Recommendation from Plastics Sector

This section gives a recommendation of a stock having stock price below Rs 150 with sound fundamentals and expected to give handsome returns over a one-year time horizon. 

TPL PLASTECH : POISED FOR EXCITING GROWTH

HERE IS WHY
✓Expertise in manufacturing drum containers
✓Robust distribution network
✓Recent expansion boosts production capacity

The Indian plastic industry, a key sector in the country’s economy, has been growing rapidly since 1957, with over 2,500 exporters and over 4 million employees. The government plans to increase the plastic industry’s economic activity from ₹3 lakh crore (USD 37.8 billion) to ₹10 lakh crore (USD 126 billion) in 4-5 years. The jerry cans market is growing due to sustainability concerns and increased demand for odourless, leak-proof and moisture-resistant cans. The 20-litre category is expected to dominate, with the HDPE segment holding a 79.56 per cent market share.

The 20-litre category is most popular in chemical, petrochemical and food and beverage industries. Owing to this, our low-price scrip recommendation for this issue is TPL Plastech Ltd. (TPL). TPL was incorporated in 1992 as Tainwala Polycontainers Ltd. In July 2006, the original promoters exited the business and Time Technoplast (TTL, parent company of TPL) acquired a 75 per cent stake and renamed the company. TPL manufactures HDPE drum containers with a container capacity of 20-250 litres, primarily used in bulk packaging of speciality chemicals, paints and inks, pharmaceutical products and fast moving consumer goods. It has manufacturing facilities in Silvassa, Pantnagar, Ratlam, Visakhapatnam and Bhuj, with a total capacity of 24,200 TPA. TPL also manufactures small packaging products with a container capacity of 10-30 litres. TPL Plastech is poised for exciting growth because of its multipronged approach. Its strategically located manufacturing facilities across India create a robust distribution network, ensuring that it can efficiently cater to diverse regional demands. Additionally, TPL leverages the extensive expertise and management overview of its parent company, TTL.

This translates to streamlined operations, faster decision-making and access to TTL’s dominant market position within the rigid industrial packaging segment. Furthermore, the recent expansion of its Dahej plant has significantly boosted production capacity, particularly for high-demand products like intermediate bulk containers (IBCs). This strategic move, coupled with sustained revenue growth and consistent profitability, has strengthened its financial standing and will fuel its growth potential. In Q4FY24, on a standalone basis, the revenue of the company increased by 14.76 per cent YoY to ₹82.73 crore compared to ₹72.09 crore from the previous year’s same quarter.

On a sequential basis, the revenue remained flat. Its net profit stood at ₹6.07 crore compared to ₹3.81 crore, a YoY increase of 59.14 per cent, while sequentially increasing by 3.23 per cent from ₹5.88 crore. Currently, the shares of TPL Plastech are trading at a PE of 37.3 times, which is higher than its three-year median PE of 20.4 times whereas the industry PE stands at 28.4 times.

The higher PE of the company’s share is justified by higher profit growth achieved during the last three years and even on a trailing 12-month basis. It grew in excess of 30 per cent in both the periods. The company has a strong balance-sheet with a debt-to-equity ratio of 0.23 times. It has reduced its debt in FY24. If we look at the company’s last three-year profit and sales CAGR, it stands at 35 per cent and 22 per cent, respectively. The company has a three-year average return on equity of 14.7 per cent and a return on capital employed (ROCE) of 18.3 per cent. Considering the aforementioned factors, we recommend BUY.