Time Technoplast Limited (TIMETECHNO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q3 FY '21 earnings conference call of Time Technoplast, hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Jigar Shah from ICICI Securities. Thank you, and over to you, sir.

Thank you, Rutuja. On behalf of ICICI Securities, I welcome all to the conference call of Time Technoplast to discuss Q3 FY '21 results. From the management, we have with us today, Mr. Anil Jain, Managing Director; Mr. Bharat Vageria, Director, Finance; Mr. Sandip Modi, Senior VP Accounts and Corporate Planning; and Mr. Hemant Soni, Head Legal and Company Secretary of Time Group. I would now request Mr. Anil Jain to start the call with his opening remarks, and then we can proceed with Q&A session. Over to you, sir.

Thank you very much. Good afternoon to you all. I first apologize for not being present in the last conference, being unwell, but I'm happy to be here together. I have with me Mr. Bharat Vageria, as has been announced already. In addition to Mr. Bharat Vageria, we also have our Director of Marketing, Mr. Raghupathy Thyagarajan. And the rest, we have -- Sandip is there and then Mr. Hemant Soni. We are here essentially to talk about our results for Q3 and 9 months of FY '21 and outlook for the rest of the year. The results are already announced, but I will just walk you through quickly some of the key financial and operational highlights. We are pleased to report quarter-on-quarter improvement in the performance. This is in line with our stated outlook of an improved performance in the second half of the current financial year. The reason for this is that probably comparison with the same quarter last year is not much relevant due to COVID and its effect on the company's performance all across. So during Q1 FY '21, net sale was INR 475 crores, which increased to INR 744 crores in Q2 FY '21. So therefore, there was a substantial increase in -- from Q1 to Q2. Now from Q2 to Q3, it was further increased from INR 835 crores, right? So in Q3, it was INR 835 crores. EBITDA stood at INR 54 crore in Q1 FY '21, which increased to INR 93 crores in Q2. And in Q3, it has increased to INR 113 crores. EBITDA in percentage terms improved from 11.4% in Q1 to 12.4% in Q2 and 13.5% in Q3. Profit after tax was INR 25 crores in Q2 FY '21 against a net loss of INR 12 crores in Q1. In Q3, it increased to INR 38 crores. Cash profit was INR 26 crore in Q1 and INR 63 crores in Q2 and -- sorry, yes, in Q2, and it further increased to INR 78 crores in Q3. So as you see here, there have been an improved performance from Q1 to Q2 to Q3. Probably it will be reflected in 9 months' period, which are though not comparable with the corresponding year last year, but still, the pro forma numbers are given here. During 9M FY '21 corresponding to 9M FY '20, net sale stood at INR 2,055 crores as against INR 2,660 crores. EBITDA in 9 months this year is INR 260 crores as against INR 382 crores in the 9 months of last year. PAT at INR 51 crore. It was INR 131 crores in the last year. And cash profit of INR 167 crores as against INR 254 crores of the last year. This -- considering that 9 months include Q1 and Q2 where the performance was far behind, find that net sale in the first 9 months have seen a degrowth of 23%. In India, it was 26% and, in overseas, it was lesser, that is 16%. Volume degrowth was 23% in 9 months. India, it was 26% and, overseas, it was 16%. EBITDA degrew at 32%, and cash profit 34%. In 9M -- 9 months FY '21, the EBITDA margin is 12.6% as against 14.4% in the corresponding period last year and down by 180 basis points. Net profit margin decreased by 200 basis points, that is 2.5% as compared to 4.9% due to low volume and fixed overhead costs, that is salaries and wages. So the turnover being less, the fixed costs went down in percentage terms. In terms of established and value-add products, the value-added products degrew by 19% in 9 months of '21 as compared to 9 months of 2020 on account of lockdown due to COVID-19. The share of value-added products was 21% of the total sales in FY '20 as against 20% in 9M 2020. Share of Indian and overseas business in the 9 months '21 was 67% and 33% overseas as against 70% and 30% in FY '20 due to lower effect of COVID in our overseas operations. EBITDA margin in India and overseas are 12.7% and 12.5%, respectively. The total debt in 9 months reduced by INR 23 crores and stood at INR 809 crores. This being the outline of our performance, I would be happy to take questions.

[Operator Instructions] The first question is from the line of [ Ashi Anand ] from [ IME Capital ].

Sir, I just wanted to understand, firstly, when we're speaking of the COVID impact, is this the supply-side issue or is it a demand-side issue that we're facing? Because on the demand side, a lot of our end-user industries have actually been growing quite well, and they actually are growing year-on-year post kind of COVID. So just wanted to understand, is it supply side or demand side that is kind of causing the degrowth?

I think it was bit of both actually because it took us time to stabilize our operations, considering that we are labor-intensive. And secondly, we didn't have enough people available to be able to meet out the orders of the customer. But on the other end, you would find that even our customers had the same problem. They didn't have enough labor, it was logistic problems. Or even the distributors were -- had enough stock. So they delayed receiving new consignments. So it was an entire chain which was closed and shut down, but we now can see it opening up, and the demand is getting back to normal. Of course, in some products, for example, auto components, we had a situation, as you know, that we service commercial vehicles, who are still coming back to normal. We see that the pipes are our worst affected business, PE pipes, because the contractors did not take the delivery of the pipes, though we had enough order, reason being that they didn't have enough labor at site to be able to lay down the pipe lines. So we have the orders. In many cases, we also kept the stock ready, but they would not give us the clearance. And secondly, I think the state government diverted all their funds for fighting COVID, so they were not able to pay to their contractors, as a result of which, they would not supply anything at site until the old payments are cleared. So it was a combination of a lot of things, actually. But I'm glad to tell you that things are coming back to normal. As you can see, in Q3, we have been able to recover significantly. And I do believe in Q4, we should at least come to pre-COVID period.

Mr. Jain, would it be fair to say, based on the explanation that you've given, that there's a certain amount of pent-up demand that could actually be there in the system so that, as things kind of normalize, you may see a couple of quarters of kind of even higher-than-normal growth because of the pent-up demand or is that not really what you're seeing?

You're right, absolutely. Though many people have not recognized this, but there was a pent-up demand. So certainly, the demand went up and, therefore, there was a gap between demand and supply. And as the supply has grown now, in the meantime, you are finding that customers are still waiting for things to clear up to their customers and, in turn, the actual user. So in certain areas, we would see the demand slowing down as the pent-up demand gets cleared up. But in our segment, I would like to think that it should really grow further. Reason being that a lot of companies have now started buying -- and I'm talking about overseas customers, they're now prepared to buy their chemicals or inputs from India rather than going back to China. And again, there are multinational companies. They have diverted some of their products from China over to India, and they are servicing their international or Asian customers from India. So that should actually increase the demand for packaging, yes.

Okay, great. Just secondly, I just wanted to understand on our core kind of business of plastic drums, where we used to have a very dominant kind of a market, like 70% plus market share, has anything changed in terms of the domestic market dynamics? Any new player has come in? Has anyone been able to gain market share? Or do -- are we still as dominant as we used to be?

No, we are absolutely as dominant as we were. We haven't lost customers. But yes, you would now see that in the former time, everything was being done in drums. There've been a change, especially for exports, where they use intermediate bulk containers. So you would find that the demand for -- demand that could have increased in terms of the drums probably is being diverted over to intermediate bulk containers. We have seen significant growth in the demand for intermediate bulk containers. And if these international companies, they come to India and try and export their products to Europe or Middle East or even Asia, that would again be in IBCs. In Therefore, the growth will be captured by the IBCs, and drums will continue to have their regular growth of 4%, 5%, 6%.

Okay. And just to understand the competitive positioning in IBC, is that similar to drums? Or is there -- like is there a lower market share in that segment?

No. We are more or less the same, actually. We have a dominant situation in IBC. This is a highly technical product. Some people tried it with various degree of success. But I would like to think that our market share will be well over 65%, 70%.

Okay. So the trend is actually positive for us because our margins would be higher on IBCs?

Right, absolutely. IBC is the value-add product for us. And we see ourselves getting better EBITDA margins in this business, yes.

[Operator Instructions] The next question is from the line of [ Dipesh ] from [ Manyuka Finance ].

Congratulations on a good set of numbers. Am I audible?

Yes, absolutely, [ Dipesh ]. Go ahead.

Yes. I just wanted to know what is the sales contribution of the type 4 composite cylinders [ premium gaskets ]?

Type 4 composite cylinders sale, you want to know the numbers?

Yes. I want to know what are the sales in this quarter?

Yes. I can tell you the total number -- the total value was about INR 54 crores in this quarter.

INR 4 crores?

INR 54 crores, 5-4.

INR 54 crores? Okay. And what are the margins we worked out?

Well, on composite cylinders, we do about 19% to 20%.

19% to 20%? Okay. Also, I couldn't see in the investor presentation, the major OMCs as a client list. So are we still in talks with them? Have we received any orders from the OMCs like IOC, HPCL, BPCL?

Our talks to them is exactly the same way as the Ministry of Agriculture and the farmers. We have been in discussions with them uninterrupted. But oil marketing companies for some strange reasons are still stuck to steel cylinders. We don't want to attach any motive to that, but it is highly unlikely that they will change over from metal to composites. However, we are very happy to supply our cylinders to overseas. We have approvals in -- we are supplying right now in more than 38 countries. And our product is approval -- is approved in about 58 countries world over. So I'm sure as the demand for composite cylinders grows further across the world, we should really be benefited by that. We hope and pray, one day, the good sense will prevail upon oil marketing companies. And I guess it will come from the pressure that they will see from people. We just made a calculation. From 2011 to 2019, total number of people killed because of the cylinder explosion was 50,000. You can imagine how -- and 92% of them were ladies and children. And I can tell you, in Saudi -- sorry, in UAE, there was only 1 accident in last 3 years and 1 person died. They are now planning to change over entire steel cylinder composites.

This data of 50,000 people has been in 2020?

2019.

2019? And in India?

In India alone, I'm talking about.

Okay. So are we planning to give any presentation with the Ministry of Petroleum or this -- I mean or the ministry? Because I think this government is quite -- I mean they listen to the industry.

We have reasons to believe that some PIL, which is being filed in Delhi High Court, saying that if there is a better alternative available as a -- you see in the former times, steel cylinders are only available. Now -- it was a balance between convenience with the LPG and the risk of the steel cylinders. They did it for many, many years because there was no other alternative available. Now composite cylinders are there for 7 years. They've been tried, of course, in India as well and overseas, and then now they're in many countries. Can you imagine Bangladesh, Nepal, Maldives? They have accepted composite cylinders. In Sri Lanka, they are coming out with a major, major tender for composite cylinders. India is the only country in between, which has not adapted to composite cylinders yet.

But would it make sense to even approach the intermediaries like MGL, IGL, the ones who are actually supplying these gases?

We actually are talking about right now, LPG cylinders, which is -- you're right, OMCs are the biggest bulk, and they between them have 97% of the market share. We have gone and talked to them. There's no question. Hindustan Petroleum bought some 15,000 cylinders to fill markets and get the response. But unfortunately, they did not pursue it. I believe the cylinders are still lying in their stockyards and not gone into the marketplace. We have heard that Indian Oil Corporation is now coming out with the tenders. We don't know exact quantity. And they would be taking out this trial for oil marketing companies. And if this trial becomes successful, then probably other oil marketing companies will also follow them. But you can imagine, if they all come together, and even if they divert 50% of their requirement to us, then we will have to multiply our capacity 3 times or even more.

Right. And when is this tender expected?

Raghu?

This quarter, it should be coming [indiscernible].

We should give you -- this is -- yes, we have helped them prepare the specification. We're expecting the tender to be in this quarter.

Okay. And what is the current order book for the CNG composite cylinders?

We would be about 1.3 million, 1.4 million.

And in terms -- can you quantify it in numbers?

Value, 1.2 -- that will be about [ INR 240 crores ].

[ INR 240 crores ], okay. Also, does any of our product come into the current PLI scheme which the government has launched? The government has launched a different PLI scheme, the finance ministry. Does any of our products fall into that?

No, not that we are aware of, no.

Nothing. Okay. Just one last question about the tech pack, the smart cans. Whom are we -- what industry are we targeting these -- this product?

Raghu will like to answer this, please.

Well, this is a packing which will replace many of the plastic containers, ranging from 1 liter to about 5 to 10 liters capacity. The case being that these containers that have been used are fairly heavy in weight and consume a lot of plastics which end up probably as waste. And using these smart concept of packs that we are talking about, the consumption of plastic will get reduced by almost about 2/3. So that's the kind of case we have. We have customers who are using, like, for example, cleaning chemicals, you have companies like Diversey Chemicals or Hindustan Unilever or there are products like additives, which include companies like Pidilite, et cetera. So there are -- most of them are consumer products. And in addition to, of course, the lube oil also which are dispensed by most of the oil companies [ benefit ].

Do we -- are we even targeting paint companies?

It's a very widely usable product, and most of the companies have shown interest. But we have basically [Audio Gap] where the benefits are very great and the performance are very straightforward advantages. So the rest of them will also fall in line. Paint is, of course, there. They are talking about big numbers. That will also come through.

Dipesh, there is a lot of emphasis on these multinational companies that they should reduce the consumption of plastic. And therefore, they would like to look for something which is as good as their jerry cans and other packaging but, at the same time, use lesser plastic. As Raghu told you, that the reduction in weight is about 66%. So therefore, it is straight the use of plastic that is reduced. So they have shown a lot of interest. They have certain obligations, which they would be able to fulfill.

Sir, what I understand is the reduction of weight is around 6%, but the reduction of use of plastic is huge.

66%.

The next question is from the line of Mahendra Jain from Way2Wealth.

Sir, I just wanted to understand again, the CNG or LNG [ casual ] buses or truck [indiscernible] like what we are planning around 2024 or like that. So how the -- I mean how we are approaching towards that thing? And how we are preparing or any orders regarding that? Second question is regarding, sir, are we realistic just thinking about any demerger in value-added business or something? At what point we can think of that? Because it can really enhance the value of this market [ capabilities ], please.

Right. Absolutely. Mahendra, I really appreciate your query about this one. Let me just split into 2 ways. There are -- there is LPG, the one that you get at home for cooking. It comes in [indiscernible] and mostly, those are steel cylinders. So two, CNG. Now normally, LPG is a low pressure because it operates at 20 bars and it can bust at 66 bars. But when it comes to CNG, the CNG operates at 200 bars and it helps to withstand the pressure of about 270 bars for on-board application. In the gaskets, the pressure is 750 bars. What we've done is we have to test the cylinder, which has also been approved from PESO for gaskets first. The gaskets are very much in demand, and the government has decided to increase the number of gas stations from where CNG would be available. As a result of that, there will be a lot of gaskets required to bring CNG from the mother station to the distribution point, right? So we are able to now give a gasket, which is made out of type 4 cylinders, [ raw metal ] which can withstand very high pressure, right? And because the weight being less, again the same thing here, the weight is reduced by almost 80%, right? So the advantage of that is that with the same weight we are able to carry a lot more CNG than what they were doing in steel cylinders.

Sir, my question was that -- I understood this thing. Sir, what is the situation of order or anything like got clearance and everything like that? And secondly LNG part for trucks and all this I'm talking about, sir, not LPG, LNG?

CNG, I'm coming to that one. CNG, we have just got the approval, and we have started getting the orders. I think we have -- how many gaskets, steel gaskets -- right, we have got -- already got -- how many gaskets? Right, so we have got orders for about 20 gaskets and then some [ steel ] cylinders. We have not started looking at LNG because LNG requires a different kind of cylinder, gradually. But government though is talking about LNG as a fuel, but they still are not geared up fully for that. So I'm sure if they come closer to using LNG, we will be having the cylinder for that as well.

Okay, okay. And regarding, sir, any thought about, sir, demerging at some point of time like at any -- like once CNG business pick up or something like that?

Not quite, actually. Yes, we have decided that certain businesses we will exit, and we are preparing in this direction. But demerger is not really on [ cards ] just yet. Probably, at some stage, we might carve out our high-pressure business. And then see if we have to look for someone to take that business or partner with us.

Okay, okay. Sir, regarding MOX film, sir, any new products in [indiscernible] how is it doing like?

The MOX film is as usual. We are -- because of COVID, the distributors, et cetera, had been lying low. But things are now lifting back to normal. I guess we should -- with quarter 4 included, we should be about 10 -- we should still be about INR 100 crores in terms of revenue.

Okay. And sir, any CapEx idea next year or year or 2 like...

So this year, we curtailed our CapEx to only INR 100 crores. Up 'til Q3, we have done only INR 62 crores. So probably, we may not even consume all INR 100 crores. Next year, we will first watch how things are panning out. And then we'll take a call probably by next conference as to how much should be the CapEx. But it will be absolutely need basis. Okay. I apologize, Bharat and Raghu will take further questions, please.

The next question is from the line of Rusmik Oza from Kotak Securities Limited.

Sorry, am I audible now?

You are.

Yes. So my question was on the EBITDA margin, sir. If I'm looking at your quarterly presentation, last year 9 months and this year 9 months, there is no difference between the EBITDA margins of your polymer products and composite products. And as per the earlier conversation, you said that IBCs generate higher margins, composite cylinders generate higher margins. So what is the reason for value-added or composite products not generating higher margins for the company? And going forward, how do you see this changing?

As far as I think this current year 9 months result is concerned, there is the EBITDA margin in the 9 months is 12.60%. In Q3, it was 13.51%. You see that is little down compared to previous year 9 months because of fixed expenses. And within the initially Q1, there was a 2-month lockdown period, the business was not there. As we have seen, that is a business was INR 475 crores only. But as the original standard, means we can say margins are in the -- EBITDA margin in the range of 14% to 15%. Last of the whole of the year, it was around 14%. So this year, as a whole of the year, we are expecting to achieve in the business of around 13%, but we should come back with the original margin in the next year. As -- but especially value-added products margins are concerned, yes, the EBITDA margin in value-added products are in the range of 18% to 20%.

Look but as per presentation, the composite product -- EBITDA margins are like, for example, last year 9 months were, so polymer product, margin of 14.3% and composite is [ 14.4% ].

Sir, others, last quarter band, if you see value-added and -- just a minute then. If you see polymer and composite, in composite order band, you will see composite is not the value-added product only. I'm clarifying. Composite product is inclusive of the steel drums, okay, where the EBITDA margins are in the range of 6% to 7%. Agri segment comes under the composite, where the EBITDA margin is 11%. There is auto components, also it is there. So business is not there in the last -- because of COVID in the first 9 months. These are the reasons. Otherwise, value-added product, yes, margins are higher only.

Okay. Sir, maybe from next time onwards, if you can give us a little breakup of what considered is value-added products and what considered...

Yes, yes. We took -- we noted your suggestion. Composite products, we have mentioned that composite product, inclusive of the IBC, steel drums, [ agri ] business and cylinders, batteries, auto products and steel, these are the major. But major contribution which comes from the steel drums and these batteries, which was little down EBITDA margins there. Therefore, the composite product EBITDA is lower. But definitely, we can provide in -- we'll mention separately about the composite product revenue separately.

[Operator Instructions] The next question is from the line of Jigar Shah from ICICI Securities.

Sir, I wanted to ask a question on the growth in the month of January. So how are things right now as compared to last quarter?

I'm -- in fact, I cannot provide you the January figure month-on-month. We used to provide quarterly figure. But as Mr. Jain has mentioned, and I'm also mentioning you that quarter-on-quarter, there is an improvement in the business. And as the overall guidelines we have given, that we will -- this current year, we should do 75% to 80% business revenue of the previous year. And we are in that line working out. So exactly month-to-month revenue, I cannot provide. Of course, this quarter is better than the -- this quarter will be better than Q3. That's only I can say.

And also on whether domestic business is doing better or overseas is doing better? What is the capacity utilization of both...

[indiscernible] business is already over because we are always 1 quarter lag between the Indian overseas -- India business and the overseas business. In my Q4, you will find the revenue of October, November, December overseas business and January, February, March Indian business. So definitely, because of the overseas last quarter means -- their -- our Q3 is their Q4. So I think definitely, last quarter always better than the previous quarter. So of course, business in India and overseas both is picking up now as far as packaging business. We have seen chemical business is growing in India. Most of the business are expanding. Chemical industry is also achieving good growth. [indiscernible] packaging we use in food products, FMCG, oil companies, specialty chemicals. Variety of the chemicals are used under this packaging, and that is growing in India. You must have seen, this is visible, and it is from the oil chemical companies which are getting a growth of more than 10%. As the chemical industries grow, we will also grow along with that.

Also, sir, in U.S., you recently last year opened new plants for IBCs. So how are they doing currently? And what is the outlook for FY '22 on IBCs. As Mr. Anil Jain said that more and more people are shifting from drums to IBCs. And what would be the Q3 growth in IBCs and outlook?

In fact, I tell you, I think as far as U.S. business is concerned, you are right that we have put up the plant. Initially, we had a plant in Chicago and Houston. Now another plant, which we're starting either September somewhere in for Iowa plant now. But definitely, the sales, if you ask me the specifics, U.S. region is concerned, the growth will be higher there. There -- maybe the growth of [ 30% ], 50% growth will be there. But other countries, overall overseas growth, we are also expecting around 15% volume as well as revenue in the year 2021. In India, yes, IBC business is definitely -- mainly people are preparing for the export packing because the handling is reduced. Because if you compare maybe 200 liter drum and 1,000 liter IBC, is the pipe product required in handling when you -- the people are exporting in the drum. And instead of that, they will end up the one IBC. IBC is becoming more popular. And we -- in fact I just would like to tell you that we manufacture packaging product overseas. We don't have any other product in overseas. We do plastic, jerry cans, drums, conical pails and IBC. These are the overseas products. In India, also, all products we do that. So definitely, IBC growth will be higher than the drum growth. Drum growth, maybe we can expect 10%, 12%. But IBC growth, we can expect around 15% EBITDA in overseas both put together.

Okay. Okay. Okay. And sir, any outlook on pipes segment, as this year pipe segment did not do much because of the government...

Yes, yes. As like Mr. Jain also mentioned you, the pipe business, definitely, chances are very good in '21, '22. As in budget, this 2021 February budget, government is also putting more expenditure on infra, which implies the road and all other activities, smart cities development, so the pipe mainly used for water, sewage, drainage and [ power duct line. So we are -- you have seen -- I think I've heard the commentary from L&T. Now you see how business they are expecting. They are also expecting very good business in the period ahead, especially in '21, '22. Next 3 years is -- must be very good as far as infra business is concerned. This year, pipes has not done because of this government's payment -- or delays of payment because clearance of this -- clearance in the project is also delayed by the government intentionally. And because of the COVID, there was the management people, the site people were not available. But now situation is improving. And definitely, we are expecting good level of the business in the periods ahead as far as pipes are concerned. I think investment we have said we can do business of around INR 400 crores to INR 450 crores in pipes [ business ].

Next year?

Yes, of course. Because currently, we are already 40%, 50%, we are doing business. So definitely, we have a good headroom available for the pipe business in the periods ahead.

So this year, we are expected to do how much in pipes business, sir?

Maybe around -- all put together, maybe around INR 160 crores to INR 170 crores.

So from INR 160 crores, INR 170 crores, you are expecting it to go back to INR 400 crores...

Definitely for us. Of course, it is available. No, because capacity is available. Today, you have seen, suddenly the polymer prices have also jumped up. So every EPC contract is going to government for revision in their prices because every EPC contract was submitted to state government because of the steel and polymer prices increase. So there has to be -- need a revision in their overall cost which means [indiscernible] most of the EPC contractor. They are under discussion with government. Even you heard that statement of Mr. Nitin Gadkari, how we will do the infrastructure products -- infrastructure projects when the steel is increased from INR 50 a kg to INR 70 a kg, 40%, 45% jump in the steel prices. So every infra project is affecting because of this sudden price increase. But we know that, it's a temporarily. And I think as a -- it's a pent-up in this demand has come out, and it should be recognized in the periods ahead.

Okay. Great, sir. Great. And sir, lastly, on CNG gasket business, Mr. Anil Jain mentioned that you have got an order of 20 gaskets. So how does that get converted into value and...