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Strong earnings...an attractive prospect

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.

* Q3FY21 revenue & profitability grew by 33% & 70% YoY led by strong volume uptick post Covid-19 lockdown.

* Volumes grew by 38% YoY led paints, Lubes and Food & FMCG segment, which indicates revival in demand.

* EBITDA margins expanded by 170bps YoY to 20.8% led by scale benefits and pass through of commodity prices.

* Going ahead, we expect overall demand situation to improve further as consumption spending picks-up and economy revives.

* Introduction of new packaging for home & personal care products, capacity expansion in paints, higher in-mold sales, backward integration and revival in F&F segment will drive earnings.

* We value MTEP at a P/E of 17x as we roll forward to FY23E with a target price of Rs.413 and reiterate to Buy .

Strong volume growth ...

Q3FY21 revenue grew by 33% YoY, led by Paints, Lubes & FMCG segments which grew by 52%, 7.3% and 22% YoY respectively. Revenue growth was supported by strong volumes in Paints—59% YoY , Lubes 10% YoY & F&F 31% YoY on account of pent-up demand and revival in 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. FMCG packaging segment is on a path of revival. Recently, company has entered into high margin personal/ health care packaging products. The company has started manufacturing of sweet boxes and pump for personal hygiene products, which is expected to gain momentum from FY22 onwards. Company has received some definitive interest from few FMCG players. 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 momentum in F&F segment on account of increased concern over hygiene. The CPAEX for FY21 is Rs.50cr which includes investment for moulds, pumps for sanitizer and other personal hygiene products. Expansion by 1250 tonne in Mysore & Vizag and 3000 tonne in Satara should complete by the end of Q4FY21. We upgrade our revenue estimates by 26% & 10% for FY21E & FY22E. We expect revenue to grow by 20% CAGR over FY21E-23E.

EBITDA margin expands... Gross margins declined by 110bps YoY to 42.7% on account of delay in pass through of RM cost. EBITDA grew by 44% YoY while margins improved by 170bps YoY to 20.8% on account of cost rationalisation. Profitability grew by 70% YoY to Rs.15cr. Going ahead, we expect a broad based revival in demand across the business segments. While EBITDA margins is expected to be healthy given scale benefits, introduction of better margins products and pass through of higher RM cost. We raise our EBITDA margin estimates by 230bps & 200bps for FY21E & FY22E. Consequently, we upgrade our EPS estimates by 88% & 35% for FY21E & FY22E and we expect PAT to grow by 25% for FY21E-23E.

Valuations MTEP is expected to capitalize on long term growth opportunities aided by higher volumes from increasing acceptance of IML in paint, strong growth momentum in F&F segment and expansion into high margin products ranges. With ramp-up of volumes from new plants (Mysore & Vizag) and strong clients additions in FMCG segment will aid earning momentum to continue in near future. We value MTEP at 17x as we roll forward to FY23E, with a target price of Rs.413 and reiterate to Buy.

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