For Q1FY10 the company reported net sales of Rs2.1 billion, up 10.2% on y-o-y basis. This was primarily due to increased contribution from newer verticals like battery, healthcare and infrastructure.
The operating margins during Q1FY10 were up by 120 bps y-o-y and up sharply 410 bps on sequential basis to 22%. This is primarily due to the fact that the prices of its key raw material that is polyethylene has corrected sharply resulting into lower cost of production.
This is well reflected by decrease in raw materials to sales ratio from 65.3% in Q1FY09 to 61.6% in Q1FY10. EBIDTA for Q1FY10 was at Rs458 million up 16.5% y-o-y and up 20.1% on sequential basis.
TTL has approved setting up of a manufacturing facility at Tianjin in China. The company has entered into the agreement with the local Chinese government for long lease of the land.
The project envisages total outlay of ~ Rs.500 mn and is expected to be operational in by September 2010. TTL is looking to manufacture Intermediate Bulk Containers and packaging drums in the first phase.
The company targets many multinational companies around the area as its customers. The above step is positive as it would lead to its expansion in the Asian region and promising Chinese markets.
We maintain our earnings estimates and expect TTL to report Cons. EPS of Rs.4.5 in FY10E. At the current market price of Rs.42, TTL trades at attractive valuation of 1.6x book value, 9.4x earnings and 6.9x cash earnings based on FY10E.
We feel the valuation is attractive due to high margin businesses with innovative applications of polymers, foray into battery business and JV for material handling solutions and systems. This is expected to lead to significant growth in revenues and profitability, going forward.
Due to 43% upside potential form the current levels we continue to recommend
BUY on TTL with price target of Rs60.