Hold Mold-Tek Packaging Ltd For Target Rs.850 - ICICI Direct
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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 ~19%, ~16%, respectively (three-year average)
Q4FY23 Results: Lower raw material prices support margin expansion.
• Revenues grew ~4% YoY to ~| 185 crore led by improved volume growth of ~9% YoY. FMCG and lubes segment revenues were up ~33% and ~1.5% YoY to ~| 43 crore and ~| 56 crore, respectively, supported by customer additions. However, paints segment revenue was down ~8% YoY to | 85.3 crore due to lower realisations
• Stabilising raw material prices and improved sales mix led to improvement in gross margin by 247 bps YoY. This, coupled with better operating leverage led to improvement in EBITDA margin by 142 bps YoY to 19.3%
• PAT grew ~33% YoY to | 23 crore supported by better EBITDA margin and lower tax outgo
What should investors do? Mold-Tek Packaging’s share price has grown by ~2.9x over the past five years (from | 346 in May 2018 to ~| 992 levels in May 2023).
• We maintain our HOLD rating on the stock
Target Price and Valuation: We value the stock at 30x FY25E EPS with a revised target price of | 1110/share.
Key triggers for future price performance:
* Capacity addition, new launches (foraying into pharma packaging) and increasing wallet share from existing clients are expected to drive revenue
* Aiming to increase EBITDA/kg to | 42-43/kg from ~| 39/kg in FY23. 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 in our coverage.
• Supreme is market leader in the plastic piping segment with ~15% market share. Robust b/s with average RoE, RoCE of 23%, 26%, respectively
• BUY with a target price of | 3200
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