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Strong earnings outlook...

Mold-Tek Packaging Ltd (MTEP), one of leading manufacturers’ and suppliers of high quality airtight and pilfer proof containers/pails in India for Paints, Lubricants, Food and FMCG.

* Q4FY21 revenue & profitability grew by 51% & 125% YoY led by strong volume uptick and improvement in realization.

* Overall volumes grew by 32% YoY led by strong demand from its key end user industries paints, Lubes and Food & FMCG segment.

* EBITDA margins expanded by 280bps YoY to 20.6% led by cost rationalisation and scale benefits.

* Though second Covid wave might impact overall growth in Q1FY22. However, overall demand situation is expected to bounce back in Q2FY22 as consumption spending picks-up and economy revives .

* Long term growth trajectory remains healthy given focus on value added products, capacity expansion, higher in-mold sales, backward integration and strong client addition in F&F segment.

* Considering strong earnings outlook, we value MTEP at a P/E of 22x on FY23E with a target price of Rs.547, however given sharp run-up in stock prices, we downgrade to Accumulate.

Strong volume growth ...

Q4FY21 revenue grew by 32% YoY, led by Paints, Lubes & FMCG segments which grew by 33%, 19% and 29% YoY respectively. Revenue growth was supported by strong volumes on account of pent-up demand and revival consumption spending. Strong volume growth in Paints segment is largely on account of higher off-take from Mysore and Vizag plants catering to Asian paints. MTEP’s strong competitive moat (technological edge and customized solutions) is expected to provide long term growth opportunities aided by increasing acceptance of IML in paint & strong growth in F&F segment on account of increased concern over hygiene.

Newly introduced high margin personal/health care packaging products witnessed strong interest. Recent new client addition is Dhanukha for containers for its nutrients products. The CAPEX for FY22 is expected to Rs.45cr which includes expansion of paints capacity in Mysore & Vizag and capacity expansion of FMCG expansion in Hyderabad. Management has guided 15-18% volume growth in FY22. Though, Q1FY22 is expected to be impacted by Covid second wave, but expect the situation to normalise in Q2FY22. We expect revenue to grow by 17% CAGR over FY21-23E.

EBITDA margin expands...

Gross margins improved by 180bps YoY to 43% on account of pass through of RM cost and higher scale. EBITDA grew by 74% YoY, while margins improved by 180bps YoY to 20.6% on account of cost rationalisation. EBITDA per ton was up by 35% YoY to Rs.42. Consequently, Profitability grew by 125% YoY to Rs.18cr. With gradual opening of economy post second Covid wave, we expect a broad based recovery across business segments. While EBITDA margins is expected to be healthy given pass through higher RM cost, scale benefits and higher margins products. We upgrade our EPS estimates by 6.4% & 4.6% for FY22E & FY23E and we expect PAT to grow by 21% for FY21-23E.

Valuations

Going ahead, MTEP is expected to benefit from increasing acceptance of IML in paint, strong growth momentum in F&F segment and expansion of high margin products ranges. Ramp-up of volumes from new plants (Mysore & Vizag) and strong clients additions in FMCG segment is expected maintain the current earning momentum. Considering strong earnings of 21% CAGR, We value MTEP at 22x on FY23E, however given sharp run-up in stock prices, we downgrade to Accumulate with a target price of Rs.547.

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