Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil AA-/Stable/Crisil A1+' ratings on the bank facilities and commercial paper of Time Technoplast Ltd (TTL; flagship company of the Time group).

 

The ratings continue to reflect the healthy business risk profile of TTL, its steady operating margin and strong financial risk profile. These strengths are partially offset by moderate return on capital employed (RoCE) and exposure to intense competition in certain product segments.

 

Revenue grew 16.4% in fiscal 2024, driven by higher volume and strong demand for value-added products. The growth in established products was a stable 12%, led by core packaging products such as drums, jerry cans, polyethylene (PE) pipes and energy storage devices amongst others. Growth in value-added products was at 32%, which includes intermediate bulk containers (IBC), composite cylinders and multiaxis-oriented cross-laminated (MOX) films. Share of value-added products now stands at 26%.

 

Operating margin increased marginally to 13.9% in fiscal 2024 from 13.5% in fiscal 2023 owing to the ability to pass on fluctuations in raw material prices to end-users and increasing share of value-added products. Higher contribution of value-added products is expected to improve margin over the medium term. Financial risk profile is expected to remain strong because of a robust networth, healthy debt protection metrics and adequate cash accrual.

 

TTL had previously announced its plan to divest majority holding in the overseas business to a strategic partner/investor. Proceeds from the stake sale was expected to be used to reduce debt and support part of the capital expenditure (capex) towards its core business and the composite cylinders segment, and provide benefit to shareholders. As per its latest disclosure, TTL has decided not to proceed with the reorganisation plan. Crisil Ratings will continue to monitor these developments.

 

For the first half of fiscal 2025, revenue and earnings before interest, tax, depreciation and amortisation (Ebitda) were Rs 2,602 crore and Rs 372 crore, respectively: against Rs 2,274 crore and Rs 315 crore, respectively, for the corresponding period previous fiscal.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of TTL and its subsidiaries and joint ventures (JVs) as all the entities, collectively referred to as the Time group, have significant managerial, operational, and financial linkages.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

• Healthy business risk profile: TTL will continue to benefit from its dominant market position, diversified product and client profiles, better economies of scale and wide geographical reach. The product portfolio, spread across the polymer-application segment, has been gradually diversified using a consolidated technology platform comprising blow, extrusion, and injection moulding. The company, thus, caters to varied segments including industrial packaging (76% of revenue), composite cylinders (10%), infrastructure (7%), technical and lifestyle (4%). The growth in established products was a stable 13% led by core packaging products such as drums, jerry cans, PE pipes and energy storage devices amongst others. Innovative and value-added products give the group a pricing advantage in a highly competitive market. Growth in value-added products was at 32%, which includes IBC, composite cylinders and MOX films. Its share of value-added products now stands at 26%.

 

Revenue is expected to grow at a compound annual growth rate of 10-12% over the medium term, led by stable growth in the core packaging business and growth in the composite cylinder business. The core packaging business caters to fast-moving consumer goods, specialty chemicals, construction chemicals, paints and pharmaceuticals, which have healthy demand prospects.

 

• Focus on the composite cylinder business for growth going forward: TTL sees increase in the composite cylinder (LPG and CNG) business to drive the growth over the medium term. Revenue contribution from this segment increased Rs 518 crore in fiscal 2024 from Rs 346 crore in fiscal 2023 and Rs 241 crore in fiscal 2022.

 

The Time group supplies composite LPG cylinders to more than 40 countries and has approval to supply in more than 50 nations.

 

During fiscal 2023, the company enhanced its annual CNG cascade manufacturing capacity by 300 cascades (18,000 cylinders) under its Phase I expansion. With this, the total annual cascade manufacturing capacity increased to 480 cascades (28,800 cylinders). Owing to the demand, the company has undertaken Phase Il expansion plan for increasing its manufacturing capacity by 600 cascades per annum, resulting in the total manufacturing capacity increasing to 1,080 cascades per annum.

 

TTL has further received approval for type 3 composite cylinder for hydrogen powered fuel cell, UAV and drones.

 

• Steady operating profitability: Despite competition in established products, operating margin has been steady at 13-14%, aided by increased revenue from new, higher-margin products. Though profitability remains susceptible to volatility in crude prices, TTL is able to pass on any hike in raw material prices to its customers with a lag of 3-6 months. Margin is expected to increase gradually to 14-15% over the medium term as the share of value-added products, especially the composite cylinder business, increases.

 

• Strong financial risk profile: Networth was robust at Rs 2,614 crore as on March 31, 2024, aided by healthy cash accrual of over Rs 460 crore in fiscal 2024. Debt should also sustain at current levels, with adequate cash accrual to cover capex of Rs 180-220 crore per annum and debt obligation of Rs 80-100 crore. Interest coverage ratio was healthy at 6.9 times in fiscal 2024 against 5.5 times in fiscal 2023; while gearing improved to 0.28 time as on March 31, 2024, from 0.35 time previous fiscal. The key debt metrics are likely to improve further in fiscal 2025, supported by strong cash generation and moderate capex spend of Rs 180-220 crore.

 

Weaknesses:

• Large investments in overseas geographies yet to contribute optimally, thereby limiting RoCE: The group has pursued a global growth strategy by entering several markets. While investments in overseas subsidiaries have constrained the improvement in RoCE, performance of these entities has also picked up over the past few fiscals, though it remains below that of the domestic business. A cautious approach towards funding capex plans, limited debt addition, and better operating performance should help the RoCE (currently 13-15%) improve over the medium term to 16-17%.

 

• Exposure to intense competition: The group faces intense competition, especially in the lifestyle and battery segments. Several unorganised players have entered the market due to low entry barrier and the simple injection moulding technology. In the battery segment, the subsidiary, NED Energy Ltd (NED), faces competition from other large players. This may continue to limit pricing power against suppliers and customers, thereby constraining profitability.

Liquidity: Strong

Overall annual cash accrual of over ~Rs 500 crore in fiscals in 2025 and 2026 should comfortably cover yearly debt repayment of Rs 80-100 crore. Capex of Rs 180-220 crore, to be incurred over the medium term, will be funded internally. Cash and equivalent stood at Rs 171 crore as on October 31, 2024. The utilisation of fund-based bank limit of Rs 550 crore averaged 88% for the six months through October 2024.

Outlook: Stable

The Time group is likely to maintain a healthy business risk profile over the medium term, backed by its established market position, diverse product portfolio, geographical diversity and the extensive experience of its promoters.

Rating sensitivity factors

Upward factors

• Substantial improvement in operating performance in terms of revenue, profitability, and RoCE
• Sustenance of debt metrics at healthy levels; for instance, interest coverage ratio (over 7.5-8.5 times)
• Increase in liquid surpluses

 

Downward factors

• Sharp decline in revenue and profitability leading to lower cash accrual to total debt
• Larger-than-expected, debt-funded capex or acquisition weakening the interest coverage ratio to less than 3-4 times on a sustained basis
• Moderation in liquidity

About the Company

TTL, promoted by a group of qualified professionals, commenced operations in 1992, with its first facility at Daman. The company was listed on the Bombay Stock Exchange and the National Stock Exchange in 2007. It manufactures polymer-based products that are used in the industrial packaging, infrastructure, automotive, lifestyle and other segments. The group has more than 30 manufacturing units globally (including 20 within India) and is present across 11 countries, covering South-East Asia, the Middle East and North Africa (MENA) and the USA. The subsidiaries and JVs have presence in the polymer-based and composite segments, except NED that manufactures storage batteries; and Time Mauser, which makes steel drums.

Any other information: Not Applicable