Gaurav Aggarwal of Metis Capital Management presented his in-depth investment thesis on Time Technoplast (India: TIMETECHNO) at Best Ideas 2019.

Thesis summary:

Time Technoplast is the leading large-size plastic industrial drum manufacturer (market size of ~$1.5-2 billion) and has a dominant position in Indian plastic industrial packaging, used chiefly by the chemical, petrochemical, and food & beverage industries. 

The management team is passionate, innovative, and transparent. Insiders own 51% of the equity. From 2010-2014, the company expanded aggressively and has become a market leader in Southeast Asia and the Middle East.

An increased percentage of global sales of industrial packaging comes from Asia (up from 20% to 35% over the last decade due to multiple industries shifting to a lower cost base). India is the leader in Asia for usage of plastic drums/containers with about 55% plastic, 45% metal. In Asia, the mix is closer to 15/85, so a runway of growth exists as the company converts customers to safer, longer shelf life, and lower lifetime cost products. 

In light of an ongoing focus on value-added products and 70+% capacity utilization in the overseas industrial packaging business (~30% of revenue), Gaurav expects ROCE to continue to increase toward 20+% for the next few years. 

Due to weak small-cap market sentiment and extrapolation of FQ2 numbers, the valuation is compelling. In FQ2, EBITDA margins were affected by unusually volatile material costs, which will be passed on with lag in FQ3 and FQ4. Gaurav estimates 50+% upside based on DCF analysis and 70+% upside based comparable company multiples. 

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About the instructor:

Gaurav Aggarwal, CFA, CIPM is the co-founder and co-portfolio manager of Metis India Opportunity Fund (MIOF). Prior to starting Metis in 2011, he was a senior analyst with portfolio management duties over $50 million in fund of fund assets at a leading regional investment bank (Global Investment House) in the Middle East. Prior to this, he was with Bay Harbour Management, a $1.2 billion distressed debt and equity hedge fund in New York City. He has also served as an analyst with Polen Capital Management, a $8 billion+ long-only firm with a very successful long-term track record. He received an M.S. in Accounting (specializing in Finance) and B.S. in Business Administration from the University of North Carolina at Chapel Hill. He looks forward to continue building a charity corpus equaling 25% of his net earnings from fund management which he will deploy in future charity/cause of his choice.