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Paint segment drives performance…

About the stock: Mold-Tek Packaging is a leading player in the rigid packaging business and is into manufacturing decorative packaging containers for paint, lubricant, FMCG & foods (F&F) industry.

* It was the first to introduce in-mould label (IML) decorative products and QR coded packaging products in India

* While new product launches helped drive profitability of the company, its balance sheet remained strong with RoCE, RoE of ~21%

Q2FY22 Results: Strong Q2FY22 revenues led by paint segment.

* Revenue grew ~34% YoY to | 160 crore, led by 48% YoY revenue growth in the paint segment. Overall volume growth was at 8% YoY

* Higher raw material price weighed on gross margin. However, higher operating leverage restricted EBITDA margin fall at ~160 bps YoY to 20%

* PAT increased 31% YoY to ~ | 18 crore supported by higher revenue

What should investors do? Mold-Tek’s share price has grown by ~3.3x over the past five years (from | 215 in November 2016 to ~| 719 levels in November 2021).

* We maintain our BUY rating on the stock

Target Price and Valuation: We introduce FY24E estimates and roll over our valuation on FY24E. We value Mold-Tek at | 860 i.e. 20x P/E on FY24E EPS

Key triggers for future price performance:

* Capacity addition (13% in the next two years), new launches (foraying into pharma packaging) and increasing wallet share from existing clients are expected to drive revenue

* Aiming to increase EBITDA per kg to | 42/kg from | 35/kg in FY21. High margin ‘pump’ and IML based QR-coded products to drive EBITDA/kg

* Balance sheet to remain healthy with low debt, high RoCE, RoEs

Alternate Stock Idea: We also like Asian Paints in our coverage universe.

* Asian Paints is the market leader in the decorative paint and expanding its product portfolios along with dealer expansion in tier II and tier III cities

* BUY with a target price of | 3425

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