Recommendation From Paper & Paper Product Sector

HERE IS WHY 
Increasing demand from customers 
Improved efficiency 
Export realisations

TCPL Packaging Ltd is one of India's largest manufacturers of printed folding cartons and is one of few listed packaging companies in India. 

The FMCG industry is expected to be on a growth trajectory in line with the country's growth in demand for FMCG goods. TCPL Packaging Ltd is supplier to the FMCG industry and can be expected to benefit from the growth in FMCG sector and the overall growth in the economy. Owing to good monsoons this season, the demand is expected to revive for most of the industries in India. 

The expected economic growth can create myriad packaging opportunities for TCPL due to revival in requirements of FMCG, food, tobacco, liquor and other consumer product manufacturers. 

TCPL manufacturing units are strategically located to tap export opportunities as well as to meet increasing domestic demand. 

Investors looking at investing opportunities in packaging industry need to understand that there continues to be increase in capacity of packaging manufacturers, resulting in oversupply, coupled with increase in costs on account of inflation. The increased cost is a result of not only the price rise in raw materials, but also due to increase in operating expenses. 

The outlook for TCPL is good as the company mitigates its business risks by continuous increase in its productivity. There is a visible increase in demand by customers of TCPL. The export realisation is high for TCPL and there is a healthy addition of customers on a regular basis.

With expansion plans in place and overall positive outlook in the industry, TCPL is a good buy at the current levels. 

On the financial front, TCPL Packaging’s revenue decreased 9.17 per cent to Rs139.81 crore in Q4FY17, as compared to the same period in the previous fiscal. The company’s PBIDT declined 41.82 per cent to Rs10.74 crore in Q4FY17 on a yearly basis. The company’s net profit also declined 41.71 per cent to Rs5.49 crore in Q4FY17 on a yearly basis. 

On an annual basis, the company’s revenue decreased by 2.59 per cent to Rs595.96 crore in FY17 from Rs580.91 crore in the previous fiscal. The company’s PBIDT stood at Rs68.70 crore in FY17, down by 8.83 per cent from Rs75.36 crore in the previous fiscal. The company’s net profit stood at Rs33.21 crore, down by 13.24 per cent in FY17 from Rs38.28 crore in FY16. 

On the valuation front, the share price of TCPL Packaging is trading at a PE multiple of 17.91x as against peers such as Uflex Limited (9.13x), Mold Tek Packaging Limited (31.95x). The company’s PE multiple is higher as compared to industry PE multiple of 9.85x. The company’s ROE stood at 18.66 per cent and ROA at 5.48 per cent in FY17, while it’s total debt-to-equity ratio stood at 1.46x in FY17.