Mold-Tek Packaging- Covering foods to fmcg

Established in 1986, Mold-Tek Packaging Limited (MTPL) is the leader in rigid plastic packaging in India. It is involved in the manufacturing of injection molded containers for lubricants, paints, food and other products. MTPL has seven processing plants and three stock points spread across India to ensure faster supplies. It has a huge injection molding capacity of around 20000 TPA. As a pioneer and innovator of pail packaging in India, MTPL has introduced spouts and In-Mold spout concepts for the paint and lube pails. With in-house manufacturing capability in place, they are not dependent on imports.

We believe that MTPL has the capability and expertise to capitalize on the opportunities food & FMCG sector offers. Since years, it is the sole fully-integrated packaging company in India with in-mold labeling (IML) expertise and we expect no competition in the medium-to-long-term.  In-mould labelling is the use of paper or plastic labels during the manufacturing of containers by blow molding, injection molding, or thermoforming processes. Contribution of IML has seen improvement from 52.3% in FY18 to 58.6% in FY19 in volume while on value front IML contribution stood at 61.1% up from 56.1% for the same period.

The Company’s Middle East, RAK facility has been completely closed down and machinery is being shifted to MTPL’s existing plants at Hyderabad, Daman and Mysore and it would be used to cater to domestic IML market. For the same it took a write off of Rs. 11.5cr (Rs. 10cr equity value and Rs. 1.5 crore receivables) during Q4FY19. Out of 7 machines, 4 have been already shifted and are operational currently. We believe this would aid to i) increase in overall capacity utilization (RAK capacity was underutilized due to weak order book) and ii) improve net profitability (RAK was loss making entity). We expect margins to improve marginally due to this.

MTPL commenced its operation in Vizag and Mysore with 3,000 MTPA each. We expect utilization to improve to 45% by the year end as Asian Paints looks to ramp-up its capacity. The Company continues to focus F&F segment by focusing on newer products and newer segments & this should start yielding results over the next couple of years. The Company has guided a tonnage growth of 15% to 20% in FY20E as it expected Vizag and Mysore plants to touch utilization of 45% to 50%.

MTPL is targeting its EBITDA/ton to improve to Rs.35,000/ton from current levels of ~Rs.32,500/ton. We believe with improving production of IML products followed by higher contribution of F&F products there should be an improvement in margins. However, the interim margins can be impacted by lower utilization from new plants. Hence we expect margins to remain range bound from 17.5% to 18.0%. MTPL has cost-plus contracts with all clients and hence it does not bear the risk of raw material inflation.

MTPL’s realization in food & FMCG segment was affected by lower realization from Mondelez. However, company has focused on other segments like ice-cream and has received orders from HUL to overcome this. New orders from major companies like Goodricke, Ozone, Haldiram, Prestige, Arun, Rajyalakshmi and Pankaj in Food and FMCG were bagged and supplies started during 4QFY19.

Q1FY20 net sales stood at Rs.115.9 cr (up 17% YoY), EBITDA came in at Rs.20.3 cr (+12.3% YoY). The Company reported net profit of Rs.10.9 cr (+20.4% YoY).

Company’s capex plan for FY20 stands at Rs.20-25 cr. In addition the company is looking to set-up a plant in Kanpur for an additional outlay of Rs.5-6 cr, which would be financed through internal cash-flow. The company got allotted 4.3 acres (Rs. 50cr) of industrial land by TSIIC at Sultanpur for its future expansion (11,000MT) in Hyderabad.

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Sabyasachi Paul has been associated with equity research and advisory on equity markets in India for over 10 years & currently heads the equity research desk of Eastern Financiers Ltd, Kolkata. He also manages a portfolio on the online platform Kristal. Find link to the strategy named ‘The Tortoise’