Time Technoplast Limited (TIMETECHNO) Earnings Call Transcript & Summary

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Thanks, Manisha. On behalf of ICICI Securities, I welcome all to the conference call of Time Technoplast to Discuss Q2 FY '21 Results. From the management, we have with us today, Mr. Bharat Vageria, Director Finance; Mr. Sandip Modi, Senior VP of Accounts and Corporate Planning; and Mr. Hemant Soni, Head, Legal and Company Security of Time Group. I would now request Mr. Bharat Vageria to start the call with his opening remarks, and then we can proceed with Q&A session. Over to you, sir.

Yes. Thank you, Mr. Jigar and Manisha to giving this opportunity. Now good afternoon to all. I have with me Sandip Modi, Vice President and Corporate Planning. Mr. Hemant Soni is over telephone. He is -- because currently traveling, and it is pleasure to be together. We are essentially here to talk about our results for Q2 and half year FY 2021 and outlook for the rest of the year and the period ahead. The results are already announced, but I will just walk through some of the key financial and operating highlights. The key numbers for the -- on a consolidation basis, there has been a significant improvement in the performance of Q2 FY '21 as compared to immediate previous quarter, that is Q1 FY '21. We all are aware that owing to COVID-19 is there, but there is a substantial improvement compared to Q1 and in Q2. Net sales grew by 57% to INR 744 crores from INR 476 crores in the previous quarter. EBITDA grew by 71% to INR 93 crores from INR 42 crores. EBITDA in percentage term increased by 100 basis point to 12.4% as against 11.4%. PAT grew by 453% to INR 24 crores from a net loss of INR 12 crores in the previous quarter. During the impact of COVID-19 pandemic, the result for Q2 and half yearly FY '21 are not comparable to the corresponding periods of previous year, but a brief summary of the results I'm producing. During the Q2 FY '21 corresponding Q2 FY '20 numbers in the [indiscernible] when the number to corresponding quarter previous year. Net sales consolidated basis stood to INR 744 crores as against INR 871 crores. EBITDA, INR 93 crores as against INR 121 crores; PAT INR 24 crores as against INR 39 crores; and cash profit at INR 63 crores as against INR 80 crores. Key highlights for the quarter compared with the corresponding previous year, even though, as I mentioned, on account of maybe COVID-19, not comparable, but I'm just producing. Net sales decreased by 15% in India and overseas in the same percentage. Volume decreased by 13% in India and overseas in the same level of percentage. EBITDA decreased by 24%, PAT decreased by 36%, and cash profit decreased by 21%. The EBITDA margin was 12.44% as against 13.94%, decreased by 150 basis points. And this 150 basis points also mainly on account of the some fixed cost, which is company is on account of the power, salary and wages, which company required to pay in spite of the business down and the CapEx utilization lower. The net margin also decreased by 114 basis points, that is 3.29% as compared to 4.43% due to low volume; fixed overhead cost that is salary, wages, rent and insurance. Now during the half year FY '21, the corresponding figure is also -- I will read that. Net sales stood INR 1,220 crores as against INR 1,739 crores. EBITDA, INR 147 crores as against INR 248 crores. PAT, INR 13 crores as against INR 82 crores. Cash profit, INR 89 crores as against INR 164 crores. Key highlights compared to half year. Even though, as I mentioned, this is not comparable, but again, I'm ready. The net sales decreased by 30%. In India, 34%; overseas, 21%. Volume decreased by 28%: India, 32%; overseas 19%. EBITDA decreased by 41%. PAT decreased by 83%. Cash profit decreased by 46%. In H1 FY '21, the EBITDA margin is 12.4% as against 14.26%, down by 222 basis points. Net profit margin also showed down by 368 basis points. That is 1.05% as compared to 4.3%. As mentioned earlier, this is due to low volume and fixed overhead cost, salaries and wages, rent and insurance. Now as far as the share of the business is concerned, as we are also looking that. The value of the value added product growth decreased by 24% in H1 FY '21 as compared to H1 F '20. The share of the value added product is 22% of the total sales in H1 FY '21 as against 21%. So as far as percentage of the value added products and established products is maintained, India and overseas business in H1 FY '21, 65%, 35%, which normally 71% and 29%. EBITDA percentage in India and overseas have almost seen in the range of 12% for the half year. Now polymer and composite products. The polymer products contribute 69% and sales decreased by 31% in H1 FY '21. The composite product contribute 31% and sales decreased by 27% in H1 FY '21. The polymer products, drums, jerry cans and pails, turf and mattings, bins and MOX films. Composite products, IBC, composite cylinders, batteries, auto products and steel drums. The pipe business, pipe segment is showing good growth. And in the period, it is going to be further increased. We have a good order book but only waiting for the signal to start-up of the all EPC contractor work, which we have seen and started improving from the October onwards. With that, one good thing I would like to bring in kind attention that total debt in H1 F '20 is reduced to INR 816 crores as against INR 833 crores in FY '20. Now I also would like to give some kind of the -- considering the current scenario in reference to some kind of the outlook, also I will read, just take further 2 minutes for you. As the Time Technoplast generates 70% of its revenue from industrial packaging in India and overseas, namely, Thailand, Malaysia, Indonesia, Taiwan, U.A.E., Bahrain, Saudi, Vietnam, Egypt and U.S.A. While the remaining 30% comes from the other products like the batteries, MOX film, composite cylinders. Bahrain, South Arabia, Malaysia and U.S.A., the company's market begin in all other countries in this packaging. It may be noted that the packaging product supplied by the companies are mostly used for the specialty chemicals, both domestic and also for the export of specialty chemicals. The Federation of Indian Chambers of Commerce and Industry has recently come out with a detailed reports on the specialty chemical industry worldwide and India Sharing. This is available with our investor relationship agency. And I think they will circulate and we'll put on the site also. The report suggests that the specialty chemical industry is likely to migrate from China and would like to -- like for low-cost production area, India will be one of the big beneficiaries from this migration. Some of the business may also go with other Asian countries, where the Time Technoplast companies have a very strong presence. Likewise, the customer, especially from Europe and North America are reluctant to -- for their requirement of especially chemical from China and are shifting their supply base to Asian countries in general. And India, in particular, this would mean that requirement of the packaging in this countries will grow rapidly. The company has started seeing early sign of the same with some of the multinational companies who have initiated production of certain chemicals in India for domestic use and export. They are in the process of shipping. Also, as for the report from the Ministry of the Petroleum and Natural Gas, which plan for the expansion of the CNG distribution in India for up till 2024. One thing before going in this, now I would like to tell you, as company has reported already, that company has got the approval from PESO for CNG use of the composite gas cylinder for packing of the CNG for gas distribution, it is called a cascade use. And government guidelines is clear that CNG distribution in India for up till 2024 is outlined by the government that they would go or hope for expanding supply and distribution network of the CNG as an alternate fuel to petrol or diesel essentially to reduce pollution. One of the major concept is mobile refill unit, which will require large number of the CNG cascades. Time Technoplast has produced for the first time in India, Type 4 composite cylinders for CNG, which reduced the weight of the cylinder by 70% to 80% as compared to a steel cylinder and are totally blast proof. The company shall be participating in the home requirement to a CNG cylinder that will rise from the purpose of the cascades, which would reluctantly reduce the CNG trade cost to the half. This is another area, which company potential is a good side of the business in the period ahead and will drive through the growth of the company. In fact, after providing -- after getting the approvals from that, we are getting the inquiry and company has already received -- started receiving the trial order for the cascades. Now I would like to -- especially one another point I would like to highlight, the CapEx as the target of the company is around INR 100 crores. And as far as this current 6 months is concerned, we incurred a CapEx of -- in the first half is a total of INR 36 crores. Now I would like to open the floor to answer the specific questions. And thank you very much for listening to us.

[Operator Instructions] We have the first question from the line of Hitesh Taunk from ICICI Securities.

Good set of numbers. Congratulations on that. Sir, I have one question. Sir, one side, we have seen kind of INR 100 increment increase in value-added products contribution in the top line. And the second side also, we have seen a kind of benign input prices. On the crude derivatives, prices have been in benign during the quarter. But sir, the -- we haven't seen kind of expansion in gross margin as compared to the reduction in the input prices and the mix change. So I just wanted to know your input there, what was the reason? And do we see kind of benefit is coming into the system going forward?

Hitesh, it's a good question. I think, as you mentioned, right, the prices of polymer is increased by almost 5% to 7%. And at the same time, we have to see the lended cost, including the foreign exchange part, right? So in fact, inventory, yes. And the benefit we have, as we know, the 92% of our business is with the industrial customers, where the price increase is there, we pass on to the customer and price decreases is there, we pass on to the customer. You must have seen compared to the -- in terms of the percentage of EBITDA, there is an increase by 100 basis points from the previous. And it is further year, the pass on as we have customers where we have some kind of a price working with the customer and 3-month average pricing system. So whatever price increase has come out in this last 3 months, I can say, in the last quarter, July, August, September, that some of the customers, there are 30, 40 customers, with whom we do the quarterly pricing. So that value will come in the figure and in the next quarter. So you are right. Yes, the next quarter, definitely, there will be the improvement in the gross margins also.

Okay. And sir, my second question is that now we have commenced our new capacities in U.S.A., which was a greenfield for the packaging product. So what kind of revenue contribution are we seeing from that? I mean, you must have at least kind of revenue from that plant now?

Right. I think as I -- again, recall our discussion last meeting also, we have invested around $15 million in U.S. by setting up the plant for the packaging product in the 3 cities, like Chicago, Houston and Iowa. Iowa plant, which we have announced as commissioned in the month of August, right? So what -- after August what we did is, we have produced some of the products, supplied to some of the local customers, trial testing is ongoing. We got the local requirement of the approval from the related authority. And we expect, as I think -- for a $15 million investment, we can expect revenue of around $35 million to $40 million in a period of 3 years' time. Yes, if we are -- definitely, we are estimating the revenue of around $15 million. But next year, I mean, we are expecting around $25 million to $30 million. But from this kind of the investment, we can definitely expect $35 million to $40 million in the 3 years' period. In terms of the margin, I'm telling you because what we are doing in that. We have some fixed customers are there with whom 60% product we are selling to the customer. And where we are getting a fixed margin is there. But in our total pricing, we are estimating EBITDA level, I can say, in the range of 13% to 15% from U.S. market. Our product is one, I can say, is very well accepted there, all authorities, all local customers. And what we are doing is, we are leveraging our existing know-how, technology, and we are reaching our customer base of Asian countries because some of the customers are common in Asian countries as well as in the U.S. and in India.

Okay. Okay. Got it. Sir, my last question pertains to our Brownfield expansion in India and overseas. You said around INR 36 crores, you have -- we have done a CapEx for -- in first half and around INR 65 crores is pending for the second half. So where are we going to expansion in the -- in Brownfield expansion in this category?

Yes. That -- as I mentioned to you, the total CapEx, you have seen in the past year in the range of INR 200 crores to INR 225 cores. But this, on accounts like present capacity itself, situation is down. And that we have identified for the value-added product will be around 30% and 70% is for the routine and maintenance CapEx to maintain the capacity and to -- it's a Brownfield expansion, I can say. Automatation and reengineering and -- so around the INR 70 crores will be on account of that and INR 30 crores on account of the value-added products, which includes my U.S.A. business, we have expanded in other countries where our requirement is there, including in India. It includes some kind of the development, which we have done from the CNG. What we are doing it currently, as we know, this capacity utilization for cylinder business is also in the range of 60% to 70%. So we have a surplus capacity available. So we are leveraging that capacity and developing the CNG large size cylinders. So we have done some initial level investment or to get the trial testing of the cylinders. And at least some tall order can be executed by leveraging these assets. Some additional equipments we already installed. So we can be, as I mentioned in my earlier talk, that we have already got the trial basis order for the cascades. And just as I think in the last call, Mr. Jain has also explained. One cascade means approximately 60 cylinders are required. And one cylinder sale price is approximately INR 75,000 to INR 80,000. This means one cascade sale value will be in the range of INR 50 lakhs.

[Operator Instructions] We have the next question from the line of Mr. Tejas Mehta from Old Bridge Capital Management.

Sir, I've one question, which is -- which pertains to gross margin. If you see from FY '15 to today, gross margin has been very, very stable, between 30% and 31%. That's why the -- you -- your raw material largely being linked to the crude and crude derivatives. It's -- I kind of find it strange, given that we have seen very large volatility in crude and its derivate products. But we don't see that kind of a volatility in your margin profile. Why is that so?

Yes. Yes. It's a good -- I think, as I mentioned to you, we have a 92% business in B2B is all my end-use customer, okay? So wherever the price increase is there, we pass on to the customer. If price decrease is there, we have to pass on to the customer. So as far as this contribution, which you are telling, 31%, 32% is -- it will be -- continue. Only 8% is the consumer product, which we do the pricing, depending on the prices of the -- each of the products. Now you are talking about the prices of the polymers into the crude. I just explained you. Immediately, 100%, it is not linked with the crude. You have seen in the last, I think, 4 days, the crude prices have jumped up by 10%. Polymer prices have not jumped up by 10%. It is always linked with the demand/supply because polymer is not only made from the crude. Now you see the overall worldwide, the 50% capacity of the polymer manufactured is based on the oil and 50% is based on the shale gas and the natural gas. You see the Middle East, most of the plants are gas-based production. And in the U.S. also, there is -- the plants are at 50%-50% oil-based and gas-based. These are the 2, I can say, inputs for manufacturing the polymers. So crude is not directly linked with this. Again, it's a demand/supply. I just tell you, we have seen in the months of May and June, the prices were down because there was totally uncertainty in the market. Nobody was knowing how the market will go up, what will be the impact of the COVID. But as in India, slowly, slowly market pick up, even in, I can say, from 20 March to 15 May entire things were on uncertainty. But slowly, slowly as unlock started and business is picking up. And it has come back in the July, August, slowly, slowly started business. Initially, we are very lucky that our product is considered as an essential packaging product, which is used by the pharma and this FMCG then the chemical companies, especially chemicals. So we got very lucky production permissions and allowed us to plant level local. What just challenged in the last 6 months was the availability of the main power. But what we did it because everybody is aware, some of the people have migrated to their native places. Specially, most of the worker skilled or unskilled we have seen is coming from the U.P., Bihar and like that. So in spite of that, what we have done, many units which were closed down, we took the people. We made the arrangement for staying their arrangement in hotels and in factories in the different areas and used. And we have provided by following the local guidelines, and we continued the production and continued the supply with the customer. I tell you those companies who have timely supplied with the customer, certain times, I remember some of the customer calling at night and telling, "Sir we need tomorrow packaging, can you give us in spite of COVID ongoing?" We -- everybody knows that in this last 6 months, the cost of the freight is also ongoing because drivers are not available. Logistics itself was challenging. But we have managed and we continue to supply. That customer is also remember today, we have an associate relationship. Most of the customers we have a relationship for 15 years, 20 years, 25 years. It's a relationship business, I tell you.

But coming back on the gross margin point, in the last 6, 8 months, we have seen crude going from -- falling from $60 to below 0 and then again back to $40 now. Against that polymer prices...

I think your right question, I tell you history because I'm in this polymer line since last 40 years. Tell you the history of the prices in '87 to '90 to this 2020. In the life, I have seen the lowest price of the $700 and highest price of $1,700. But nothing to do with the oil. Once everybody is aware that the crude went up to $125. And it has went down up to $25 also. It does not mean when the $25 oil was there and polymer price was $700, and if the crude has -- went up to $125, then polymer price would -- should have been $3,500, but I have not seen. But it's, again, a demand/supply position. I -- still I tell you because when you are talking about the polymer, I will give this little highlights. My product, in fact, this user industry of my packaging product is FMCG, which constitute 29%; construction, chemical and [ energy ], where we supply 13%; Speciality chemical company 31%; and paint and pigment industry, 12%; pharmaceutical, 5%; lube oil and adhesive, 5%; food products, 3%; and 2% others. These are the whole composition in the packaging user industry. Now you have seen in China I tell you because many -- our people are not aware about the chemical industry, biggest chemical industry, I tell you, in the world is China. There is a -- in the amount around EUR 1,200 billion business is there for all type of the chemicals: fertilizer, sulfuric acid, caustic soda, polysilicon, ethylene, pure benzene, methanol, synthetic material, all put together. Next, after China is EU, European Union; then next, where it is EUR 565 billion; next is the EUR 468 billion U.S.; then Japan, where EUR 180 billion; South Korea, EUR 127 billion; India comes -- is the 6th country, where it is EUR 89 billion only. Just we were talking in our Board meeting, if India get only 5% business shifting means EUR 60 billion business of the chemical from China to India, then India can grow at 80% level. But yes, this is going to happen in the period ahead. Because India, everybody knows, the establishment takes some time: the formation of the company, setting up the permission, getting the permission and all put together at least minimum 1.5 year to 2 years takes time when the foreign company, we think to put up the plant for the chemical manufacturing. And we are seeing now, especially solar chemical, I tell you that China, India solar panel were importing earlier one. Now the entire solar panel is not coming from China. The local manufacture is started where the solar chemical companies have started and are doing the use and increasing the business in the solar chemical because solar panels are using everywhere. Now you will find in the construction sector, every building, every factory even now made compulsory to have a solar electricity, 14% of your requirement. And most of the states are going to make it compulsory and already is happening on the ground. Yes.

Sir, one last question, if I can squeeze in. What has been the polymer price range in the last 6 months?

Polymer price range in the last 6 months?

Yes, as in raw material.

Then if you're asking me the range, you can take between $900 to $1,100.

So that's fairly stable in the last 6 months. Okay.

I'll tell you because I -- most of the products are my special product. I don't -- we don't have a commodity polymer because every product needs the [indiscernible] kind of the product mix, range of the 10%, 15%. And another thing we are forgetting. The prices of direct dollar is not that thing. We have to see the exchange rate, for example, $900 is the price and exchange rate is INR 75, okay? Then that will work out how much $900 into INR 75, which is working out to INR 67,500. For example, $1,000 is the price and exchange rate is INR 70. So it must come to INR 70,000. So we have to see the limited price along with the exchange rate also.

[Operator Instructions] We have the next question from the line of Hitesh Taunk from ICICI Securities.

Sir, I have a question related to the recent ban on import of Phthalic Anhydrid. Sir, I just wanted to know, I think we have some customers who have -- who want -- who are sourcing this from the outside and now started sourcing in India only. So post this ban import of Phthalic Anhydrid, do we see kind of incremental business opportunities with those customers?

I think you had told me in the last month. I have given my person to find out and he has given to the marketing department, how many customers are producing this product? And what are they looking to that? I think I will have to -- still he is working on that. Because so many -- what happened now, I'm just telling you, as you mentioned in my -- I think, last month also, some kind of the India going to ban on the low-density polyethylene. That detail market talk is ongoing. India is going to have some antidumping duty of the LDPE product. But I think that matter is still under that discussion. And it is not -- because any -- it's India, you know the large manufacturer of LDPE is the Reliance only, okay? Reliance and some other LDPE Reliance is there only. But again, they want that some nearby countries are dumping the material here. So I think this is just initial stay -- action taken and government is collecting for information from all Asian countries whether they are dumping their prices, what is the requirement? But I have seen in the past also, normally, when this -- starting the survey and finally, antidumping duty takes some time of almost 1 year to 2 years. State government will not because government has a double duty agreement with most of the nearby countries for the import and export added together.

No, sir, I think that import ban was from the Korea, Korea I think that is...

What I can do is, I have that report available, major Asian manufacturer of this product he have said, I think I G Petrochemicals Limited and Thirumalai Chemicals Limited, SI Group India Limited. They are -- out of that, I can say, in the market share, of these people is almost 70%. And out of these 3 people with the product you have said [ Anhydride Phthalic antidrive ]. So there 2 are my customers, Thirumalia Chemicals is customer and SI Group India Limited is my customer. Yes, we have seen because some improvement is there in their buying. Most of the people are exporting to South Korea, Taiwan, Belgium, Russia, Italy. These people are doing exports.

Okay. Okay. Okay, sir. And one more question I wanted to ask, sir. See, I mean, we have been knowing that the overseas business of ours was less impacted because some of the countries have remained open despite of COVID pandemic. But sir, the current Q2 FY '20, one, if you see the performance of overseas business, we have seen kind of a degrowth in volume also. So I just wanted to know whether those -- the demand of those countries were impacted due to lockdown, or say, or the loss of customer or say any big customer loss or anything. I mean, what would you like to tell the reasons?

I just tell you, as far as overseas is concerned, we have not lost any customer. There is an impact of the lockdown. I tell you, still some lockdown, some controls are ongoing is between the Saudi and the Bahrain area, still the entire things are not opened, okay? But we hardly -- 4%, 5% of my revenue comes from these regions. So it is not much affected. But one thing is all because of the COVID-19 impact in overseas, not on because of the loss of any of the customer. But what we have seen, ultimate -- whatever packaging products we are providing them, their customers should also further should supply and demand should be there. Whenever -- because most of the packing in other countries, people are using for the local as well as for the export of packing. But we are sure as the -- definitely the quarters' period ahead will be much better than the Q1 and Q2. Q -- as you have seen, Q2 is better than Q1; Q3, again, will be better; Q4, further will be better. Always -- we have seen the business in the Q3 and Q4 always better. And we are also admitting considering the current impact of the COVID ongoing and everyday media is reporting, I think business should resume back from the next year onwards. '21/'22, business should come back, as usual.

Okay. And by the end of the year, sir, how much debt are we projecting, sir, the book gross debt?

Pardon, please.

By the end of FY '21, how much debt are we projecting, sir?

How much...

Debt, debt on the book, sir.

I think definitely, we are focusing to -- mostly, we are focusing to decrease the working capital cycle time. So that will help us to reduction of the debt also. I think that everything, depending on how the last quarter is coming out. Because most of the -- normal, we used to give them a credit period of 60 to 75 days to the customer but which has affected because of the COVID period, delay is ongoing by 25 to 30 days. But we'll see in the period and how this is coming up in next 2 quarters business is coming about. But our focus is very clear to improve the ROC, improve the margin, increase in the sale of the value-added products, that's our focus is there. And use the -- in fact, I again say from my side, you are very well aware that we have appointed E&Y for -- look after the businesses where the study is ongoing and will come out before end of this financial year. Definitely, as we have identified some of the assets, which was discussed in the last conference call also, battery business, molded furniture, medical business that in place, we have identified for the sale of that businesses when the right time will come. Definitely, our focus is there for reduction of the debt. And as I mentioned to you. But how much exactly that's dependent on the business cycle. That's depending on the -- how much business we are going to give in the last quarter.

We have the next question from the line of [ Shreyas Nevatia ], an Investor.

Yes. Hello, is there any timing for the reduction of promoter pledge?

Yes, I think it's a good question you have asked. Of course, I can tell you today. You all are aware, that is also report available that promoter have given the pledge for a INR 70 crores loan and time -- property of the plot is given in the prime security, collateral security by way of shares is given. And I am pleased to tell you by now, till we're talking this conference call, we have paid INR 20 crores back to the financial institutions. And now the amount outstanding is INR 50 crores. So we are in process. And definitely, as we are projecting to release the pledge of the shares or reduction in the pledge of the share at the earliest possible time. We are also focusing. And we are already in discussion with some of the 2 or 3 builders or some of the joint developer. So the property can be developed or it can be sold out. So I think as the trade will improve, business will come out. But definitely, a reduction we are focusing.

Sir, have you set any timeline by which we'll reduce?

Timeline is there, in fact, because of COVID it is delayed. Otherwise, time was there, timeline was there till the March '20. But because of COVID impact, it is there. But we internally kept the timeline by March, we should do it. Yes, focus is there.

[Operator Instructions] We have the next question from the line of [ Arun Kumar Ori ], an investor.

I noticed that your finance cost has remained -- has not declined in correspondence with your total volume, that is the question #1. Question #2 is, that given very small volume of TPL Plastech, why don't we merge that company back into the parent company?