Hold Mold-Tek Packaging Ltd For Target Rs.1045 - ICICI Direct
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Customer additions drive volume offtake in Q2…
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 ~18%, 19%, respectively (three-year average)
Q2FY23 Results: Continuous customer addition in Q2 drives overall volume growth
* Revenues were up ~14% YoY to ~| 183 crore led by ~11% volume growth. Customer additions in the FMCG and lubes segment drove overall volumes. Paint segments volume offtake was hit by extended monsoons
* Stabilising raw material prices and improved sales mix led to marginal increase in gross margin. However, EBITDA margin declined 142 bps YoY dragged by higher power & fuels and logistic costs
* PAT up ~10% YoY to ~ | 19 crore; tracking sales growth, lower interest cost in Q2
What should investors do? Mold-Tek’s share price has grown by ~3x over the past five years (from | 311 in November 2017 to ~| 936 levels in November 2022).
* We maintain our HOLD rating on the stock
Target Price and Valuation: We value the stock at | 1045 i.e. 30xP/E on FY24E EPS
Key triggers for future price performance:
* Capacity addition (23% in 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/kg to | 42/kg from | 35/kg in FY22. High margin FMCG & pharma products to drive EBITDA/kg
* Balance sheet to remain healthy with low debt, high RoCE, RoEs
Alternate Stock Idea: We like Supreme Industries (SIL) in our coverage.
* SIL is market leader in PVC pipe industry with value market share of 15%. We expect piping segment to report 19% volume CAGR in FY22-24E supported by revival in agri, housing, infrastructure pipe demand. It has a robust b/s with RoE & RoCE of 24% & 27%, respectively (five-year average)
* BUY with a target price of | 2600
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