It is not usual for a stock to gain the confidence of four eminent stock wizards, Ramesh Damani, Dolly Khanna, Vijay Kedia and Anil Kumar Goel. However, TCPL Packaging has managed to achieve this rare feat.
As of 31st March 2016, Anil Kumar Goel held 766,200 shares while Vijay Kedia held 119,961 shares. As of 31st March 2015, Dolly held 28,892 shares while Seema Goel held 66,179 shares. The holdings of Dolly and Seema as of 31st March 2016 is not known.
Ramesh Damani’s holding in TCPL Packaging is not known. However, he has candidly disclosed that he does hold stock in the Company (See Ramesh Damani Discusses His Diversified Portfolio Of Favourite Stocks) as a proxy to owning FMCG companies and E-commerce companies. Ramani Damani explained that a boom in the e-com space (Amazon, Flipkart, Snapdeal etc) will automatically lead to prosperity for packaging companies like TCPL.
The question as to why these eminent stock wizards have trusted TCPL with their wealth is made clear when one looks at Sharekhan’s summation of TCPL’s fundamentals:
(i) Enhanced capacity and improving consumption environment to drive double-digit growth:
TCPL Packaging Ltd (TCPL) is one of the largest players in the domestic packaging space (with expertise in carton packaging). The company is one of the largest vendors for supplying packaging materials to tobacco, food and other FMCG product companies (including Nestle India, Hindustan Unilever and Godrej Consumer Products) in India. With its new plant in Guwahati getting operational, TCPL’s conversion capacity has increased to 52,200 tonne per annum from 43,200 tonne per annum earlier. With demand for consumer goods expected to improve on the back of expected better monsoon (driving rural demand) and improving sentiments in the urban India, the revenue growth of TCPL is expected to grow at a compounded annual growth rate (CAGR) of about 20% with stable operating profit margin (OPM) of 16-17%.
|TCPL Packaging Quarterly Results|
|PARTICULARS (Rs. CR)||MAR 2016||MAR 2015||% CHG|
(Source: Business Standard)
(ii) E-Commerce and emergence of new players in FMCG space–An ascending driver:
E-Commerce is a rising trend in India (especially in the urban markets) with emergence of players, such as Flipkart, Amazon and Snapdeal, which are scaling up in India and are conscious about protective packaging. The E-Commerce space is expected to grow in strong double digits providing a long-term opportunity for packaging players (likely to contribute 10% of the order book in the near to medium term). On the other hand, emergence of players, such as Patanjali (ventured on ayurvedic platform) gaining strong foothold in the domestic FMCG market or beverage players, such as Paperboat (giving importance to organic packaging) provides bigger opportunities to companies, such as TCPL, to scale up in the long run.
|TCPL Packaging’s Annual Ratios (%)|
|Return on Networth||31.91||21.89||17.86|
|Return on Investment||21.80||18.08||16.47|
(iii) Strong financial background; leverage position is comfortable:
TCPL has a strong financial record with revenues, operating profit and profit after tax (PAT) growing at a CAGR of 20%, 24% and 47% respectively over FY2011-15.
The OPM of the company has improved by 16.5% in FY2015 (to further 17.5% in M9FY2016) from 14.5% in FY2011 on the back of operating efficiencies. The company has better leverage position in the packaging industry with debt-equity ratio standing at 1.4x. With operating cash flows to improve in the coming years and no major capital expenditure going ahead, we expect the debt-equity ratio to further improve in the coming years. The return ratios have consistently improved and RoE and RoCE currently stand at 32% and 23% respectively.
(iv) Trading at discount to packaging peers:
TCPL would be one of key beneficiaries of the improving demand environment in the FMCG space. Further, the rising trend in the E-Commerce space would add on to the overall revenues in the coming years. We expect TCPL’s revenues and PAT to grow at a CAGR of 19% and 28% respectively over FY2015-18. Despite consistent operational performance, TCPL is trading at 7.2x its FY2018E earnings, which is at a discount to its peers, such as Huhtamaki PPL and Essel Propack, which are trading at 15x and 12x respectively their FY2018 consensus estimates. Hence, in view of consistent operating performance, better earnings visibility and discounted valuations, we have re-initiated our positive view on the stock with an upside of 20-25%.
So, we do have to compliment Sharekhan for a cogent analysis of the fundamentals of TCPL. Now, whether the stock does surge as anticipated and fills the pockets of the wizards with big bucks has to be seen!