,000 prefabricated

shelters executable over FY13-15. We expect the HDPE pipes business to grow at 10-12%

over the next two years. However, Time is expected to go slow on the prefabricated shelters

business as the EBITDA margin in this business is 10-12% and the debtor days are high.

Hence, we have not factored in any additional pre-fabricated structure orders for FY13-15.

Composite cylinders Indian market showing signs of opening up but potential uncertain, Bahrain facility still not approved

Time currently has an installed capacity of 7,00,000 composite cylinders 3,00,000 in India

and 4,00,000 in Bahrain (the Czech Republic facility was moved to Bahrain in FY13). The

Indian facility has received regulatory approval while the Bahrain plant, which is expected to

mainly cater to the Middle East market, is yet to get approvals from various government

authorities.

India plant approved by PESO; focus on private gas distributors initially

As per the regulations in India, both the manufacturer and end-user of composite cylinders

require approval from Petroleum and Explosive Safety Organisation (PESO) for use of this

Time has received an order

worth 1.2 bn from the

Madhya Pradesh government for prefabricated shelters


12

product. Time received PESO approval for its India facility in Q4FY13. While a majority of the

domestic LPG market is serviced by the public oil marketing companies (OMCs) viz. IOC,

BPCL and HPCL, getting the orders from these companies typically takes time. Hence, Time

initially plans to focus on the private gas distributors (non-subsidised market) in India. It has

already received a letter of intent (LOI) for purchase of 50,000 cylinders from Reliance Gas,

which is in the process of getting an approval from PESO for using these cylinders. The

company has also approached various other private gas distributors such as Aegis Gas, Total

Gas, etc. While the Indian regulator approving the use of composite cylinders is a positive for

Time, we believe that the adoption of this technology by the public OMCs, which account for

majority of the market, is still uncertain. Hence, we do not expect significant revenue

contribution from this segment in the near term.

No major capex planned over FY13-15 but return ratios to remain suppressed due to lower profitability

Time incurred a capex of 8.6 bn over FY10-13 mainly to set up overseas facilities, set up

composite cylinder facilities in India and Bahrain, and expand domestic capacity. The

international capacities are currently running at low utilisation levels due to which the

companys return ratios have declined RoE has declined from 17.1% in FY10 to 12.3% in

FY13 and RoCE has declined from 17.5% in FY10 to 13.8% in FY13. The companys return

ratios have also been impacted by low profitability of the battery business.

Time does not have any major capex planned over the next two-three years as it now wants to

focus on improving the utilisation of existing assets. The management has indicated that the

capex over the next three years would be mainly for maintenance, new product development

and debottlenecking of capacities. However, we expect EBITDA margin to decline over the

next two years as the company is unable to pass on the increase in raw material prices.

Hence, despite an improvement in utilisation levels and decline in capex, we do not expect

any significant improvement in Times return ratios.

Figure 3: Capex expected to reduce Figure 4: Returns to remain low due to dip in profitability

Source: Company, CRISIL Research Source: Company, CRISIL Research

1,942 2,219 2,423

1,894

1,000 1,250

-

500

1,000

1,500

2,000

2,500

3,000

FY10 FY11 FY12 FY13 FY14E FY15E

( mn)

Capex

17.1

17.1

12.2 12.5

9.9

11.8

17.5

16.8 13.3 13.812.4

13.8

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

FY10 FY11 FY12 FY13 FY14E FY15ERoE RoCE

Time has an LOI from

Reliance Gas for purchase of 50,000 cylinders


13

Key Risks Depreciation of the rupee vs US$ may suppress margins

The rupee has depreciated by ~15% YTD in CY13 vs the US$. This has led to an increase in

Times raw material costs cost of both imports as well as locally-procured raw materials has

increased as there is parity between landed cost of imports and local raw material prices for

polymers. Historically, Time has been able to pass on the price increase with a lag by virtue of

its dominant position in the domestic market. However, the company is now finding it difficult

to pass on the increase as demand is weak. As a result, margins have been under pressure

and may be squeezed further in case of further rupee depreciation.

and result in losses on unhedged forex exposure

Time imports 60-70% of its raw material requirements through buyers credit. The company

follows a policy of leaving US$10 mn of its buyers credit exposure unhedged to benefit from

favourable currency movement. However, in the current environment, we believe that this

policy would result in a forex loss and is a key risk for the company. It also has long-term

borrowings of US$ 35 mn in foreign currency as on March 31, 2013 collectively between India

and overseas locations. As per the management, its overseas earnings are sufficient to meet

payment schedules at overseas locations and borrowing in India is fully hedged; hence, it

does not run the risk of incurring losses due to forex fluctuations.

Inability to ramp up utilisation rate of new international capacities

Times overseas capacities are currently operating at a blended utilisation rate of 52%

(including established and new geographies); 30% of the companys fixed assets are at

overseas locations. We expect utilisation rates of international capacities to pick up led by

improvement in global demand and the companys marketing efforts in these geographies.

However, delayed recovery in global economies is likely to impact the offtake from Times

facilities and, hence, its future business prospects.

Times overseas capacities are operating at a blended

utilisation rate of 52%


14

Financial Outlook Revenues to grow at 18% CAGR over FY13-15

We expect revenues to grow to 24.6 bn in FY15 at a two-year CAGR of ~18%. Improvement

in revenues from international markets (as Times penetration in these markets increases) and

sustained growth in the domestic industrial packaging market are expected to boost overall

revenue growth. Figure 5: Revenues to grow at a two-year CAGR of 18% Figure 6: Industrial packaging to remain the revenue driver


Operating margin to decline

Times EBITDA margin is expected to decline to 14.2% in FY14 from 16.4% in FY13 as the

company is unlikely to pass on the increase in raw material prices to its domestic customers.

We expect 30 bps y-o-y improvement in EBITDA margin in FY15.

Figure 7: EBITDA margin to decline by ~200 bps over FY13-15


7,834 10,003 12,591 15,095 17,757 21,369 24,639

16.6%

27.7%25.9%

19.9%17.6%

20.3%

15.3%

0%

5%

10%

15%

20%

25%

30%

-

5,000

10,000

15,000

20,000

25,000

30,000

FY09 FY10 FY11 FY12 FY13 FY14E FY15E

( mn)

Revenue Revenue growth (y-o-y) (RHS)

58.2% 60.1% 58.3% 59.0% 62.0% 61.5% 61.0% 61.6%

8.9% 9.4% 8.8% 8.0% 8.3% 10.3% 10.0% 9.6%10.4% 8.2% 7.2% 6.3% 6.3%

8.0% 7.1% 6.5%2.4% 2.5% 2.2% 1.8% 1.5%

1.6% 1.5% 1.3%20.1% 19.9% 23.5% 23.0% 19.0% 16.7% 17.7% 17.4%

0.0% 0.0% 0.0% 2.0% 3.0% 1.8% 2.7% 3.6%

0%10%20%30%40%50%60%70%80%90%

100%

FY0

8

FY0

9

FY1

0

FY1

1

FY1

2

FY1

3

FY1

4E

FY1

5E

Industrial Packaging Life Style Products Auto ComponentsHealth Care Products Infrastructure Products New products

19.9% 19.5% 18.8%

16.2% 16.4%

14.2% 14.5%

0%

5%

10%

15%

20%

25%


EBITDA margin

EBITDA margin of the

international business is lower than that of the

domestic business


15

Adjusted PAT to grow at 8% CAGR over FY13-15, return ratios to remain supressed

We expect adjusted PAT to decline by 12% y-o-y in FY14 to 909 mn mainly due to the

decline in EBITDA margin. Also, depreciation is expected to increase by 26% y-o-y due to full

year operations of new international capacities and interest cost is expected to increase by

8.3% due to increase in borrowing. Adjusted PAT is expected to increase by 32% in FY15.

Hence over FY13-15, adjusted PAT is forecast to grow at 8% CAGR. Adjusted PAT margin is

expected to decline by 90 bps over FY13-15 to 4.9%. Further, we expect Times RoE and

RoCE to remain supressed due to lower profitability.

Figure 8: PAT margin to decline Figure 9: RoE and RoCE to remain low


No stress on the balance sheet

Times has maintained debt:equity of


16

Figure 10: Leverage to remain low


0.6 0.7 0.8 0.9 0.9 0.8 0.8

5.8 5.9

5.2

3.63.3 3.2

3.6

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0


(x)(x)

Net debt:equity Interest coverage (RHS)


17

Management Overview CRISIL's fundamental grading methodology includes a broad assessment of management

quality, apart from other key factors such as industry and business prospects, and financial

performance.

Led by experienced promoters; professional second line

Times management is led by its promoters, who are first generation entrepreneurs and have

wide experience in the polymer processing industry. The company is headed by Mr Anil Jain,

managing director, who has more than three decades of experience in the industry. Mr Jain is

supported by three promoter directors - Mr Bharat Vageria (Director Finance), Mr Raghupathy

Thyagarajan (Director Marketing) and Mr Naveen Jain (Director Technical). The top

management is supported by a professional second line of management.

Proven capabilities in domestic industrial packaging market

Times management has proven its capabilities in the domestic industrial packaging market as

reflected in the 70-75% share. Further, it has been able to add and retain marquee clients in

the domestic market due to its consistent quality and timely services.

Renewed focus on packaging business, its core competency

Time, which started as an industrial packaging player, now has a diversified product portfolio.

However, it has not been able to attain scale in the other business segments infrastructure,

lifestyle, auto components and healthcare and material handling. As the diversification

strategy has not worked in its favour, the management has renewed its focus on the industrial

packaging business, which is its core competency, and has expanded this business

internationally.

Low overseas investment ensured stress-free balance sheet

The company has restricted its investment to US$5-6 mn at each of its overseas locations to

initially test the market and would invest more only if the market potential is proven; it has

taken land and building on lease in most of the new geographies that it has entered. Hence,

the companys balance sheet is not under stress although the company has entered 10 new

geographies.

Management bandwidth may be a challenge

As Time operates in multiple business segments and has entered the international market, we

believe that the top management may find the bandwidth stretched, which in turn could affect

smooth running of operations; this is a key monitorable.

Times promoters have vast experience in the polymer

processing industry


18

Corporate Governance CRISILs fundamental grading methodology includes a broad assessment of corporate

governance and management quality, apart from other key factors such as industry and

business prospects, and financial performance. In this context, CRISIL Research analyses the

shareholding structure, board composition, typical board processes, disclosure standards and

related-party transactions. Any qualifications by regulators or auditors also serve as useful

inputs while assessing a companys corporate governance.

Overall, Times corporate governance is good supported by an independent board and good

board practices.

Board confirms to statutory requirements; experienced independent directors

Times board consists of nine members of whom four are independent directors, which meets

the requirement under Clause 49 of SEBIs listing guidelines. Chairman of the board, Mr K. N.

Venkatasubramanian, is a non-executive and independent member. He is the ex-chairman of

Indian Oil and the chairman of a number of oil companies such as IPCL and Gulf Oil. The

independent directors are highly experienced and are from diverse industry backgrounds.

Transparent management, good disclosure levels

Based on our interaction with the management over the past two years, we believe that the

management is transparent and forthcoming with information. Also, the companys quality of

disclosure can be considered good judged by the level of information and details furnished in

the annual report, websites and other publicly available domains. The company is conducting

quarterly earnings calls since Q2FY13 to share information with the minority shareholders.

Board processes in place

The company has all the necessary committees audit, remuneration and investor grievance

- in place to support corporate governance practices. The audit committee is chaired by an

independent director, Mr M K Wadhwa, chartered accountant. The board meetings are

conducted professionally with the detailed agenda reaching the board of directors on time.

Corporate governance practices are good


19

Valuation Grade: 5/5 We continue to use the discounted cash flow method to value Time. We revise the fair value

to 47 per share from 54 as we have increased the cost of equity by 100 bps to 17.4% due

to increase in risks associated with the current macro-economic situation. This fair value

implies P/E multiples of 10.9x FY14E EPS and 8.2x FY15E EPS. Based on the current market

price of 29, the valuation grade is 5/5.

Key DCF assumptions

We have forecast free cash flows from FY14 to FY22. The following are our assumptions:

We have assumed cost of equity of 17.4%

We have assumed a terminal growth rate of 3% beyond the explicit forecast period

WACC computation FY14-22 Terminal value Cost of equity 17.4% 17.4% Cost of debt (post tax) 7.9% 7.9% Debt : Equity 0.49 0.45 WACC 12.7% 13.1% Terminal growth rate 3.0%

Sensitivity analysis Terminal growth rate

Term

inal

WA

CC

1.0% 2.0% 3.0% 4.0% 5.0% 11.1% 54 62 71 83 9912.1% 45 51 58 66 7813.1% 37 42 47 54 6214.1% 31 35 39 44 5015.1% 26 29 32 36 41

Terminal year EBITDA margin

Term

inal

WA

CC

12.0% 13.0% 14.0% 15.0% 16.0% 11.1% 52 61 71 81 91 12.1% 41 49 58 66 74 13.1% 33 40 47 54 61 14.1% 27 33 39 45 51 15.1% 22 27 32 37 43

Fair value is revised to 47 from

54


20

One-year forward P/E band One-year forward EV/EBITDA band

Source: NSE, CRISIL Research Source: NSE, CRISIL Research

P/E premium / discount to Nifty P/E movement

Source: NSE, CRISIL Research Source: NSE, CRISIL Research Fair value movement since initiation

Source: NSE, BSE, CRISIL Research

0

10

20

30

40

50

60

70

80

Jan-

10M

ar-1

0M

ay-1

0Ju

l-10

Sep

-10

Nov

-10

Jan-

11M

ar-1

1M

a y-1

1Ju

l-11

Se p

-11

Nov

-11

Jan-

12M

ar-1

2M

ay-1

2Ju

l-12

Se p

-12

Nov

-12

Jan-

13M

ar-1

3M

ay-1

3Ju

l-13

Se p

-13

()

Time 6x 8x10x 12x 14x

0

5,000

10,000

15,000

20,000

25,000

30,000

Jan-

10M

ar-1

0M

ay-1

0Ju

l-10

Sep

-10

Nov

-10

Jan-

11M

ar-1

1M

ay-1

1Ju

l-11

Sep

-11

Nov

-11

Jan-

12M

ar-1

2M

ay-1

2Ju

l-12

Sep

-12

Nov

-12

Jan-

13M

ar-1

3M

ay-1

3Ju

l-13

Sep

-13

( mn)

EV 5x 6x 7x 8x

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

Jan-

10M

ar-1

0M

ay-1

0Ju

l-10

Sep-

10N

ov-1

0Ja

n-11

Mar

-11

May

-11

Jul-1

1Se

p-11

Nov

-11

Jan-

12M

ar-1

2M

ay-1

2Ju

l-12

Sep-

12N

ov-1

2Ja

n-13

Mar

-13

May

-13

Jul-1

3Se

p-13

Premium/Discount to NIFTYMedian premium/discount to NIFTY

02468

1012141618

Jan-

10M

ar-1

0M

ay-1

0Ju

l-10

Sep

-10

Nov

-10

Jan-

11M

ar-1

1M

ay-1

1Ju

l-11

Sep

-11

Nov

-11

Jan-

12M

ar-1

2M

ay-1

2Ju

l-12

Sep

-12

Nov

-12

Jan-

13M

ar-1

3M

ay-1

3Ju

l-13

Sep

-13

(Times)

1yr Fwd PE (x) Median PE

+1 std dev

-1 std dev

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

0

10

20

30

40

50

60

70

80

Jan-

11

Feb-

11

Apr

-11

Jun-

11

Aug

-11

Sep

-11

Nov

-11

Jan-

12

Mar

-12

Apr

-12

Jun-

12

Aug

-12

Sep

-12

Nov

-12

Jan-

13

Mar

-13

May

-13

Jun-

13

Aug

-13

('000)()

Total Traded Quantity (RHS) CRISIL Fair Value Time


21

Peer comparison

M Cap.

P/E (x) P/B (x) EV/EBITDA (x) RoE (%)

FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15E FY13 FY14E FY15ETime 6,293 6.1 6.9 5.2 0.7 0.7 0.6 5.0 5.0 4.3 12.5 9.9 11.8Balmer Lawrie & Co. Ltd 8,929 5.9 NA NA 1.1 NA NA 2.6 NA NA 20.5 NA NA Sintex Industries Ltd 7,201 4.4 2.2 1.9 0.5 0.2 0.2 5.2 3.9 9.5 11.2 9.9 10.2 Supreme Industries Ltd 40,179 13.8 12.0 9.3 4.6 3.7 3.0 8.5 7.3 5.8 36.8 34.0 35.2

Source: CRISIL Research, Industry sources

Time does not have any like-to-like listed peers. In the domestic market, the second largest

industrial packaging player is Balmer Lawrie Van Leer Company, which is a privately held firm.

We have chosen the above peers as they are either present in the industrial packaging

segment (such as Balmer Lawrie & Co. which manufactures steel drums) or are plastic

processors with a diversified portfolio.

CRISIL IER reports released on Time Technoplast Ltd

Date Nature of report Fundamental

grade Fair value Valuation

grade CMP

(on the date of report)

04-Jan-11 Initiating coverage 4/5 71 4/5 58

18-Feb-11 Q3FY11 result update 4/5 71 5/5 54

08-Jun-11 Q4FY11 result update 4/5 71 4/5 62

23-Aug-11 Q1FY12 result update 4/5 71 3/5 69

29-Nov-11 Q2FY12 result update 4/5 62 5/5 49

05-Mar-12 Q3FY12 result update 4/5 62 4/5 54

07-Aug-12 Detailed report 4/5 55 5/5 44


28-Nov-12 Q2FY13 result update 4/5 55 4/5 47

27-Feb-13 Q3FY13 result update 4/5 63 5/5 44

04-Jun-13 Q4FY13 result update 4/5 63 5/5 40


17-Sep-13 Detailed report 4/5 47 5/5 29


22

Company Overview Incorporated in 1989, Time commenced its operations as a small scale unit in Daman in 1991;

it started with the manufacture of polymer drums and is now a market leader in the industrial

packaging segment. It has grown through organic and inorganic means. It has also

established a diverse product portfolio by continuously adding products. It currently has 46

manufacturing facilities across 13 countries - India, the Czech Republic, Poland, Romania,

Egypt, UAE, Bahrain, Thailand, Indonesia, China, South Korea, Taiwan, Vietnam and

Malaysia.

It manufactures its products under five broad segments- industrial packaging, infrastructure

products, automotive products, lifestyle products and healthcare products. Of these, industrial

packaging is the largest, contributing 63% of revenues followed by infrastructure (17%

contribution) and lifestyle (10% contribution).

Times acquisitions

Year Company acquired Cost of acquisition

( mn) Times share Jul-06 TPL Plastech 322.58 75% Nov-06 Pack Delta 159.73 49% Nov-07 Ned Energy 482.89 71% Apr-08 Gulf Power 225.00 100% Nov-09 Komposite Praha 161.04 99% Nov-09 YPA Thailand 70.80 100% Oct-10 Power Build 51.60 60% Oct-10 Plastic product division of Solutia Europe 160.65 100% Dec-10 Yung Hsin Taiwan 225.00 90%

Milestones

1992 Production facility commenced at Daman, launched internationally acclaimed XL-ring drums

1993 Collaboration with Mauser, Germany

1998 Lifestyle products launched - entrance matting (DuroTurf & Meadowz) based on special product technology

2000 Consumer packaging - commenced manufacturing of PET sheet and conical pails

2004 Joint venture with Mauser; commenced production of IBC

2005 Development and launch of anti-spray rain flaps

2006 Launch of DuroSoft matting Started overseas operations, Sharjah, UAE

Acquired TPL Plastech Ltd (Tainwala poly containers)

2007 Public issue in June 2007 of 10 each at a premium of 315 per share Entered the battery business - acquired NED Energy, Hyderabad Acquired Pack Delta, Thailand under JV with Mauser

2008 Commenced production of automotive components in Poland Expanded battery capacity - acquired Gulf Powerbeat, WLL, Bahrain


23

2009 Expanded battery operations in India, new facility at Panoli (Gujarat) through NED Energy Ltd Acquired composite gas cylinder business in the Czech Republic Acquired competing industrial packaging business in Thailand, YPA (Thailand) Ltd Signed JV with Schoeller Arca Systems, the Netherland for launch of material handling products (MHP) and material handling solutions in India

2010 Acquired plastics products division of Solutia, Europe Acquired solar batteries manufacturer Powerbuild, Bengaluru Acquired Yung Hsin, Taiwan

2011 Set up greenfield packaging projects in Tianjin (North China), Guangzhou (South China), Bahrain (Saudi Arabia), Jakarta (Indonesia), Busan (South Korea), Attaka (Eygpt)

Expanded infrastructure products manufacturing facilities in Kolkata and Pantnagar

Set up greenfield industrial packaging projects in Hyderabad, Daman and Bhuj

2012 Set up greenfield packaging projects in Malaysia and Vietnam

2013 Received PESO approval for composite cylinder facility in Daman, Gujarat


24

Annexure: Financials

Source: CRISIL Research

Income statement Balance Sheet( mn) FY11 FY12 FY13 FY14E FY15E ( mn) FY11 FY12 FY13 FY14E FY15EOperating income 12,591 15,095 17,757 21,369 24,639 LiabilitiesEBITDA 2,364 2,444 2,920 3,029 3,567 Equity share capital 209 210 210 210 210 EBITDA margin 18.8% 16.2% 16.4% 14.2% 14.5% Reserves 6,230 7,081 7,976 8,771 9,835 Depreciation 440 556 675 849 961 Minorities 414 569 569 608 655 EBIT 1,924 1,888 2,245 2,180 2,606 Net w orth 6,853 7,861 8,755 9,589 10,700 Interest 451 685 886 960 991 Convertible debt - - - - - Operating PBT 1,473 1,203 1,359 1,220 1,615 Other debt 5,891 7,685 8,246 8,646 8,796 Other income 19 26 49 27 27 Total debt 5,891 7,685 8,246 8,646 8,796 Exceptional inc/(exp) 54 0 (9) - - Deferred tax liability (net) 287 339 369 369 369 PBT 1,545 1,230 1,400 1,247 1,642 Total liabilities 13,031 15,885 17,370 18,604 19,865 Tax provision 356 308 341 299 394 AssetsMinority interest 59 23 33 39 47 Net fixed assets 5,951 7,650 8,753 9,654 10,193 PAT (Reported) 1,131 898 1,026 909 1,201 Capital WIP 1,191 1,349 1,475 725 475 Less: Exceptionals 54 0 (9) - - Total fixed assets 7,143 8,998 10,228 10,379 10,668 Adjusted PAT 1,077 898 1,035 909 1,201 Investments - - - - -

Current assetsRatios 4% Inventory 2,589 3,082 3,617 4,332 4,995

FY11 FY12 FY13 FY14E FY15E Sundry debtors 2,503 3,208 3,629 4,367 5,035 Growth Loans and advances 1,071 1,376 1,289 1,710 1,971 Operating income (%) 25.9 19.9 17.6 20.3 15.3 Cash & bank balance 537 664 535 515 483 EBITDA (%) 21.1 3.4 19.5 3.7 17.7 Marketable securities - 3 4 4 4 Adj PAT (%) 18.5 (16.6) 15.2 (12.2) 32.1 Total current assets 6,700 8,334 9,073 10,927 12,488 Adj EPS (%) 18.5 (17.0) 15.2 (12.2) 32.1 Total current liabilities 2,061 2,708 3,181 3,951 4,540

Net current assets 4,639 5,626 5,892 6,976 7,948 Profitability Intangibles/Misc. expenditure 1,249 1,260 1,249 1,249 1,249 EBITDA margin (%) 18.8 16.2 16.4 14.2 14.5 Total assets 13,031 15,885 17,370 18,604 19,865 Adj PAT Margin (%) 8.6 5.9 5.8 4.3 4.9 RoE (%) 17.1 12.2 12.5 9.9 11.8 Cash flowRoCE (%) 16.8 13.3 13.8 12.4 13.8 ( mn) FY11 FY12 FY13 FY14E FY15ERoIC (%) 14.6 12.0 12.8 11.3 12.3 Pre-tax profit 1,492 1,229 1,408 1,247 1,642

Total tax paid (280) (256) (311) (299) (394) Valuations Depreciation 440 556 675 849 961 Price-earnings (x) 5.8 7.0 6.1 6.9 5.2 Working capital changes (764) (858) (394) (1,104) (1,004) Price-book (x) 0.9 0.8 0.7 0.7 0.6 Net cash from operations 887 672 1,378 693 1,205 EV/EBITDA (x) 5.1 5.7 5.0 5.0 4.3 Cash from investmentsEV/Sales (x) 1.0 0.9 0.8 0.7 0.6 Capital expenditure (2,219) (2,423) (1,894) (1,000) (1,250) Dividend payout ratio (%) 10.4 11.0 9.6 10.8 9.8 Investments and others - (3) (1) - - Dividend yield (%) 1.9 1.6 1.6 1.6 1.9 Net cash from investments (2,219) (2,425) (1,895) (1,000) (1,250)

Cash from financingB/S ratios Equity raised/(repaid) 0 15 - - - Inventory days 97 93 93 90 90 Debt raised/(repaid) 1,493 1,795 560 400 150 Creditors days 68 71 70 70 70 Dividend (incl. tax) (136) (114) (115) (114) (137) Debtor days 67 72 68 69 69 Others (incl extraordinaries) 81 186 (58) (0) (0) Working capital days 108 110 106 101 103 Net cash from financing 1,437 1,881 388 286 13 Gross asset turnover (x) 1.6 1.6 1.5 1.6 1.6 Change in cash position 105 127 (129) (21) (32) Net asset turnover (x) 2.3 2.2 2.2 2.3 2.5 Closing cash 537 664 535 515 483 Sales/operating assets (x) 2.0 1.9 1.8 2.1 2.3 Current ratio (x) 3.3 3.1 2.9 2.8 2.8 Quarterly financialsDebt-equity (x) 0.9 1.0 0.9 0.9 0.8 ( mn) Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14Net debt/equity (x) 0.8 0.9 0.9 0.8 0.8 Net Sales 4,038 4,319 4,411 5,206 4,892 Interest coverage 5.2 3.6 3.3 3.2 3.6 Change (q-o-q) -6% 7% 2% 18% -6%

EBITDA 663 740 772 741 695 Per share Change (q-o-q) 13% 12% 4% -4% -6%

FY11 FY12 FY13 FY14E FY15E EBITDA margin 16.4% 17.1% 17.5% 14.2% 14.2%Adj EPS () 5.1 4.3 4.9 4.3 5.7 PAT 234 267 291 242 190 CEPS 7.2 6.9 8.1 8.4 10.3 Adj PAT 234 267 291 242 190 Book value 32.7 37.4 41.7 45.6 50.9 Change (q-o-q) 27% 14% 9% -17% -21%Dividend () 0.6 0.5 0.5 0.5 0.6 Adj PAT margin 5.8% 6.2% 6.6% 4.6% 3.9%Actual o/s shares (mn) 209 210 210 210 210 Adj EPS 1.1 1.3 1.4 1.2 0.9


25

Focus Charts Revenues to grow at 18% CAGR over FY13-15 EBITDA margin to fall by 200 bps over FY13-15


PAT to grow at a two-year CAGR of 8% Return ratios to remain suppressed


Share price movement Shareholding pattern over the quarters

-Indexed to 100


7,834 10,003 12,591 15,095 17,757 21,369 24,639

16.6%

27.7%25.9%

19.9%17.6%

20.3%

15.3%

0%

5%

10%

15%

20%

25%

30%

-

5,000

10,000

15,000

20,000

25,000

30,000


( mn)

Revenue Revenue growth (y-o-y) (RHS)

1,559 1,952 2,364 2,444 2,920 3,029 3,567

19.9% 19.5% 18.8%

16.2%

16.4%14.2% 14.5%

0%

5%

10%

15%

20%

25%

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000


(%)( mn)

EBITDA EBITDA margin (RHS)

690 909 1,077 898 1,035 909 1,201

8.8% 9.1% 8.6%

5.9% 5.8%

4.3%4.9%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

-

200

400

600

800

1,000

1,200

1,400


( mn)

Adjusted PAT Adjusted PAT margin (RHS)

15.3%

17.1%

17.1%

12.2% 12.5%

9.9%

11.8%

18.2%17.5%

16.8%13.3% 13.8%

12.4%13.8%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

FY09 FY10 FY11 FY12 FY13 FY14E FY15ERoE RoCE

0

20

40

60

80

100

120

140

160

Jan-

10

Apr-

10

Jul-1

0

Oct

-10

Dec

-10

Mar

-11

Jun-

11

Sep

-11

Dec

-11

Mar

-12

Jun-

12

Sep

-12

Dec

-12

Mar

-13

Jun-

13

Se p

-13

Time NIFTY

61.9% 61.9% 61.9% 61.9%

10.8% 10.4% 10.4% 10.8%8.7% 8.7% 8.7% 8.7%

18.7% 19.1% 19.1% 18.7%

0%10%20%30%40%50%60%70%80%90%

100%

Sep-12 Dec-12 Mar-13 Jun-13Promoter FII DII Others


This page is intentionally left blank


CRISIL Research Team

President

Mukesh Agarwal CRISIL Research +91 22 3342 3035 [email protected]

Analytical Contacts

Sandeep Sabharwal Senior Director, Capital Markets +91 22 4097 8052 [email protected]

Prasad Koparkar Senior Director, Industry & Customised Research +91 22 3342 3137 [email protected]

Binaifer Jehani Director, Customised Research +91 22 3342 4091 [email protected]

Manoj Mohta Director, Customised Research +91 22 3342 3554 [email protected]

Sudhir Nair Director, Customised Research +91 22 3342 3526 [email protected]

Mohit Modi Director, Equity Research +91 22 4254 2860 [email protected]

Jiju Vidyadharan Director, Funds & Fixed Income Research +91 22 3342 8091 [email protected]

Ajay D'Souza Director, Industry Research +91 22 3342 3567 [email protected]

Ajay Srinivasan Director, Industry Research +91 22 3342 3530 [email protected]

Rahul Prithiani Director, Industry Research +91 22 3342 3574 [email protected]

Business Development

Hani Jalan Director, Capital Markets +91 22 3342 3077 [email protected]

Prosenjit Ghosh Director, Industry & Customised Research +91 22 3342 8008 [email protected]

Business Development Equity Research Arjun Gopalkrishnan Regional Manager (All India) Email : [email protected] Phone : +91 9833364422 Vishal Shah Regional Manager Email : [email protected] Phone : +91 9820598908 Rachana Desai Regional Manager Email : [email protected] Phone : +91 9967543381

Shweta Adukia Regional Manager Email : [email protected] Phone : +91 9987855771 Priyanka Murarka Regional Manager Email : [email protected] Phone : +91 9903060685 Ankur Nehra Regional Manager Email : [email protected] Phone : +91 9999575639

Our Capabilities Making Markets Function Better

Economy and Industry Research

Largest team of economy and industry research analysts in India Coverage on 70 industries and 139 sub-sectors; provide growth forecasts, profitability analysis, emerging trends,

expected investments, industry structure and regulatory frameworks

90 per cent of Indias commercial banks use our industry research for credit decisions Special coverage on key growth sectors including real estate, infrastructure, logistics, and financial services Inputs to Indias leading corporates in market sizing, demand forecasting, and project feasibility Published the first India-focused report on Ultra High Net-worth Individuals All opinions and forecasts reviewed by a highly qualified panel with over 200 years of cumulative experience

Funds and Fixed Income Research

Largest and most comprehensive database on Indias debt market, covering more than 15,000 securities Largest provider of fixed income valuations in India Value more than 53 trillion (USD 960 billion) of Indian debt securities, comprising outstanding securities Sole provider of fixed income and hybrid indices to mutual funds and insurance companies; we maintain 12

standard indices and over 100 customised indices

Ranking of Indian mutual fund schemes covering 70 per cent of assets under management and 4.7 trillion (USD 85 billion) by value

Retained by Indias Employees Provident Fund Organisation, the worlds largest retirement scheme covering over 60 million individuals, for selecting fund managers and monitoring their performance

Equity and Company Research

Largest independent equity research house in India, focusing on small and mid-cap companies; coverage exceeds 125 companies

Released company reports on 1,442 companies listed and traded on the National Stock Exchange; a global first for any stock exchange

First research house to release exchange-commissioned equity research reports in India Assigned the first IPO grade in India

Our Office

Ahmedabad 706, Venus Atlantis Nr. Reliance Petrol Pump Prahladnagar, Ahmedabad, India Phone: +91 79 4024 4500 Fax: +91 79 2755 9863

Hyderabad 3rd Floor, Uma Chambers Plot No. 9&10, Nagarjuna Hills, (Near Punjagutta Cross Road) Hyderabad - 500 482, India Phone: +91 40 2335 8103/05 Fax: +91 40 2335 7507

Bengaluru W-101, Sunrise Chambers, 22, Ulsoor Road, Bengaluru - 560 042, India Phone: +91 80 2558 0899

+91 80 2559 4802 Fax: +91 80 2559 4801

Kolkata Horizon, Block 'B', 4th Floor 57 Chowringhee Road Kolkata - 700 071, India Phone: +91 33 2289 1949/50 Fax: +91 33 2283 0597

Chennai Thapar House, 43/44, Montieth Road, Egmore, Chennai - 600 008, India Phone: +91 44 2854 6205/06

+91 44 2854 6093 Fax: +91 44 2854 7531

Pune 1187/17, Ghole Road, Shivaji Nagar, Pune - 411 005, India Phone: +91 20 2553 9064/67 Fax: +91 20 4018 1930

Gurgaon Plot No. 46 Sector 44 Opp. PF Office Gurgaon - 122 003, India Phone: +91 124 6722 000

CRISIL Ltd is a Standard & Poor's company

CRISIL Limited CRISIL House, Central Avenue, Hiranandani Business Park, Powai, Mumbai 400076. India Phone: +91 22 3342 3000 | Fax: +91 22 3342 8088 www.crisil.com

Crisil Report Sep 2013

Documents

Transcript of Crisil Report Sep 2013