CRISIL Equities has assigned a CRISIL IER fundamental grade of 4/5 to Time Technoplast Ltd (Time). The grade indicates that the company?s fundamentals are superior? relative to other listed equity securities in India. CRISIL Equities has assigned a valuation grade of 4/5, indicating that market price has ?upside? from the current levels. Our one-year fair value of the stock is Rs 71. The stock is currently trading at Rs 58 per share. The grades are not a recommendation to buy, sell or hold the graded instrument, or a comment on the graded instrument?s future market price or its suitability for a particular investor.

The assigned fundamental grade takes into account Time?s established position as a leading manufacturer of polymer-based products catering to diverse industry segments such as industrial packaging, lifestyle, infrastructure, automotive components and healthcare. The grade factors in Time?s leadership position in industrial packaging (which comprises 60% of Time?s overall revenues) with a market share of ~75%. The company is expected to benefit from an increasing demand for industrial packaging with a healthy growth in end-user industries such as chemicals, speciality chemicals and FMCG as well as the increasing trend to replace metals with plastics. The grade also takes into account Time?s entry into China, Taiwan and Thailand ? areas with high growth potential - given low penetration of polymers in these Asian markets. The grade also factors in Time?s ability for innovation - it has recently acquired relevant technologies for two new products, composite cylinder and material handling, which would accelerate future growth. An experienced and professional management with a sound knowledge of the polymer industry also support the grade.

The grade is constrained by increasing competition from international players in the Asian markets, which could have an impact on its margins due to lower utilisation levels. Even though Time?s management was successful in integrating the acquisitions in the past, its ability to integrate the new acquisitions and profitably run these companies remains a key challenge.

Financial outlook

CRISIL Equities expects Time?s revenues to grow at a three-year CAGR of 25% to Rs 19.5 bn in FY13, largely driven by growth in the industrial packaging segment and also its entry into new markets. Adjusted PAT is estimated to increase at a three-year CAGR of 24% to Rs 1.8 bn in FY13, primarily driven by healthy revenue growth and stable margins. EPS is expected to nearly double from Rs 4.3 in FY10 to Rs 8.4 in FY13. We expect RoE to increase to ~20% in FY13 from 17% in FY10.

Valuation

CRISIL Equities has used the discounted cash flow method to value Time and arrived at a one-year fair value of Rs 71 per share. At this value, the implied P/E multiples are 10x FY12 EPS and 8.4x FY13 EPS.