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Packet of good - customer base, growth, financials

Mold-Tek Packaging (MTPL) is one of the leading players in the rigid packaging category with a market share of ~25%. The company is into manufacturing decorative packaging containers for paint, lubricant, FMCG & foods (F&F) industries. MTPL’s focus on upgrading its product portfolio by adopting newer technologies makes it different from other packaging players. It was the first company to introduce in-mould label (IML) decorative products (new label printing technology) in India, which not only helped MTPL improve its profitability but also stay ahead of its peers in a highly competitive market.

In future, it plans to introduce various new products such as dispensing pumps and QR coded products. The company is also looking to increase the share of high margin business i.e. F&F segment by launching packaging products for ready to eat foods & personal care products. F&F segment will be key to drive future revenue growth and EBITDA margin. On the balance sheet front, MTPL’s debt reduction programme and funding of future expansion through internal accruals will drive return ratios higher (RoE: 23%, RoCE: 28% in FY23E).

Continuous focus on launching innovative solutions

MTPL was the first to introduce the plastic containers concept for paint companies and succeeded in replacing tin packaging. Later, it also launched “pull up spout”, an innovative packaging solution for lubricant companies. The company’s capability of launching innovative solutions by adopting new technologies has kept it ahead of the competition.

Future launch includes QR-Coded IML packaging solutions, which is the first of its kind in India. This is expected to result in strong replacement demand from paints/lubricant industries, going ahead. These packaging solutions are useful in tracking products, avoiding duplication and launching trade scheme for brands.

F&F segment key growth driver for MTPL

F&F segment revenue is likely to grow at a robust 25% backed by new launches and customer additions in the edible oil, sweet boxes, ready to eat & personal care packaging category. The segment commands EBITDA margin in the range of 30-35%, much higher than company level margin of ~18%. We believe the revenue contribution will increase from 23% in FY20 to 29% by FY23E. Rising contribution of F&F segment would help drive consolidated revenue and EBITDA margin for MTPL in FY20-23E.

Valuation & Outlook

We believe MTPL’s capability to adopt new technologies and launch innovative products will keep the company ahead of competition. Despite being in the B2B business, gross margin of MTPL has increased in the last five years depicting its pricing power. Increased contribution from high margin segments would aid revenue and EBITDA margin expansion. We build in ~15%, ~28% revenue, PAT CAGR, respectively, in FY20-23E. We believe continuous growth momentum will help drive high return ratios for MTPL in FY20-23E. We assign a BUY rating to the stock with a target price of | 600/share, valuing the company at 21x FY23E earnings.

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