TCPL Innofilms – a 100 % subsidiary – was tipped to be the “world’s first state of the art, innovative PE blown film line at our facility”. It manufactures recyclable flexible packaging and the management had said it is one of a kind and amongst the very few companies in India to be equipped with such capability. However, the foray seems to have run into rough weather. The company commenced trial production in Q4FY22 and commercial production in July last year. But the business has made a loss for the year. More importantly, the management said it is still facing some technical snags in the operation and will struggle for another couple of months. The decision to merge the business with the parent indicates a clear scaling down of expectations. Earlier, the management had said it was made into a separate company and a separate profit centre as they wanted to track its performance independent of TCPL. Not any longer.
Creative Offset (COPPL) was acquired in December ’21 and the current stake of TCPL in it is 89 %. The company specializes in manufacturing of printed rigid boxes and leaflets for the mobile phone and consumer electronics industry. In Q4 FY22 concall the management said we should be able to turnaround the company in a few months as benefit of scale, cost optimization measures, and other synergies start contributing to the performance. In last four months of FY22, the company earned Rs.9 crore and now for full year FY23, it has earned revenues of Rs.32 crore. But posted a loss. I think making this business profitable is going to be a challenge – it is neither capital intensive nor technology intensive, so one can expect supply will always be plentiful. Even though demand will grow, cutting profitable deals with manufacturers will not be easy. And this runs the risk of bringing down company level margins, which the market will not like.
The core business however remains stable – steady growth and steady margins. Here too, long term growth has come about only by taking on additional debt, so it is not exactly a cash churner. At around 14-15 times earnings (adjusted for exceptional items), stock seems fairly valued.
(Disc.: No positions)
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