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Volume growth muted led by paints segment

Mold-Tek Packaging reported sales decline of 11%. Volumes grew modestly by 2% while realization dropped by 12% YoY to Rs202/kg. The modest volume growth was on account of decline in volumes in Paints (-8%) & Lubes (-2%) segments while F&F grew by 37%. Sales decline too was led by Paints (-21%) & Lubes (-14%) while F&F grew by 13%. Paints reported third consecutive quarter of sales decline (-21%). GP/kg and EBITDA/kg both reported decline by 2/7% respectively. Though we remain bullish on Mold-Tek on account of market leadership in IML packaging, massive capacity expansion and introduction of new product categories we believe that near term growth is priced-in. We cut our FY24/FY25 PAT estimates by 4/5% respectively. We maintain ADD rating & value the company at 30x FY25E EPS to arrive at TP of Rs971 (earlier TP of Rs1,018)

Weakness in demand led by Paints segment

Paints segment reported third consecutive quarter of sales decline. MTEP’s Khandala unit (~30% of paints production) has been running at 45% of capacity utilization since last few quarters. This unit is undergoing upgradation and would have lost ~400tn of volumes in 1Q. Capacity utilization of this unit has jumped to 70% in month of July. Management has guided that Paints segment is expected to report modest growth of ~5% in volumes in FY24. Lubes on a high base of last few quarters reported volume decline of 2% while F&F remained strong, with 37% volumes growth. However, weakness in ice cream and dairy industry demand led to decline in sales/kg by 17% in F&F.

New capacities to contribute to growth only in FY25

MTEP currently has 45.3ktn capacity with ~75% utilization rate. ABG Grasim’s two Greenfield plant at Panipat and Cheyyar of 2,000tn each are expected to come on stream by end of 3QFY24 and 4QFY24 respectively. Third plant for Grasim will be in Mahad of 1,000tn of an initial capacity. Company has applied for land parcel. Total sales from these three units is expected to be at ~Rs1-1.25bn at peak utilization. Apart from this pharma packaging capacity is expected to commercialize from Oct’23, FMCG capacity in Panipat and Daman by 3Q/4QFY24 respectively. These new capacities are expected to contribute meaningfully from FY25. With these capacity additions in place, management has guided for low double digit volume growth in FY24 and 15%+ volume growth in FY25.

Client additions, newer product categories to drive growth

In 1Q, the Company bagged new orders from the reputed Companies such as Red Bucket Biryani, Pidilite Paints, Aayu International, Libero Enterprises, Gemini Edibles, Living Foods and Aries Agro. In 1Q, the Company bagged new orders from 23 new Food & FMCG clients. It processed 284 new SKUs and 646 new designs for customers.

Valuations

We expect sales/EBITDA/PAT to grow at CAGR of 13%/16%/15% respectively and EBITDA margins to expand by 80bps over FY23-25E to 19.5%. We cut our FY24/FY25 PAT estimates by 4/5% respectively. We maintain ADD rating & value the company at 30x FY25E EPS to Rs971 (earlier TP of Rs1018).

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