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Growth revival in FY25, Pharma to boost growth...

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.

• The long-term outlook for MTEP is promising, bolstered by the launch of new products like pharma packaging, strong client acquisition, a healthy balance sheet, and a RoE of 15% (avg. 5 years).

• FY24 revenue declined by 4.3% YoY, led by subdued volume from the largest segment, i.e., paints, and a fall in realization due to softness in RM costs.

• EBITDA/kg was down by 6.2 YoY at Rs. 37.3, while margins improved by 50bps YoY to 19.1%, led by a drop in input prices. Net profit declined by 17.2% YoY.

• The earnings miss for FY24 on account of subdued volumes from the paints segment (~50% of sales) have already factored in stock price (33% correction in the last year).

• We anticipate volume growth of 15.6% CAGR over FY24-26E, with pick-up in volumes from paints and the F&F segment, steady growth in lubes, and traction in pharma packaging.

• We value MTEP at a P/E of 31x on FY26E and upgrade to BUY from Accumulate rating with a target price of Rs.957.

Volume growth to pick-up

In Q4FY24, MTEP’s revenue witnessed a 4.3% YoY, as realization fell by 2.4% YoY due to a 11% YoY drop in input costs. Overall volumes from the paints (~50% of sales) declined by 9% in Q4 and 6.8% for full year FY24, further impacted overall growth. Notably, paints were affected by reduced offtake from clients. In F&F segment, faced delays in certain projects, which are expected to see normalisation in FY25. Lubes volumes were flat in Q4 and grew by 3.4% YoY for FY24. Overall, volume grew by 4.8% YoY, led by double digit growth from Qpacks. Looking ahead, expect volume improvement, led by a revival from Asian paints, the commencement of supplies for ABG, and a better off-take from the F&F segment. Management has guided volume growth of 20% for FY25. We expect a gradual revival in volume starting in Q1FY25, from paints and F&F, and the commencement of volumes from the Pharma segment, and we anticipate 15.6% volume growth over FY24-26E. We expect revenue to grow at a 19% CAGR from FY24 to FY26E, primarily led by the F&F, Pharma, and Paints segments.

EBITDA/kg to improve in FY25...

In Q4FY24, EBITDA margins improved by 40bps YoY to 20.1%, while for FY24, margins improved by 60bps YoY to 19.1%, supported by 320bps YoY improvement in gross margins on account of a fall in input prices. EBITDA declined by 2.4% YoY in Q4 and 1.7% YoY in FY24 on account of muted volumes and lower realisation. PAT declined by 24% YoY in Q4 and 17.2% YoY for FY24 on account of higher depreciation, interest costs, and lower other income. EBITDA/kg was down by 2.5% YoY for Q4 and 6.2% on account of a fall in realisation and a weak mix. Considering earnings miss for FY24, we cut our EPS estimates for FY25E by 36%. Going ahead, we expect improvement in volumes starting from Q1FY25, led by healthy demand from the F&F segment, a revival in growth from paints, and a contribution from Pharma products. We expect PAT to grow by a 24% CAGR over FY24-26E.

Valuations

Despite the cut in our EPS estimates, the earning outlook is healthy, with a 24% CAGR over FY24-26E. We value MTEP at a P/E of 31x, on FY26E EPS and upgrade to BUY from Accumulate rating, with a target price of Rs.957.

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