Mold-Tek Packaging Research Report

Company
Date of report November 15, 2017
Issuer
Target Price (Rs) 426
Gain (%) 35
Rationale
Mold-Tek Packaging Research Report
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Slow Recovery Post GST Rollout; Focus on Food & FMCG On Track

Mold-Tek Packaging or MPL’s net sales in 2QFY18 grew 1.4% to Rs770mn (our estimate Rs873mn). Lower sales were account of the decline in volume by 4.5% to 4,420tn. Gross profit grew 5% to Rs315mn (our estimate Rs353mn). Gross margin expanded 150bps to 41% (our estimate 40.4%). Gross margin improved on account of a better product mix. Food & FMCG (F&F) segment accounted for ~15% of total sales versus 5% in the same quarter last year. F&F is a high-margin business segment. EBITDA grew 14% to Rs145mn (our estimate Rs157mn) with operating margin of 18.9% (our estimate 18%). EBITDA margin expanded 210bps YoYand 90bps QoQ. Net profit grew 23% to Rs82mn (our estimate Rs79mn). The discrepancy in EBITDA and PAT growthwas mainly on account of a lower tax rate (one-off deferred tax benefit). Effective tax rate for 2QFY18 stood at 26.6% versus 34.4% in 2QFY17. EPS for the quarter stood at Rs2.9, in line with our estimate.

We believe the company is on track to be a decent sized F&F IML packaging player. F&F segment is expected to continue showing good traction and is likely to contribute ~20% to total sales of MPL in FY19. We continue to remain bullish on the long-term structural story of MPL. We have rolled forward our estimates to FY20. We expect volume/sales/EBITDA/PAT to post CAGR of 15%/18%/26%/27%, respectively, over FY17- FY20E. We have valued the stock at 24x September 2019 estimated EPS with a revised target price of Rs426 (Rs381 earlier), up 35% from the CMP.

Higher contribution from F&F segment to continue driving margins: MPL’s EBITDA/kg improved from Rs27.8/kg to Rs33.4/kg on YoY basis. Improvement in marginswas because of higher contribution from F&F segment. F&F segment contributed 15.5% versus 5% in 2QFY17. IML contribution to total volume/sales stood at 49%/57%, respectively, in 1HFY18. Contribution of F&F segment was healthy on account of good traction from Mondelez India (earlier Cadbury India). Volume from Mondelez India almost doubled from the volume in February 2017. Since January 2018, MPL will be making further enhancement in the quality of products for Mondelez India. This is expected to provide more than 25% of volume boost to existing volume base of Mondelez India. Apart from Mondelez India, MTR and Amul are some of the big clients of MPL in F&F segment. The management expects F&F segment’s contribution to touch at least 20% by FY19.

RAK plant expected to achieve break-even by January 2018: Sales from RAK plant improved 13.5% and stood at ~Rs18mn. Volume from RAK plant grew ~20% from 98tn to 120tn. 60% of sales volume came from F&F segment while the balance 40% came equally from paint and lube segments. The management expects this plant to achieve break-even by January 2018. RAK plant is expected to touch 50% utilisation level by the end of FY18. Currently, 12 clients have been on board at RAK unit with some on pilot basis. Apart from lube industry, MPL also expects to cater to dairy companies across the Middle East and outside the UAE. RAK plant is expected to be a positive contributor to MPL’s bottom-line in FY19.

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