A primer on TCPL Packaging

“Paperboard, being a naturally renewable and sustainable product, is playing a crucial role in the worldwide transition towards environmentally responsible packaging solutions. Given our leadership position in the sector, we are taking steps to promote the use of sustainable solutions. This includes working with customers to replace non-sustainable materials, such as plastic food trays, with biodegradable alternatives, as well as establishing an in-house process to transfer metallized effects onto paperboard, reducing the reliance on metallized plastic film.”

– Mr Saket Kanoria, Managing Director, Concall-  Q3FY22

Stock Data:

Ticker	TCPLPACK
Exchange	BSE and NSE
Industry	Packaging

Price Performance:

Last 5 days	-2.22%
YTD	-2.62%
Last 1 year	69.56%

Company Description:

Founded in 1990 and promoted by the Kanoria family, TCPL Packaging Limited is a market leader of India’s flexible packaging industry. The company currently operates 8 manufacturing facilities across 5 locations, and has marketing offices in major cities. The combination of creative solutions and cutting-edge technology has accelerated the company’s growth. The Folding Carton Division of TCPL provides a wide range of innovative, sustainable, and distinctive packaging solutions to meet the needs of different customers. The other division, Flexible Packaging, offers adaptable and environmentally friendly products to clients in a variety of industry verticals, including Pouches, Laminates, Shrink Sleeves, and Wrap Around Labels. The company’s customers are from Consumer Goods, Food Beverage, Tobacco, Liquor, Agro Chemicals, Pharma, and various other industries.

Product Portfolio: 

TCPL manufactures folding cartons, printed blanks and outers, litho-lamination, plastic cartons, blister packs, and shelf-ready packaging. TCPL has also ventured into the flexible packaging industry, with the capability to produce printed cork-tipping paper, laminates, sleeves, and wrap-around labels.

Manufacturing Unit:

The company has 8 manufacturing units as of FY22. It operates multiple manufacturing units situated at Haridwar, Silvassa, Goa, Guwahati, and Greater Noida. In FY22, the company expanded its offset capacity by adding a new printing line at its Goa plant. 

Distribution Network:

TCPL is headquartered in Mumbai, India, and maintains marketing offices in Mumbai, New Delhi, Greater Noida, Kolkata, and Bengaluru to cater to customers across the country, and around the world. In FY22, Exports contributed 23% to the total Revenue. 

Customers:

The company’s products are used in packaging in various end-user industries, including pharmaceuticals, food and beverages, cosmetics, toiletries, cigarettes, liquor, etc. Some of the major customers are HUL, Patanjali, Bosch, etc.

New Subsidiary:

In FY22, TCPL has set up their wholly owned subsidiary company in UAE called TCPL Middle East FZE and has opened a marketing office in Dubai. 

Acquisition:

The company has acquired a majority stake in Creative Offset Printers Private Limited (COPPL), a company based in Greater Noida which specializes in manufacturing printed rigid boxes and leaflets. 

After concluding the acquisition deal at 6.98 Crore for 60%, the company became Creative Offset Printers Private Limited’s (COPPL) majority shareholder. COPPL is a segment of rigid boxes with high potential that caters to several rapidly expanding end-user electronics industries.

The management commented, “This acquisition is in line with our growth through diversification strategy, and strengthens our long-term growth prospects. Since the acquisition, we have been able to expand our product portfolio by onboarding a number of well-known brands in the electronics industry, including smartphones, smartwatches, headphones etc.”

Financials:

What we like:

1. Capacity expansion and new products development encouraging:

TCPL has doubled its capacity in the flexible packaging division at their Silvassa plant to cater to incremental demand. Currently the plant is running at ~65% capacity, 24 hours in 3 shifts. With a strong in-house R&D team, the company has introduced products for electric equipment manufacturers. These are one of a kind, higher margin products and the company will enjoy first mover advantage in initial years.

2. Robust product portfolio and long term association with clients: 

The company caters to consumer goods, food & beverage, tobacco, liquor, agrochemicals, pharmaceutical, and various other industries. Also, it is a preferred vendor for giants like HUL, Colgate, Nestle, ITC, Dabur etc. We believe TCPL’s strong footing across growing industries and association with industry leading companies will pave the way for sustainable earnings growth in future.

3. Weakening of unorganized sector has advantaged organized players:

Packaging industry is mostly ruled by unorganized players. The unorganized sector has been weakened majorly by 4 events i.e., implementation of GST, Demonetization, the financial crisis of 2018-19 and the Covid impact. A battered unorganized sector along with the need for investing in new technologies and sustainable packaging solutions has led to the organized sector growing their market share faster than anticipated. TCPL is one of the biggest beneficiaries of this disruption.

4. TCPL has been at the forefront of technology adoption:

TCPL is one of the few companies that has ventured into the recyclable mono polymer packaging industry with the setting up of a polyethylene blown film line at its Silvassa plant. The recyclable polyethylene film serves a dual purpose of in-house consumption as well as sale to the market. Depending upon the traction in demand for this product, the TCPL management contemplates further investments to manufacture this innovative product. 

5. Global environmental concerns and strict government regulations are tailwinds for the sustainable packaging industry:

Global environmental concerns and strict government regulations regarding toxic packaging materials has improved the growth visibility for sustainable packaging solutions. We expect the industry to grow at a CAGR of 6.7% from FY19-27. In order to reduce the contamination of the environment, manufacturers are moving to eco-friendly packaging solutions and hence paper and paperboards are leading the growth for this industry. TCPL is well placed as it derives 85% of its revenues from paper and paperboard packaging.

Factors to consider:

1. The debt of the company is considerably high. Though with the passing year the company is on its verge to reduce this debt by a significant chunk.
2. As the company is mostly dependent on FMCG players for its deals hence slow volume growth of FMCG players may affect its topline
3. The stock holds a low liquidity position and divesting your stake would not be an easy option.

Industry Analysis and Conclusion:

According to Modor Intelligence, the Indian packaging market is anticipated to experience a CAGR of 12.60% from 2022 to 2027. It is one of the fastest-growing industries in the country. The market is expanding quickly due to significant investments made in the pharmaceutical, personal care, and food processing sectors. According to the Indian Institute of Packaging (IIP), India’s per-person annual consumption of packaging has increased by 200% in the last 10 years, from 4.3 kilogramme per person per annum to 8.6 kg pppa. This increased consumption is due to the rising population, rising income levels, changing lifestyles, increased media penetration through the internet and television, and a growing economy. Government’s support in the forms of low taxes, subsidies, grants, loans are also encouraging the development in this segment.