April 6, 2023
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TCPL PACKAGING Stock Research Report by HDFC Securities
Sector: Containers & Packaging
CMP Rs. 1410, Target Rs. 1683 (19% upside potential)
Target Period: 12 Months
TCPL Packaging Ltd. (TCPL) is India’s leading converter of paperboard and manufacturer of folding cartons. Its products portfolio includes printed blanks and outers, folding cartons, litho lamination, plastic cartons, blister paper, shelf-ready packaging, corner glued cartons, and liner cartons for use in cigarette, liquor, food and beverage, bakery, FMCG, automobile, stationery, pharmaceuticals and airline industries. Broadly, TCPL caters to FMCG, packaged foods, tobacco, liquor industries and industrials (like cable & wire boxes). FMCG accounts for more than 50% of the revenue.
To diversify, in September 2016, TCPL ventured into flexible packaging. TCPL’s flexible line is capable of processing BOPP as well as paper, which will aid to roll out products like tipping papers, inner cigarette frame and laminates. Further, the company has doubled the capacity of its flexible packaging plant as this category is likely to be key revenue growth driver.
The Packaging Industry is widely recognized as a massive beneficiary of India’s growth story: driven by attractive end-industry fundamentals and demographics. The onset of the retail revolution ushered in an era of transformation in the industry dedicated to eye-catching packaging designed for the shelf. Over the past few years, India has taken rapid strides in developing a strong digital ecosystem which has created opportunities for businesses along the value chain – including packaging. The proliferation of online retail has created a fast growing sub-segment of transit packaging in the larger industry. While a number of global companies have designed innovative and appropriate packaging for the omni-channel – organized retail (including online retail) is still at a nascent stage in India. The existing players of scale including TCPL, due to their current pole position, have a window of opportunity to become leaders of tomorrow by monetizing this opportunity at the right time.
TCPL PACKAGING Stock Research Report: Valuation & Recommendation:
The Indian packaging industry, regarded as a commodity play in the early 2000s, has now transformed into a value add, innovation driven and technology-based industry. It is slowly but steadily coming up to speed with the mature global market and has historically been one of the most consistently growing sectors. With large-scale opportunities emanating from both retail and e-retail, the coming of age of the packaging industry will drive transformation in the very nature of the industry in India – the organized players stand to gain ground displacing the smaller dispersed participants.
TCPL is one of the few Indian companies which has posted ~17% CAGR revenue growth over past 15 years. Strong industry tailwinds, newer capacities and high-quality offerings to ensure continued growth momentum for TCPL. Going ahead, we expect the company to grow its revenue/ EBITDA / PAT at the CAGR of 20%/22%/41% over FY22-25E.
Consistent requirement of growth capital has kept the debt levels high for the company, however, on relative basis the debt level has come down. TCPL doesn’t have any major capex plans in the next two years while the future capex (if any) will not be more than its cash profits with no plans to raise any fresh debt. Thus, the company’s debt level may peak out from FY23 onwards. Improving utilization levels and better working capital management are likely to drive up the company’s RoCE. We think the base case fair value of the stock is Rs 1540 (10.8x FY25E EPS) and the bull case fair value is Rs 1683 (11.8x FY25E EPS). Investors can buy the in stock Rs 1400-1425 band (9.8x FY25E EPS) and add more on dips in Rs 1250-1262 band (8.8x FY25E EPS).
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