Packs well

With expanded capacity and strong customer base the company which is one of the country’s largest manufacturer of folding cartons is well positioned to cater to uptake in demand

The company currently has 7 independent manufacturing units. Of which four units are located in Silvasa, two in Haridwar and one each in Goa and Guwahati. Altogether the company had 17 printing lines at Silvassa, Haridwar, Goa and Guwahati, as on March 31, 2020.

TCPL is promoted by Kanoria family who have varied business interest in jute, tea, textiles, pharmaceuticals and chemicals. Promoters hold 55.74% of the equity share capital of the company as end of Mar 31, 2021.

The company on 2^nd Feb 2002 incorporated a subsidiary i.e. TCPL Innofilms, private limited company. The company has also formed a TCPL Middle East FZE, a wholly owned subsidiary during quarter ended March 2021. The subsidiary is yet to commence operation.

Caters to wide end customer industries

TCPL which began operations by primarily manufacturing printed blanks used in the cigarette industry, using a gravure printing press has over the years has effectively diversified and broadened its product offerings and end user industry it serves. The company has forayed into flexible packaging segmentwith commissioning of new flexible packaging unit in Silvasa on Sep 2016.

Its current product offerings include Printed Blanks & Outers, Folding cartons, Litho Lamination, Plastic cartons, Blister Packaging, Shelf ready packaging, Flexible Packaging materials etc.

TCPL end-products find application in a wide range of industries, such as FMCG, cigarettes, liquor, pharmaceuticals, pesticides, stationery, and food products.

TCPL’s venturing into flexible packaging has widened its product offering as it now has capability to produce printed cork-tipping paper, laminates, sleeves, and wrap-around labels.

The company as supplier of both the carton and flexible packaging requirements of its customers it has definite edge over its competitors in a highly competitive market.

Enjoys strong customer profile

The company continues to be one of the leaders in the industry, with plants at multiple locations, as well as a very strong customer profile. The company is at the forefront of technology in the industry and has a substantial scale advantage over smaller competitors.

Over the year the company has built a strong customer base and established strong relationship. Some of its top clients include, among others, Hindustan Unilever Limited, Godfrey Phillips India Limited, Mondelez India Foods Limited and Colgate Palmolive.

Increase in capacity utilisation to provide operating leverage and margin improvement

The company has set up a new green field plant in Goa, which was commissioned in March 2019. The Goa new plant is installed with KBA Rapida 106 along with a six-colour Manroland press and a raft of pre-press and carton converting and finishing kit.Apart from green field plant at Goa, the company has also increased its capacity at Haridwar unit by investing in a state of the art new 8 colour offset printing machine along with post printing conversion machines, which went on stream during FY20. While the operations at green-field plant and augmented capacity at Haridwar were getting stabilized in FY20, the advent of Covid pandemic has put a spoke.

Under TCPL Innofilmsit is setting up a new plant to manufacture Blown film which will be recyclable. The film will be used in own conversion activities to manufacture recyclable laminate packaging.

The company, whilst continuing to expand its capacity is focused on consolidation and capacity utilization, leading to improvement in EBITDA margins over the past year.

Steady demand growth augurs well

Packaging materials as being used in type of goods of mass and day to day consumption, the demand in a country of the size and population of India, shall always exist though the rate of growth may fluctuate. The future revenue growth for the industry is expected to be driven by increasing share of organised retail as well as rural penetration, and the resultant increase in the market size of the food processing industry, the largest consumer of packaging products in the country. With recent expansion in capacities, the company will be able to meet the increasing requirements, which will drive TCPL’s growth, going forward. Moreover with significant part of its products are used in packing goods that are classified essential goods the impact of second wave of covid is relatively less.

Further, the company has export presence with exports contributing around 16.50% of the total revenues in FY20.

Price of carton box stand higher YoY

The price of kraft paper as per WPI index date is on steady Y-o-Y rise since Sep 2020 with the double digit growth starting from Dec 2020. Similarly the price of corrugated paper/paperboard and containers of paper/paperboard was on steady YoY rise since March 2020. The WPI of corrugated paper/paperboard and containers of paper/paperboard was higher by 9.3%, 15% and 16% in March 2021, April 2021 and May 2021 respectively.

The WPI of paper carton/box was up by 2.2% and 6.7% in April 2021 and May 2021 respectively over a period ago.

The pricing of kraft paper is totally market driven and is determined by various external factors. Since India is a fibre deficient country, the kraft paper mills rely on imported waste paper for its raw material requirements. The Covid-19 induced lockdowns have not only resulted in lower collection of waste paper in India and abroad, but also high transportation & shipping costs have resulted in high input cost for the manufacture of kraft paper. The sturdiness in price is also partly due to Chinese ban on import of waste paper from Jan 2021 with Chinese companies either import waste paper pulp or kraft paper.

Though the input prices on rise the rise in end product prices augurs well even though there might be time lag. The company with strong customer relation is all expected to pass on the input price rise to customers.

Healthy Q4FY21 backed by improving volumes

For the quarter ended March 31,2021, standalone sales increased by 15.71% to Rs 246.4 crore. Operating margins rose from 12.96% to 14.31%, leading 27.71% rise in operating profit to Rs 35.25 crore. The PBIDT was up 26.64% to Rs 36.01 crore with OI lower by 8.92% to Rs 0.76 crore. PBT stood at Rs 14.88 crore when compared toRs 6.18crore. The company reported Net profit of Rs 12.59 crore compared to Rs 11.94 crore of the corresponding quarter of previous year.

For the fiscal ended March 2021, the sales was up by 1.58% to Rs 903.82 crore. With OPM expanding by 64bps to 14.80%, the OPM was up 6.15% to Rs 133.73 crore. The PBIDT was up 6.39% to Rs 136.27 crore with OI higher by 20.82% to Rs 2.54 crore. PBT after EO stood higher by 12.6% to Rs 47.61 crore. PAT was down by 7.61% to Rs 33.74crore with tax expense of Rs 13.87 crore, compared to Rs 5.77 crore in the previous period.

Outlook

The Indian packaging market which was valued at USD 50.5 billion in 2019 is expected to reach USD 204.81 billion by 2025, registering a CAGR of 26.7% from 2020 to 2025.

This growth is primarily driven by the pharmaceuticals and food and beverage industries. And thus, huge investments in food processing, personal care, and pharmaceuticals end-user industries have created a scope for expansion in the packaging market. The growth of the packaged food industry is also expected to fuel the demand for plastics, as it ensures food quality, safety, and longer shelf life.

The future revenue growth for the packaging industry is expected to be driven by increasing share of organised retail as well as rural penetration, and the resultant increase in the market size of the food processing industry, the largest consumer of packaging products in the country.Also, shift in consumer purchase preference from offline to online will also provide ample growth opportunities for the packaging industries.

Though the input prices on rise the rise in end product prices augurs well even though there might be time lag. The company with strong customer relation is all expected to pass on the input price rise to customers.

With the recent expansion in capacities, TCPLis well positioned to cater to any uptake in demand. The management’s endeavour on cutting costs, improving productivity and benefit of operating leverage with increased capacity utilisation of new capacities will improve the profitability of the company.

Valuation:

We expect the company to register consolidated EPS of Rs 46.23 for FY22 and Rs 55.39 for FY23. The scrip is trading around Rs 508, which discounts the FY23 EPS by around 9.2 times.

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