Mold-Tek Packaging. Institutional Equities. Conference Update. Promising Growth Outlook BUY

Transcription

1 Conference Update Institutional Equities Mold-Tek Packaging 20 August 2018 Reuters: MOLT.BO; Bloomberg: MTEP IN Promising Growth Outlook We recently interacted with the management of Mold-Tek Packaging (MTEP) at the investor conference hosted by us. Overall, the discussion was based on growth outlook, capacity expansion plan, new product launches and update on its RAK facility. Following are the key takeaways from the discussion: Robust growth expectations from India business: The management reiterated its guidance of 15% volume growth for FY19 and more than 20% for the next couple of years in respect of India business. Over the next five to seven years, MTEP aims to achieve Rs10,000mn in revenues led by strong growth across segments. Both the new dedicated facilities for Asian Paints (Mysore and Vizag) aggregating to 6,000tn will start contributing meaningfully to revenues from FY20 onwards wherein 50% capacity utilisation is expected. The response from Asian Paints has been better than expectations as MTEP has already received orders which are being executed from existing facilities till the time new plants come on board. We believe that 50% capacity utilisation will contribute to around 10% of incremental volume growth. Asian Paints has shifted to Heat Transfer Labelling (HTL) which enjoys a similar margin as that of IML and hence it will not be margin-dilutive. Lubricant division s performance is expected to be muted. Robust growth of Food & FMCG (F&F) segment will continue with new orders and an extremely encouraging response for generic containers and Q-packs for ice-cream, edible oil and ghee containers. The tool room is running short of capacity due to robust demand and therefore currently 25%-30% of the generic moulds have been outsourced. It was discussed that MTEP is going to expand the capacity for F&F in Hyderabad and also new plant dedicated for F&F would be set up in 2HFY20.Capex guidance for FY19 has been given as Rs.520mn and around Rs.300mn-Rs350mn in the next few years. Improved performance likely from RAK unit from 2HFY19: On the RAK facility of 3,000tn, it was informed that the delay in achieving break-even was because of cancellation of one of the orders from Iran, lower-than-expected response for paint and lubricant divisions and overall economic slowdown in the Middle East. However demand for F&F has been very strong and MTEP has shifted its core focus on the F&F segment at its RAK plant wherein some of the machinery and related equipment have been relocated there. Currently, the facility is operating at 35% of its capacity whereas the plant will achieve breakeven at 50% utilisation. The management indicated that MTEP is in the process of achieving a big order from a FMCG company which can take the capacity utilisation of RAK plant to 70%-75% directly. Rising IML share will increase operating margin: MTEP has cost-plus contracts with all clients and hence it does not bear the risk of raw material inflation. Also, with the new capacities coming on board, the product mix of the company is going to change in the medium term. Asian Paints - for the new capacity - has shifted to Heat Transfer Labelling (HTL) which enjoys margin similar to that of the IML segment and hence will not be margin-dilutive. Also, a rising share of F&F will continue to improve the share of IML and hence will uplift the margin profile of the company. The share of IML in volume terms in FY18 stood at 52% and the same in value terms was 58%. The same in FY17 was 47% and 49%, respectively. We expect blended EBITDA/kg to improve from Rs33 in FY18 to Rs38 by FY20E. Also, as currently the RAK division is incurring losses, it is expected to achieve breakeven in the current financial year. Hence, from next year onwards, blended margins will improve further to that extent. Outlook and valuation: Considering the strong demand outlook and capacity expansion plan, we continue to remain bullish on the long-term structural story of MTEP. It is on track to become a decent-sized F&F IML packaging player and we believe that there could be an upside to our estimates. We expect volume/sales/ebitda/pat estimates to post CAGR of 14%/18%/23%/26%, respectively, over FY18-FY20E. Therefore, we have retained Buy rating on MTEP with a target price of Rs450 based on FY20E EPS and P/E multiple of 25x, indicating an upside of 50% from the CMP. NBIE Values your patronage- Vote for The Team in the Asia Money poll Click Here BUY Sector: Packaging CMP: Rs300 Target Price: Rs450 Upside: 50% Abhishek Navalgund Junior Research Analyst abhishek.navalgund@nirmalbang.com Key Data Current Shares O/S (mn) 27.7 Mkt Cap (Rsbn/US$mn) 8.3/ Wk H / L (Rs) 374/254 Daily Vol. (3M NSE Avg.) 32,974 Price Performance (%) 1 M 6 M 1 Yr Mold-Tek Packaging 1.1 (10.7) 5.5 Nifty Index Source: Bloomberg

2 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Nov-14 Feb-15 May-15 Aug-15 Nov-15 Feb-16 May-16 Aug-16 Nov-16 Feb-17 May-17 Aug-17 Nov-17 Feb-18 May-18 Aug-18 Institutional Equities Exhibit 1: One-year forward P/E chart (x) Source: Nirmal Bang Institutional Equities Research Forward PE 3 yr Median SD +1 SD -1 2 Mold-Tek Packaging

3 Institutional Equities Financials (standalone) Exhibit 2: Income statement Y/E March (Rsmn) FY16 FY17 FY18 FY19E FY20E Net sales (incl. OOI) 2,757 3,008 3,395 3,904 4,739 % growth (3.3) Other income Total income 2,764 3,024 3,405 3,914 4,749 Raw material costs 1,667 1,859 2,020 2,292 2,763 Staff costs Other expenses Total expenditure 2,299 2,489 2,760 3,140 3,777 EBITDA % growth EBITDA margin (%) Depreciation EBIT EBIT margin (%) Interest Profit before tax % growth Tax Effective tax rate (%) Net profit % growth EPS (Rs) % growth DPS (Rs) Payout (%) Exhibit 4: Balance sheet Y/E March (Rsmn) FY16 FY17 FY18 FY19E FY20E Share capital Reserves and surplus 1,152 1,419 1,669 1,883 2,168 Shareholder's funds 1,291 1,557 1,807 2,022 2,307 Non-current liabilities Deferred tax liabilities (net) Long-term borrowings Long-term provisions Current liabilities Short-term borrowings Trade payables Other current liabilities Short-term provisions Total liabilities 2,041 2,361 3,025 3,249 3,595 Total gross block 1,320 1,515 1,873 2,223 2,423 Accumulated depreciation ,034 Net fixed assets 897 1,004 1,294 1,499 1,536 Long-term loans and advances Other non-current assets/investments Current assets Inventories Trade receivables ,052 Cash and carry equivalents Short-term loans and advances Other current assets Total assets 2,042 2,361 3,025 3,249 3,595 Exhibit 3: Cash flow Y/E March (Rsmn) FY16 FY17 FY18 FY19E FY20E EBIT (Inc.)/dec. in working capital (89) (152) (333) 35 (235) Cash flow from operations Depreciation Tax paid (127) (143) (169) (196) (255) Net cash from operations Capital expenditure (245) (208) (408) (349) (200) Net cash after capex - 16 (275) (Increase)/decrease in Investments (4) Net cash from investment activities (243) (208) (399) (349) (200) Cash from financial activities (11) (11) 266 (242) (270) Opening cash balance Closing cash balance Change in cash balance (2) Exhibit 5: Key ratios Y/E March FY16 FY17 FY18 FY19E FY20E Profitability & return ratios EBITDA margin (%) EBIT margin (%) Net profit margin (%) RoE (%) RoCE (%) Working capital & liquidity ratios Receivables (days) Inventory (days) Payables (days) WC days Current ratio (x) Quick ratio (x) Valuation ratios EV/Sales (x) EV/EBITDA (x) Adj. P/E (x) Adj. P/BV (x) Growth (%) Sales (3.3) EBITDA PAT DuPont formula Profitability Asset turnover Leverage RoE (%) Mold-Tek Packaging

4 Apr-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jun-18 Jul-18 Aug-18 Institutional Equities Rating track Date Rating Market price (Rs) Target price (Rs) 26 April 2017 Buy May 2017 Buy September 2017 Buy November 2017 Buy February 2018 Buy June 2018 Buy August 2018 Buy August 2018 Buy Rating track graph Not Covered Covered 4 Mold-Tek Packaging

5 Institutional Equities DISCLOSURES This Report is published by Nirmal Bang Equities Private Limited (hereinafter referred to as NBEPL ) for private circulation. NBEPL is a registered Research Analyst under SEBI (Research Analyst) Regulations, 2014 having Registration no. INH NBEPL is also a registered Stock Broker with National Stock Exchange of India Limited and BSE Limited in cash and derivatives segments. NBEPL has other business divisions with independent research teams separated by Chinese walls, and therefore may, at times, have different or contrary views on stocks and markets. NBEPL or its associates have not been debarred / suspended by SEBI or any other regulatory authority for accessing / dealing in securities Market. NBEPL, its associates or analyst or his relatives do not hold any financial interest in the subject company. NBEPL or its associates or Analyst do not have any conflict or material conflict of interest at the time of publication of the research report with the subject company. NBEPL or its associates or Analyst or his relatives do not hold beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of this research report. NBEPL or its associates / analyst has not received any compensation / managed or co-managed public offering of securities of the company covered by Analyst during the past twelve months. NBEPL or its associates have not received any compensation or other benefits from the company covered by Analyst or third party in connection with the research report. Analyst has not served as an officer, director or employee of Subject Company and NBEPL / analyst has not been engaged in market making activity of the subject company. Analyst Certification: I/We, Abhishek Navalgund the Junior Research Analyst, are the authors of this report, hereby certify that the views expressed in this research report accurately reflects my/our personal views about the subject securities, issuers, products, sectors or industries. It is also certified that no part of the compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this research. The analyst(s) principally responsible for the preparation of this research report and has taken reasonable care to achieve and maintain independence and objectivity in making any recommendations. 5 Mold-Tek Packaging

6 Institutional Equities Disclaimer Stock Ratings Absolute Returns BUY > 15% ACCUMULATE -5% to15% SELL < -5% This report is for the personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. NBEPL is not soliciting any action based upon it. Nothing in this research shall be construed as a solicitation to buy or sell any security or product, or to engage in or refrain from engaging in any such transaction. In preparing this research, we did not take into account the investment objectives, financial situation and particular needs of the reader. This research has been prepared for the general use of the clients of NBEPL and must not be copied, either in whole or in part, or distributed or redistributed to any other person in any form. If you are not the intended recipient you must not use or disclose the information in this research in any way. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. NBEPL will not treat recipients as customers by virtue of their receiving this report. This report is not directed or intended for distribution to or use by any person or entity resident in a state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject NBEPL & its group companies to registration or licensing requirements within such jurisdictions. The report is based on the information obtained from sources believed to be reliable, but we do not make any representation or warranty that it is accurate, complete or up-to-date and it should not be relied upon as such. We accept no obligation to correct or update the information or opinions in it. NBEPL or any of its affiliates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. NBEPL or any of its affiliates or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement. The recipients of this report should rely on their own investigations. This information is subject to change without any prior notice. NBEPL reserves its absolute discretion and right to make or refrain from making modifications and alterations to this statement from time to time. Nevertheless, NBEPL is committed to providing independent and transparent recommendations to its clients, and would be happy to provide information in response to specific client queries. Before making an investment decision on the basis of this research, the reader needs to consider, with or without the assistance of an adviser, whether the advice is appropriate in light of their particular investment needs, objectives and financial circumstances. There are risks involved in securities trading. The price of securities can and does fluctuate, and an individual security may even become valueless. International investors are reminded of the additional risks inherent in international investments, such as currency fluctuations and international stock market or economic conditions, which may adversely affect the value of the investment. Opinions expressed are subject to change without any notice. Neither the company nor the director or the employees of NBEPL accept any liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this research and/or further communication in relation to this research. Here it may be noted that neither NBEPL, nor its directors, employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profit that may arise from or in connection with the use of the information contained in this report. Copyright of this document vests exclusively with NBEPL. Our reports are also available on our website Access all our reports on Bloomberg, Thomson Reuters and Factset. Team Details: Name Id Direct Line Rahul Arora CEO rahul.arora@nirmalbang.com - Girish Pai Head of Research girish.pai@nirmalbang.com / 18 Dealing Ravi Jagtiani Dealing Desk ravi.jagtiani@nirmalbang.com , Pradeep Kasat Dealing Desk pradeep.kasat@nirmalbang.com /8101, Michael Pillai Dealing Desk michael.pillai@nirmalbang.com /8103, Nirmal Bang Equities Pvt. Ltd. Correspondence Address B-2, 301/302, Marathon Innova, Nr. Peninsula Corporate Park, Lower Parel (W), Mumbai Board No. : /1; Fax. : Mold-Tek Packaging