Time Technoplast sees composite cylinder growth and efficiency-led margin expansion

Investment View and Valuation

Motilal Oswal Financial Services Limited retained its Buy recommendation on Time Technoplast following what it characterised as a healthy and broadly in-line 1QFY27 operating performance. The broker also retained its target price of Rs 280, based on 20x FY28E P/E, versus a CMP of Rs 207.

MOFSL sees multiple levers for robust growth and margin expansion. It expects revenue, EBITDA and PAT to deliver CAGRs of 17 per cent, 16 per cent and 21 per cent, respectively, over FY26-28. The broker expects a favourable rerating, supported by the robust operating outlook and a valuation of around 15x FY28E P/E.

1QFY27 Financial Performance

Time Technoplast reported approximately 11 per cent volume growth, 25 per cent revenue growth, 15 per cent EBITDA growth and 22 per cent adjusted PAT growth year-on-year in 1QFY27. Revenue was ahead of the MOFSL estimate, while EBITDA and adjusted PAT were below expectations.

Revenue growth was supported by volume growth and improved realisations as key polymer prices increased. Adjusted PAT was below estimate because depreciation and finance costs were higher than expected, while other income was lower. EBITDA margin contracted 115 basis points year-on-year to 13.3 per cent as gross margin declined. MOFSL noted that Time Technoplast operates on absolute EBITDA per tonne, meaning margins can appear optically lower during periods of polymer-price inflation.

Segment and Geographic Performance

The Indian business recorded 10 per cent volume growth and 30 per cent revenue growth in 1QFY27. Within India, Established Products delivered 10 per cent volume growth and 25 per cent revenue growth, although its EBITDA margin declined 150 basis points year-on-year to 11.7 per cent.

Value-added Products delivered approximately 12 per cent volume growth and 25 per cent revenue growth, with EBITDA margin stable year-on-year at 17.9 per cent. Composite cylinders continued to perform strongly, with growth of 29.3 per cent year-on-year.

Despite geopolitical tension in the Middle East, overseas volume and revenue grew 14 per cent and 17 per cent, respectively. Operating cash flow of Rs 1,550 million was deployed towards debt reduction of Rs 897 million and capex of Rs 751 million.

Growth Outlook and Margin Levers

Management has guided for overall volume CAGR of about 15 per cent or higher. The segment-wise volume growth outlook is as follows:

Management cautioned that revenue growth can diverge from volume growth depending on polymer prices. It identified the following margin levers:

• Efficiency gains and manufacturing consolidation.
• Automation-led reductions in power and manpower costs.
• Wider adoption of solar power.

Plants in India and overseas are operating at 80-85 per cent utilisation. Solar installations at select plants are generating an annualised benefit of Rs 110 million, with additional savings expected from 3QFY27 as the rollout expands.

Capital Expenditure and Strategic Initiatives

Management expects capex of Rs 3,500 million in FY27 and approximately Rs 2,500 million annually over the following three to five years. It expects RoCE to exceed 20 per cent in FY27 and improve by 1.5-2 percentage points annually.

The company completed the acquisition of a 76 per cent stake in Systoverse Private Ltd for about Rs 250 million to strengthen its HDPE pipes business in Maharashtra. It also completed the consolidation of its CNG composite-cylinder plants, increasing capacity from 480 to 1,080 cascades.

Balance Sheet and Capital Allocation

Time Technoplast has Rs 3,430 million of unutilised QIP proceeds after using Rs 4,000 million for debt repayment. The company plans to monetise Rs 1,250 million of remaining non-core assets over the next 18-24 months.

Key Risks and Variables

• Revenue growth may vary with polymer prices, while polymer-price inflation can place pressure on reported gross margins and EBITDA margins.
• Geopolitical tensions could affect overseas markets and operating performance.
• The proposal to acquire an FIBC company remains under review.