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Profitability maintained...despite inflationary pressures

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

* Q3FY22 revenue & profitability grew by 20% & 11% YoY led by higher realization.

* Overall volumes declined by 4% YoY due to lower off-take from Paints, Lubes segments & F&F segments.

* EBITDA grew by 14% & EBITDA/kg grew by 19% YoY to Rs.43.1. But margins fell by 108bps YoY to 19.7% due to higher input cost.

* Focus will be on value added products, capacity expansion, backward integration, strong client addition in F&F segment.

* Strong growth in paints segments and new products will be key growth driver going ahead.

* We value MTEP at a P/E of 22x on FY24E. Considering healthy earnings & RoE of ~20%, we maintain "Accumulate” on the stock with a target price of Rs.827.

Volumes declines...

Q3FY22 revenue grew by healthy 20% YoY, led by Paints, Lubes & FMCG segments which grew by 25%, 24% and 24% YoY, respectively. Overall realisation grew by 25% YoY on account of higher input cost. However, Paints , Lubes & F&F volumes declined by 6.3%, 1.1% & 1.5% YoY, respectively. Paint Segment business was impacted by seasonality and price hike implemented in November, 2021. Historically always 3rd quarter is low for Paint industry. We believe that paints segment volume decline was largely temporary in nature. Moldtek has recently bagged high value adding orders from prestigious clients like Amul, PVR cinemas, Biostadt, Skyline labs Paints, Belegend, Vital Pharma. The company has launched innovative, unique QR coded IML packaging containers for UDP Pvt ltd and also expecting to receive sizeable orders from prestigious lubricant, food and paint customers. Company’s new focus area is IBM (injection blow moulding) for catering to Pharma, Cosmetics, Domestic Pharma and Nutraceuticals segments which is expected to provide significant growth opportunities going ahead. We expect revenue to grow by 24% CAGR over FY21-24E.

EBITDA declines...

Gross margin declined by 175bps YoY to 41.0% on account of inflationary pressures. EBITDA grew by 13% YoY. While, EBITDA margins fell by 108bps YoY to 19.7%. Despite this, EBITDA/kg grew by 18% YoY to Rs.43.1. Consequently, profitability grew by 11% YoY to Rs.17cr. Going ahead, with pick-up in volumes from paints, from existing as well as new clients in F&F segment and contribution from new value added products, will support margin expansion. We largely maintain our EPS estimates and expect PAT to grow by 31% over FY21-24E.

Valuations

MTEP entry into IBM to cater to new segments in Pharma & cosmetics has significantly improved its long term outlook. Further ramp-up of volumes from new plants (Mysore & Vizag) and strong clients addition in FMCG segment is expected to maintain the current earning momentum. Considering strong earnings outlook of 31% CAGR over FY21-24E, we value MTEP at 22x on FY24E. We maintain “Accumulate” with a target price of Rs.827.

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