Buy

Result Update Mold-Tek Packaging Target Price

03rd Aug 2020 Packaging 253

On the path to recovery (CMP as of July 31, 2020)

Mold-Tek Packaging (MTEP) reported numbers beat all our estimates owing to better than CMP 229
Upside /Downside (%) 10%
expected traction in demand in June 2020 from across sectros like Paints, Lubes and F&F. Net
High/Low (Rs) 321/136
Sales at Rs.65cr down 44% YoY (Rs. 32cr our estim) as operations across segments were hit
Market cap (Cr) 635
for month of April due to lockdown. May recovered relative to April, while in June operations
Avg. daily vol. (6m) Shrs. 31,893
reached normal 70-75% utilization levels. EBITDA was down 53% YoY at Rs. 9cr (EBITDA
No. of shares (Cr) 2.8
Loss of Rs. 1cr our estm) that was driven by 200bps Gross Margin expansion owing to benign
RM prices and stringent cost control measures. Recurring PAT of Rs. 1.5cr down 84% YoY but Shareholding (%)
a big beat to our expectation of Net Loss of Rs. 1.8cr while street estimated Net Loss of Jun-20 Mar-20 Dec-19

approx. Rs. 7cr in Q1. July is expected to sustain the strong recovery seen in June as per Promoter 34.8 34.7 35.2
FIIs 9.5 10.3 11.5
management aided by improved visibility from Paints and Lubes industry besides F&F
MFs / UTI 12.2 12.4 12.5
segment. Based on the quicker volumes recovery seen during June with momentum
Banks / FIs 0.1 0.1 0.0
continuing in July, we revise our Revenue/ PAT estiamtes for FY21/22E by 20%/47% and
Others 43.4 42.5 40.7
7%/11% respectively. Retain BUY with revised TP of Rs. 253 (Rs. 228 earlier) as we maintain
our target multiple of 15x PE based on August ’22 EPS. Key risk to our call is COVID led Financial & Valuations
uncertainty and localized lockdowns disrupting business continuity. Y/E Mar (Rs. Cr) 2020 2021E 2022E
Net Sales 438.2 422.0 529.1
Our Take On Q1FY21 Results Concall EBITDA 76.8 67.5 94.2

• Q1FY21 Volumes: July production has reached pre-COVID levels of 70-72% levels. In Net Profit 37.4
13.5
27.8
10.0
46.7
16.8
EPS (Rs.)
Q1FY21 MTEP reported a 41% drop in volumes to 3,717MT due to COVID led disruption of
PER (x) 17.0 22.8 13.6
business for 50 days. Volume was dragged by Lubricants 53% decline), Paints (45%
EV/EBITDA (x) 9.6 10.9 7.5
decline) and F&F 15% YoY decline. Paints/Lubes/FMCG volumes stood at P/BV (x) 3.2 2.9 2.4
1,814MT/900MT/1,000MT resp. For FY21, MTEP looks to make up for the lost Q1 volumes ROE (%) 17.5% 12.9% 18.1%

in 9MFY21 and targets to close FY21 on a flat note (maintained guidance). IML volume
Change in Estimates (%)
share was 62.5% vs 60.8% in Q1FY20 while in value terms it remained more of less at the Y/E Mar FY21E FY22E
same level as of Q1FY20.
•
Sales 20.2 6.7
EBITDA Margin impacted despite GM benefits: While GM in Q1FY21 stood at 41.1% vs EBITDA 21.4 6.7
PAT 47.3 11.1
39% in Q1FY20 due to lower RM costs, the gains were offset by rise in employee costs and
other expenses although cost control measures aided the company to report respectable
margins in Q1 at 14% vs our and street estimates of an operating loss. Focus will remain on
Relative performance
both volumes and profitability with no compromise on pricing which was witnessed even in
160
Q1FY21.
• Capex: For FY21, MTEP guided a capex of Rs. 25cr including Rs. 12cr investments
120

80
towards manufacturing sanitizing pumps (injection molded process) a play on import
substitution. New capex is 70% fungible (machines) to manufacture existing products. This 40

is expected to commence operations from Q3FY21 with revenues to flow in Q4FY21. At 0

Aug-19 Jan-20 Jul-20
peak utilization the pump capacity can generate Rs. 40-45cr revenue with EBITDA/kg
similar to F&F products of 35-37/kg. Retain BUY with TP of Rs. 253 (earlier Rs. 228) on the Mold-Tek Packaging Ltd Sensex Index

back of quicker than expected recovery in operating profitability. Source: Capitaline, Axis Securities

Key Financials (Consolidated)

(Rs. Cr) FY19 FY20E FY21E FY22E
Net Sales 405.7 438.2 422.0 529.1
EBITDA 70.3 76.8 67.5 94.2
Net Profit 31.9 37.4 27.8 46.7
EPS (Rs.) 11.5 13.5 10.0 16.8
PER (x) 27.2 17.0 22.8 13.6
Suvarna Joshi
Sr. Research Analyst
EV/EBITDA (x) 13.8 9.6 10.9 7.5
Call: (022) 4267 1740
P/BV (x) 4.5 3.2 2.9 2.4 email: suvarna.joshi@axissecurities.in
ROE (%) 16.4% 17.5% 12.9% 18.1%
Source: Company, Axis Research

1
Other Key Concall Takeaways
1) Muted Utilization in Q1FY21 although MoM progressively improved: Given the lockdown induced disruption, Q1FY21 utilization
levels were at 41%. April month operations were shut, while staggered resumption was recorded in May and June. Normalized
production was reported in June at 70-75% with July also tracking healthy momentum of June. F&F ops resumed in mid April while
Paints and Lubes segment operations could only come back on track from mid-May. Manpower availability continues to be a
challenge and even now it is lower at 70-75% levels with normalization happening not sooner than 4-6 months from now.

2) Demand scenario: Operations normalized in June 2020 driven by healthy orders from Asian Paints in Paints segment followed by
Castrol in Lubricants while demand in F&F continues to be strong. Sales from Vizag and Mysuru stood at Rs 11.7cr resp vs 8cr in
Q1FY20. While volumes from Vizag/Mysuru stood at 650tons/450tons resp. Edible Oil packs have seen healthy traction as
consumers now prefer more hygienic and tamper proof packaging to safeguard themselves from the virus spread.

3) F&F segment outlook: Within F&F as consumers focus incrementally on health and hygiene, Edible Oil segment is likely to see good
traction. Edible Oil segment volumes were 630tons vs 560 tons in Q1FY20 an increase of 12-13% YoY with sales of Rs. 9.8cr vs 9.1cr
in Q1 last year. Ex-Edible Oil, the volume/value de-growth was sharp by 24%/26% in Q1FY21 resp. Given the high correlation of ice-
cream pails with summer season, the division was hurt badly by the lockdown restrictions. However, for 9MFY21, management hopes
to recover the lost sales driven by improving traction in IML container offtakes for packaged food and in Edible Oil, apart from the
sanitizer pumps opportunity.

4) Import substitution opportunity in sanitizer pumps: As maintaining hand hygiene gains momentum, the demand for pumps
(sanitizer, liquid wash, shampoos) is surging well ahead of the supply. As a result there is a huge demand-supply gap for quality
pumps from local players. MTEP has thus set up a facility to manufacture them as currently they are imported from China. Also, with
anti-China sentiment gathering steam and incremental expectation of rise in import duty on Chinese goods, there is healthy demand
visibility for quality pumps in the India market. Already, MTEP has got order visibility from players like Asian Paints (Viroprotekt brand)
and Wipro while its talks with ITC, Apollo are progressing in the positive direction. At peak utilization levels, the pump segment has
potential to generate Rs. 40-45cr revenue with EBITDA/kg of Rs. 35-37 range (similar to F&F segment). The company has pricing
power and thus commands a premium.

5) EBITDA/kg to bounce back to pre-COVID levels: in Q1FY21, EBITDA/kg was Rs. 24.3/kg impacted by sharp decline in demand for
ice-cream pails and also from Paints & Lubes. Management indicated it does not compromise on margins and thus as progressive
normalization sets in, it expects to report EBITDA/kg of Rs. 33-34/kg levels (pre-COVID).

6) RM price outlook benign albeit with volatility: Crude prices in Q1 have been volatile and continue to be so. While, it has an impact
on absolute topline on an immediate basis, the same is nullified as MTEP passes on RM price variations to its clients with a lag of one
month. RM prices in Q1FY21 were at 75/kg vs 85/kg in Q1FY20.

7) FY21 Capex: MTEP guided for a total capex of Rs. 20cr (increased from Q4FY20 Rs. 15cr guidance) owing to setting up of facility for
new pumps (liquid wash, shampoo, hand sanitizer etc) project expected to commence from Q3FY21 with marginal revenue
contribution from Q4FY20. Further, plans of setting up plant at Kanpur (proposed) has been pushed to FY21 given restrictions on
travel, other SOPs that need to be followed as well as primary focus on cash conservation.

8) Others:

 Agro-chemical segment has revenue potential of Rs. 50-60cr but in FY21 this segment is expected to remain muted

 Mondelez sales to decline in FY21 as currently it focuses on biscuits production given rising in-home consumption

 No major worries on working capital as most of MTEPs clients are blue-chip companies. Credit period continues to be at 60
days; increase of 5-7 days reported in case of small clients. As a business policy, MTEP takes advances from its customers
to secure its business

 MTEP receives orders on fortnightly basis from its customers but some customers like Valvoline orders are placed on
weekly basis

 MTEP has not borrowed any long term capital but requirement for working capital (short term loans) is expected to be
slightly higher in the near term

2
Q1FY21 Financial Snapshot (Consol)
Q1FY21E % Change % Change
Q1FY21 Var (%) Q1FY20 Q4FY20
Axis Estm (Y-o-Y) (Q-o-Q)
Net Sales 65.3 31.9 104.4 116.6 (44.0) 106.5 (38.7)

Expenditure
Net Raw Material 38.5 71.1 (45.9) 62.7 (38.6)
Gross Profit 26.8 10.3 160.3 45.5 (41.1) 43.8 (38.8)
Gross Margin (%) 41.1 32.2 883bps 39.0 203bps 41.2 -9bps
Employee Expenses 9.4 12.6 (25.6) 11.8 (20.1)
Other Exp 8.4 13.8 (39.3) 13.8 (39.4)
Total Expenditure 56.2 97.5 88.2

EBITDA 9.0 (0.6) (1,714.2) 19.1 (52.6) 18.3 (50.4)

EBITDA Margin (%) 13.86 -1.75 1561bps 16.39 -253bps 17.14 -328bps
Oth. Inc 0.1 0.9 (84.6) 0.4 (63.3)
Interest 2.2 2.5 (12.0) 2.6 (14.2)
Depreciation 4.9 4.6 5.0 4.9 0.0
PBT 2.1 12.8 (83.7) 11.2 (81.3)
Tax 0.6 3.5 (83.3) 2.4 (76.1)
PAT 1.5 (1.8) (184.5) 9.4 (83.9) 8.7 (82.7)
EPS 0.5 (0.6) (184.5) 3.4 (83.9) 3.2 (82.7)

Source: Company, Axis Research

Change in Estimates (Rs Cr)

Revised Old %Change
FY21E FY22E FY21E FY22E FY21E FY22E
Revenue 422.0 529.1 351.0 496 20.2 6.7
EBITDA 67.5 94.2 55.6 88 21.4 6.7
EBITDA % 16 17.8 15.8 17.8 16bps 0bps
PAT 27.8 46.7 18.9 42 47.3 11.1
EPS 10.0 16.8 6.8 15 47.6 10.7

Source: Company, Axis Research

Valuation & Outlook

While, Q1FY21 was a washout quarter, manamgement remains hopeful of scaling back to FY20 levels on Revenue/PAT by end FY21. This is
expected to be driven by the new opportunities presented by COVID of providing customers with quality pumps used in hand sanitizers, there
exists a long term opportunity for MTEP to capitalize upon this and also ramp up production at its Paints capacities at Vizag and Mysuru. Further
with gradual pick up in demand for F&F, Paints and Lubes we expect EBITDA/Kg to recover from its Q1FY21 lows supported by strict cost control
measures and relatively benign RM prices although they remain volatile. As a result, we revise our FY21/22E for Revenue/EBITDA/PAT by
20%/21%/47% and 7%/7%/11% respectively. Retain BUY with a revised TP of Rs. 253 (earlier Rs. 228) as we value it at 15x August 22 EPS.

3
Financials (consolidated)
Profit & Loss (Rs Cr)
Y/E March FY19 FY20 FY21E FY22E
Total Sales 405.7 438.2 422.0 529.1
Total RM Consumption 244.9 257.5 248.1 310.0
Staff Costs 43.3 50.0 50.6 60.3
Other Expenses 47.2 53.9 55.7 64.5
Total Expenditure 335.4 361.4 354.5 434.9
EBITDA 70.3 76.8 67.5 94.2
Depreciation 16.1 19.2 20.7 23.0
EBIT 54.2 57.6 46.8 71.2
Interest & Finance charges 7.6 10.4 11.1 10.6
Other Income 1.1 1.2 1.5 1.8
EBT (as reported) 47.8 48.3 37.2 62.4
Tax 15.9 10.9 9.4 15.7
APAT 31.4 34.6 28.6 47.5
Source: Company, Axis Securities

Balance Sheet (Rs Cr)

Y/E March FY19 FY20 FY21E FY22E
Equity Share Capital 13.8 13.9 13.9 13.9
Reserves 177.8 183.6 207.9 248.3
Net worth 191.7 197.5 221.8 262.1
Total loans 102.9 106.6 113.6 108.6
Deferred tax liability (Net) 13.1 11.6 11.6 11.6
Long Term Provisions 2.0 2.6 2.6 2.6
Capital Employed 309.9 318.4 349.8 385.1
Gross Block 224.5 255.0 275.0 305.0
Depreciation 36.2 55.4 76.1 99.1
Net block 188.3 198.4 198.9 205.9
CWIP 16.0 11.5 11.5 11.5
Inventories 45.9 50.0 57.8 65.2
Sundry debtors 70.4 58.9 78.6 91.3
Cash and bank 0.9 1.1 11.6 32.8
Other Current Assets 13.8 18.0 18.0 18.0
Total Current assets 131.4 128.3 166.3 207.5
Total Current liabilities 46.3 44.9 51.7 64.6
Net Current assets 85.1 83.4 114.7 143.0
Capital Deployed 309.9 318.4 349.8 385.1
Source: Company, Axis Securities

4
Cash Flow (Rs Cr)
Y/E March FY19 FY20E FY21E FY22E
PBT 47.8 48.3 37.2 62.4
Depreciation & Amortization 16.5 19.6 20.7 23.0
Finance costs 7.6 10.4 11.1 10.6
before changes in Working capital 71.6 75.2 69.8 96.8
Changes in WC 25.6 (4.7) (20.8) (7.2)
Net Cash Flow from Operations 7.2 83.2 57.9 39.7
(Increase)/ Decrease in Gross PP&E (82.9) (41.0) (20.8) (30.0)
Proceeds from sale of fixed asset 11.4 10.1 - -
Sale/destroyed of fixed assets 11.4 10.1 - -
Cash from Investing Activities (B) (75.6) (23.4) (20.8) (30.0)
(Decrease)/Increase in Debt 15.7 7.7 7.0 (5.0)
Payment of finance costs (7.6) (10.4) (11.1) (10.6)
Dividend - - (4.3) (7.1)
Cash From Financing Activities (C ) (7.6) (34.3) (8.4) (22.7)
Increase/(Decrease) in Cash (0.0) 0.2 10.5 21.1
Cash at the Start of the Year 0.2 0.2 0.4 10.9
Cash at the End of the Year 0.2 0.4 10.9 32.0
Source: Company, Axis Securities

Ratio Analysis (%)

Y/E March FY19 FY20E FY21E FY22E
Growth (%)
Total Sales 17.0% 8.0% -3.7% 25.4%
EBITDA 14.0% 9.2% -12.1% 39.5%
APAT 16.7% 10.2% -17.3% 65.8%
Profitability (%)
EBITDA Margin 17.3% 17.5% 16.0% 17.8%
Net Profit Margin 7.7% 7.9% 6.8% 9.0%
ROCE 17.5% 18.1% 13.4% 18.5%
ROE 16.4% 17.5% 12.9% 18.1%
Per Share Data (Rs.)
EPS 11.5 13.5 10.0 16.8
BVPS 13.4 16.6 16.6 16.6
Valuations (x)
PER (x) 27.2 17.0 22.8 13.6
P/BV (x) 4.5 3.2 2.9 2.4
EV/EBITDA (x) 13.8 9.6 10.9 7.5
Turnover days
Debtor Days 69.7 53.8 59.5 58.6
Payable Days 26.9 25.7 26.1 23.0
Gearing Ratio
D/E 0.5 0.5 0.5 0.4
Source: Company, Axis Securities

5
Disclosures:

The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations).
1. Axis Securities Ltd. (ASL) is a SEBI Registered Research Analyst having registration no. INH000000297. ASL, the Research Entity (RE) as defined in the
Regulations, is engaged in the business of providing Stock broking services, Depository participant services & distribution of various financial products. ASL is a
subsidiary company of Axis Bank Ltd. Axis Bank Ltd. is a listed public company and one of India’s largest private sector bank and has its various subsidiaries
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6
 DEFINITION OF RATINGS

Ratings Expected absolute returns over 12-18 months

BUY More than 10%

HOLD Between 10% and -10%

SELL Less than -10%

NOT RATED We have forward looking estimates for the stock but we refrain from assigning valuation and recommendation

UNDER REVIEW We will revisit our recommendation, valuation and estimates on the stock following recent events

NO STANCE We do not have any forward looking estimates, valuation or recommendation for the stock

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