Fundamental Analysis Of TCPL Packaging – Products, Profitability & More

Fundamental Analysis of TCPL Packaging: Indians are consuming more and more packaged products instead of losing ones. And that’s not it, they are buying a lot of well-packed goods as well. This has resulted in a boom for the packaging industry with firms reporting higher earnings and announcing expansion plans. Are there attractive investment opportunities in the sector?

In this article, we’ll try to know that by performing a fundamental analysis of TCPL Packaging, a small-cap stock in the packaging industry.

Fundamental Analysis of TCPL Packaging

We’ll start our analysis with a quick overview of the business of TCPL Packaging and the scope of its operations. Next, we shall acquaint ourselves with the packaging industry landscape. After that, a few sections are devoted to the financials of the stock. A highlight of the future plans and a summary conclude the article.

Company Overview

Incorporated in 1990, TCPL Packaging is a small-cap packaging company engaged in the manufacturing of folding cartons, specialty/gift packaging, and flexible packaging. It has headquarters in Mumbai with marketing offices in multiple metro cities in India.

Products Of TCPL Packaging

It owns 8 state-of-the-art production facilities across the nation. The company employs over 1,900 individuals and supplies its products to leading companies including HUL, Marico, ITC, Dabur, Parle, Nestle India, United Spirits, Abbott, and more.

The packaging company earned 76.49% of its FY22 revenues from sales within India. Exports accounted for 23.51% of the total income for the company. The table below shows the geographic operating segments of TCPL Packaging for the last two fiscals.

Geography	FY21	FY22
Domestic sales	77.56	76.49
Exports	22.44	23.51

We now understand what the company does. Let us move to learn about the industry in which it operates.

Industry Overview

Packaging is a large industry globally with multiple sub-segment such as glass, paper, carton/folding, PET bottles, and more. The worldwide packaging sector was valued at $ 1,002.48 billion in 2021. This provides space for a large number of small and big companies to operate in the sector.

India’s packaging industry is projected to grow fast at a CAGR of 26.7% during the 2022 to 2027 period. Increasing population, rising incomes, evolving lifestyles, and higher internet adoption are key identified factors that will lead the growth in the sector. 

All these factors are coming into play as the nation’s large middle-class population is spending more on organized retail and online purchases.

Let us now move forward to study the financials of the company as part of our fundamental analysis of TCPL Packaging.

TCPL Packaging – Financials

Revenue & Net Profit Growth

The revenues of TCPL Packaging have increased at a CAGR of 8.31% from Rs 672.35 crore in FY17 to Rs 1,085.74 crore in FY22. During the same period, the company’s profits inched up at an average of 6.31% every year.

The table below presents the operating revenues and net profits of TCPL Packaging for the last six financial years.

Fiscal Year	Operating revenue	Net profit
2022	1,085.74	46.87
2021	903.82	33.47
2020	889.78	36.52
2019	815.81	28.95
2018	713.71	20.22
2017	672.35	32.47
6-yr CAGR	8.31%	6.31%

The cost of raw materials went up in 2018 bringing down the profitability of the company sharply. It is only in recent years that the margins of the company have stabilized again. We shall read more on this in the next section on margins: operating profit and net profit.

Operating & Net Profit Margin

The margins of the company have improved in recent years with the operating profit margin and net profit margin coming closer to FY2017 levels. A rise in demand and subsequently higher utilization levels shall further help in the margin expansion along with material cost decline in the future.

The table below shows the profit margins of TCPL Packaging for the last six fiscals.

Fiscal Year	OPM	NPM
2022	14	4
2021	15	4
2020	14	4
2019	13	4
2018	12	3
2017	16	5

In the next section we’ll see how the earnings and margins have translated into the return ratios: return on capital employed (RoCE) and return on equity (RoE).

Return Ratios: RoCE & RoE

The RoCE and RoE of the packaging stock stood at 14.26% and 14.58% in FY22 respectively. Thus, we can conclude that TCPL Packaging is a low-margin, high-volume business with high turnover ratios. Thus, capacity utilization level shall always remain a key determinant of the performance of the company.

Overall the profitability of the company seems to have improved in the recent fiscal. The table below highlights the improvement in the return ratios of the company for the previous six financial years.

Fiscal Year	RoCE	RoE
2022	14.26	14.58
2021	13.22	11.75
2020	13.33	14.32
2019	13.29	12.68
2018	10.86	10.27
2017	16.39	20.59

Debt / Equity & Interest Coverage

Moving onto the leverage analysis of TCPL Packaging, we can see that it had a high debt-to-equity ratio of 1.32 with an interest coverage ratio of 4.62 in FY22. The debt is a primary part of the capital structure for the company.

The table below highlights the debt-to-equity ratio and interest coverage of the stock over the last six financial years.

Fiscal Year	Debt / Equity	Interest Coverage
2022	1.32	4.62
2021	0.93	3.66
2020	1.16	2.13
2019	1.13	2.47
2018	1.17	2.07

Future Plans of TCPL Packaging

So far we looked at previous years’ data for our fundamental analysis of TCPL Packaging. In this section, we’ll try to get a sense of what lies ahead for the company and its investors.

1. Late in 2021, the company purchased a majority stake in Creative Offset Printers, a privately owned manufacturer in consumer electronics and premium rigid box packaging space. This shall benefit TCPL as India becomes 2nd largest mobile manufacturer.
2. It has also ventured into the production and distribution of blown PE film and sustainable packaging films. Very few Indian players cater to this specialty fully recyclable PE film sub-segment as of now.
3. In addition to this, TCPL entered the Middle East market recently by establishing a subsidiary in UAE and a marketing office in Dubai.

TCPL Packaging – Key Metrics

We are almost at the end of our fundamental analysis of TCPL Packaging. Let us take a quick look at the key metrics of the stock.

CMP	₹1,300	Market Cap (Cr.)	₹1,200
EPS	₹119	Stock P/E	12.4
RoCE	14.26%	RoE	14.58%
Promoter Holding	55.7%	Book Value	₹437
Debt to Equity	1.32	Price to Book Value	2.97
Net Profit Margin	4%	Operating Profit Margin	14%

In Conclusion

As we conclude our fundamental analysis of TCPL Packaging, we can say that the company is well-positioned in a rapidly growing market with its marquee clients. The present financial leverage and operating leverage may translate into higher earnings potential for the company. However, they also raise the inherent risk of sharper profit decline if sales fall.

Do you think that the company will be able to deliver good top-line and bottom-line growth in the coming quarters? How about you let us know your views in the comments below?

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