We are pleased to inform you that our Hidden Gem stock of March 2015 - Mold-Tek Packaging Ltd (BSE Code: 533080, NSE Code: MOLDTKPAC) which was released on 22nd Mar'15 is giving as on date returns of 121% to our Hidden Gems members within period of 24 months. Our team suggested Buy on Mold-Tek Packaging Ltd at price of Rs. 109.25 (stock split adjusted price, actual recommended price was Rs. 218.50) on 22 Mar'15 with a target price of Rs. 225 (adjusted target price post stock split, actual target price was Rs. 450).
Mold-Tek Packaging has already achieved our target price and we informed our members to continue to hold it, stock made its 52 week high of Rs. 246 today and closed at Rs. 241 giving absolute returns of 121% to our Hidden Gems members in period of 2 years.
In Dec quarter, net profit of Mold-Tek Packaging declined 7.65% to Rs 5.55 crore in the quarter ended December 2016 as against Rs 6.01 crore during the previous quarter ended December 2015. Sales rose 0.07% to Rs 67.74 crore in the quarter ended December 2016 as against Rs 67.69 crore during the previous quarter ended December 2015.
Below is the summary of Mold-Tek Packaging Ltd shared by our team under Hidden Gem stock of Mar'15 released on 22nd March 2015.
Note: This report is shared only for the purpose of information and not an investment advice. Kindly carry out your own due diligence in case of investment in Mold-Tek Packaging Ltd.
Mold-Tek Packaging Limited traces its origin to Mold-Tek Plastics Private Limited founded in 1985 by Mr. J Lakshmana Rao and A Subrahmanyam to manufacture rigid plastic packaging materials with units located in Andhra Pradesh. The company was listed in BSE in 1993. Subsequently, in 2000, the promoters also commenced outsourcing services for engineering to overseas clients in the USA and EU and the company was renamed as Mold-Tek Technologies Limited.
The Company has four warehouses in Chennai, Hosur, Kolkata and Kanpur and a marketing office in Mumbai.
- 100ml to 5ltrs Thin wall containers
- Injection Molded, 750ml to 75ltrs plastic pails (with in-mould or external spouts), for packing lubes, greases, chemicals, paints, Bulk Drugs, Inks, Synthetic Adhesives
- 35, 50 & 75 liters bulk packs for chemicals, agro and other applications
- IML offers outstanding quality decoration, and picture quality.
- Photographic quality and complete container coverage.
- The IML operations are hands free as handling is done by ROBOTS. Thereby the packaging is hygienic for D2F (Direct to fill) operations.
- IML can assist in improving the barrier properties to extend the shelf life of the filled goods.
- The label becomes an integral part of the pail and offers a no-label look. It offers better heat, moisture and chemical resistance.
- Lower prices for IML decoration complying with international standards
- Quick delivery, customizability and maintenance
- No chance of a stock out situation due to in house labels/mould maintenance
2. Recent Developments: (as on 22 Mar'15)
i) Shares of Mold-Tek Packaging lists on NSE – 19th Feb 2015
ii) Mold-Tek Packaging allots 24,98,350 equity shares – 03 Feb 2015
- Closure of the QIP on 03 February 2015;
- Adopted the Placement Document ("PD") dated 03 February 2015 in connection with the QIP;
- Company has issued 24,98,350 equity shares of Rs. l0/- each to QIBs pursuant to Qualified Institutional Placement at issue price of Rs. 220.17 /- per share.
iii) In Mould Labeling (IML) Segment to Drive Future Growth
Company’s in-house manufacturing of labels and robots considerably reduces the IML costs, hence will lead to improvement in EBIDTA margins. Most of the clients of the company started shifting to IML decorated pails from traditional silk screen printing.
Currently, IML Pails and IML Food contribute only 25% and 4% of total sales and have registered strong growth in last one year. Company’s revenue from IML & IML Food segment is gradually increasing which is a good sign as IML segment have higher EBITA margins. Contribution from IML is expected to improve significantly in future.
5. Key Concerns & Risks:
i) The company’s capacity addition has come with rising debt levels and debt-equity ratio stood at 1.4 times. Fall in demand of company’s products offering can adversely impact the profitability of the company.
ii) Low rupee value augurs well for focusing on exports mainly to nearly countries like Middle East. Company is exporting its products to UAE, Singapore, Malaysia, Nepal and Bangladesh. The Company is adding new robots manufactured in-house to enhance capacity to meet the growing demand for IML products. Appreciation in rupee may have negative impact on exports of the company.
iii) Rising cost of capital equipment is also a concern for the company. Company needs to make huge investments towards latest technology / machinery to remain ahead of competition. Rapid advances in other packaging products can adversely impact the performance of the company.
iv) As Packaging Industry is a highly fragmented with lot many unorganized players, retaining qualified and skilled manpower is a challenge.
i) Per Capital consumption of Plastic in India is 9.5 Kg which is much below compared to developed countries like US, Europe, China and Brazil. Plastic Industry in India grew by 15 percent annually, however flexible packaging growth was at 18 percent which is expected to grow at faster pace with increase in per capita consumption in India and rising exports. According to the Indian Institute of Packaging, the packaging industry in India (pegged at around Rs 170,000 crore) is the 6th largest in the world, and is expected to grow by 12% over next 4-5 years. With unorganized players making up 85% of the industry, it is highly fragmented and localised. But there’s plenty of room to grow in a country where per capita consumption of packaging is significantly low compared to other countries
ii) Indian plastics exports have grown at a rate of 20% since 2007-08. India is one of the most promising exporters of plastics among developing countries. The Indian plastics industry produces and exports a wide range of raw materials. With low rupee value, Mold-Tek started focusing on exports mainly to nearby countries in Middle East
iii) Company’s EBITDA and PAT margins are expected to increase significantly with entry into high value added products. Company has achieved revenue CAGR of 20% with ROE of 21.4% over period of last 5 years.
Total Debt to Equity ratio is 1.4 which is on higher side. However, Company is going through aggressive expansion plan to increase its capacity for In-Mold Labeling and expected to deliver strong revenue growth, hence it’s a concern only in short term
iv) Mold-Tek Packaging is the only company with integrated facilities for manufacturing In-Mold labeled containers and is India’s fastest growing packaging company with CAGR of 20%. To meet increasing demand and to tap opportunities in other consumer segments, company is about to set manufacturing units in UAE, Andhra Pradesh and North India. Company has already raised 55 Crores through QIP route and is working towards capacity expansion to cater the growing demand during next 2-3 years.
v) Mold-Tek is taking all necessary steps to increase product offerings by expanding its product range. Company offers Food & FMCG packaging solutions with superior technology, in house tool room, robots, hot runner and IML labels. Mold-Tek is a dominant player with strong clientele which include companies like Castrol, Heinz, Asian Paints, ICI Paints, HUL, ITC, Cadbury, Indian Oil, British Petroleum etc.
vi) Management has rewarded shareholders by paying consistent dividend since last 7 years. Company has been maintaining a healthy dividend payout above 27% during last 5 years, dividend yield at current market price is 1.4%. With expected increase in revenue and profitability in coming quarters, we believe company dividend payout will increase going forward.
vii) As per our estimates, Mold-Tek Packaging Ltd can deliver bottom line of 255.4 million for full financial year 2016, annualized EPS of Rs. 18.4. With forward P/E ratio of 11.9X for FY16, valuations look attractive for a company which is expected to deliver strong revenue growth with increase in profit margins.
viii) On equity of Rs. 138.4 million, the estimated annualized EPS for FY 15-16 works out to Rs. 18.4 and the Book Value per share is Rs. 86.9. At current market price of Rs. 218.50, stock price to book value is 2.5.
Considering company’s aggressive expansion plans, focus towards high margin IML segment and recent allotment of equity shares to QIBs above current market price, Saral Gyan team recommends “Buy” on Mold-Tek Packaging Ltd at price of Rs. 218.50 for target of Rs. 450 over a period of 12 to 24 months.
- 80% at current market price of 218.50
- 20% at price range of 180-200 (in case of correction in stock price in near term)
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