(MTEP) reported Q2 results, slightly below expectations. Cons. net sales grew by 27.1% YoY but were marginally lower sequentially to Rs 1,005m. Q2 is a seasonally weak quarter (Q1 and Q4 being stronger). EBITDA grew 19.1% YoY to Rs 166m but was down QoQ by 6.9% to Rs 166m primarily due to 240 bps contraction in gross margins as well as increase in employee costs by 23% YoY. EBITDAM were down 110 bps YoY and 90 bps QoQ to 16.5%. Adj. PAT stood at Rs 73m versus Rs 82m in Q1FY19 and Rs 71m in Q2FY18. For the half year, net sales/ebitda/pat grew by 20.0%/15.7%/8.9% to Rs 2,028m/Rs 344m/Rs 155m. EBITDAM contracted by 60 bps to 17.0% in spite of gross margin contraction of 230 bps, due to benefits from operating leverage. Depreciation increased by 20.9% to Rs 75m due to increase in WIP from Rs 147m to Rs 337m (capex at Mysuru and Vizag) and interest cost by 73.6% to Rs 34m as long term debt increased 2.5x to Rs 50m. Post results, we have revised our consolidated topline estimate for FY19E upwards by 3.0% to Rs 4,212m but lowered the profit estimates by 6.4% to Rs 349m due to lower per kg EBITDA (Rs 33.3 vs Rs 33.8 previously) and higher interest cost (Rs 68m vs Rs 52m) cost. For FY20E, the topline estimate unchanged but the profit estimate has been revised downwards by 2.4% to Rs 481m in spite of improvement in per kg EBITDA (Rs 34.5 vs Rs 34.3) due to lower volume growth (19.6% vs 22.3%) and higher interest cost. While the company continues to face headwinds at the RAK plant, they have already taken steps to course correct and in accordance are moving surplus unutilized capacity to India, which coupled with the two new plants at Vizag and Mysuru, good traction in edible oil and ice cream segments and continued addition of new marquee clients across segments provide good visibility for 20% volume growth in FY20E. Although optimal benefits of operating leverage are not visible currently, we expect it to improve once the two new plants are stabilized. At CMP, the stock is trading at PER of 20.9x FY19E and 15.2x FY20E revised EPS estimates of Rs 12.6 and Rs 17.4 respectively. We maintain our BUY rating on the stock with a TP of Rs 365 (21x FY20E EPS). Lower gross margins & higher interest cost impacts profitability Q2FY19 Result Update Tuesday, November 13, 2018 Shailee Parekh shaileeparekh@plindia.com +91-22-66322302 Charmi Mehta charmimehta@plindia.com +91-22-66322274 Rating BUY Price Rs 264 Target Price Rs 365 Implied Upside 39% Sensex 34,813 Nifty 10,482 Bloomberg Code Reuters Code (Prices as on November 12, 2018) Tracking Data MTEP.IN MOLT.BO Market Cap (Rs bn) 7.3 Shares O/s (m) 27.7 3M Avg. Daily Value (Rs m) 19.0 Key financials (Y/e March) 2017 2018 2019E 2020E Revenues (Rs m) 3,014 3,468 4,212 5,142 Growth (%) 9.3 15.1 21.4 22.1 EBITDA (Rs m) 504 615 727 953 PAT (Rs m) 242 278 349 481 EPS (Rs) 8.8 10.0 12.6 17.4 Growth (%) 8.1 15.1 25.4 37.9 CEPS (Rs) 8.7 14.8 18.1 23.9 Net DPS (Rs) 3.2 2.0 2.0 2.0 Profitability & Valuation 2017 2018 2019E 2020E EBITDA margin (%) 16.7 17.7 17.3 18.5 RoE (%) 15.1 16.2 17.6 20.6 RoCE (%) 14.8 16.7 18.8 21.4 EV / sales (x) 2.6 2.4 1.9 1.6 EV / EBITDA (x) 15.5 13.4 10.9 8.5 PE (x) 30.0 26.2 20.9 15.2 P / BV (x) 4.6 4.0 3.4 2.9 Net dividend yield (%) 1.2 0.8 0.8 0.8 Source: Company Data, PL Research Major Shareholders Promoters 35.6 Domestic Inst. 12.5 Public & Others 51.9 Stock Performance (%) 1M 6M 12M Absolute 0.3 (24.9) (17.1) Relative (0.7) (22.9) (19.7) How we differ from Consensus EPS (Rs) PL Cons. % Diff. 2019E 12.6 12.3 2.4 2020E 17.4 16.1 8.1 November 13, 2018 1
Key highlights for the quarter are: Low sequential volume growth as Food segment lags Total volumes grew by 19.5% YoY but marginally down by 1% QoQ to 5,425 tons. Paint volumes at 2,760 tons were flat, lubes at 1,811 tons up 32.0% YoY and food at 697 tons - up 74.3% YoY in spite of slowdown in Mondeles volumes. Management has guided ~15% volume growth in FY19E and 20%+ growth in FY20E on back of ramp up in Vizag and Mysur plants and increased traction in ghee and edible oil segment. Higher cost of imported printing materials and inks dents gross margins Raw material prices dropped from Rs 99/kg to Rs 95/kg for a month and then bounced back. Thereafter it hovered around the same levels and has been more or less flat since then. Prices of imported IML printing material and inks increased due to the rupee depreciation. This led to an impact of Re 1/kg on gross margins. Gross margins were down by 240 bps YoY and 40 bps sequentially to 38.9%. Any increase/correction in prices is typically passed on with a one month lag. ~75% orders has a monthly reset clause and the balance on a quarterly basis. Invoicing started from Mysuru plant in November, commercial production by mid-december Construction activities almost completed at Mysuru plant for Asian Paints and orders have been received and invoicing started from November 10, 2018 however current supplies are being made from the Karnala plant. Commercial production will begin at the Mysuru plant from mid December. 70% of Construction at Vizag plant is also completed and production may start from February, 2019. MTPL is expecting to achieve volumes of 600-800 MTPA in FY19e and ~3000 MTPA (revenues of Rs 400-500m) in FY20E from both plants combined. Both plants are expected to be EBITDA neutral in spite of being based on HTL technology due to superior designing. Weak demand and pricing outlook leads to capacity shifting from RAK to Hyderabad RAK Unit has bagged order from new customers like Novasolum specialty Chemicals LLC, Magnum Lubricants and Gulf Oil Middle East etc and orders from other new clients. However traction from the Paint and Dairy industry continues to remain abysmal. The company is planning to shift 2 more large machines by December this year to India for better overall utilization. This will bring down the RAK capacity from 3,000 MTPA to 1,800 MTPA. We believe the company will end with volumes of ~750 MTPA in FY19E. At a monthly run rate of 100 tons, they will break even and hope to achieve these levels by end of this fiscal. New Client Addition in Ice Cream and Edible oil During the quarter the company has added Hindustan Unilever as a client in the ice cream segment. Although the order is not very large, addition of a marquee client like HUL offers room for scalability in the future. The company is also witnessing very good response in the ghee and edible oil segment and added 7-8 new clients here. Edible oil revenues which were ~ Rs 15m in Q1FY19 has increased to Rs 40m in Q2FY19. November 13, 2018 2
Capex plans MTPL has a capex plan of Rs 450m for FY19E (Rs 300m already spent in H1FY19) to be incurred on capacities at Vizag and Mysuru, setting up a brown field capacity for edible oil at Hyderabad and maintenance capex. ~1,200 tons capacity is being moved to Hyderabad from RAK which will be used for demand from the edible oil segment. Current capex plan for FY20E is Rs 150-180m which will be funded by way of internal accruals. There are also plans for Phase II expansion at both Mysuru and Vizag, which will go on stream by March and June 2020. In case of greenfield expansion in the North, the cost could increase by further Rs 200m in which case the company might have to borrow. Financial Overview and Valuations Post results, we have revised our consolidated topline estimate for FY19E upwards by 3.0% to Rs 4,212m but lowered the profit estimates by 6.4% to Rs 349m due to lower per kg EBITDA (Rs 33.3 vs Rs 33.8 previously) and higher interest cost (Rs 68m vs Rs 52m) cost. For FY20E, the topline estimate unchanged but the profit estimate has been revised downwards by 2.4% to Rs 481m in spite of improvement in per kg EBITDA (Rs 34.5 vs Rs 34.3) due to lower volume growth (19.6% vs 22.3%) and higher interest cost. While the company continues to face headwinds at the RAK plant, they have already taken steps to course correct and in accordance are moving surplus unutilized capacity to India, which coupled with the two new plants at Vizag and Mysuru, good traction in edible oil and ice cream segments and continued addition of new marquee clients across segments provide good visibility for 20% volume growth in FY20E. Although optimal benefits of operating leverage are not visible currently, we expect it to improve once the two new plants are stabilized. At CMP, the stock is trading at PER of 20.9x FY19E and 15.2x FY20E revised EPS estimates of Rs 12.6 and Rs 17.4 respectively. We maintain our BUY rating on the stock with a TP of Rs 365 (21x FY20E EPS). November 13, 2018 3
Q2FY18 Result Overview (Rs m) Y/e March Q2 19 Q2 18 YoY gr. YoY gr. Q1 19 H1 19 H1 18 (%) (%) Net Revenue 1,005 761 27.1 1,023 2,028 1,690 20.0 Expenditure Raw Material Cost 614 464 32.2 621 1,235 990 24.7 % of revenue 61.1 58.7 60.7 60.9 58.6 Employee Cost 109 88 23.1 104 212 175 21.1 % of revenue 10.8 11.2 10.1 10.5 10.4 Other Expense 116 99 18.0 120 237 227 4.3 % of revenue 11.6 12.5 11.8 11.7 13.4 Total Expenditure 839 651 28.8 845 1,684 1,392 20.9 EBITDA 166 139 19.1 178 344 297 15.7 Margin (%) 16.5 17.6 17.4 17.0 17.6 Depr. & Amortization 38 32 18.8 37 75 62 20.9 EBIT 128 107 19.1 141 269 235 14.3 Net Interest 17 9 92.9 16 34 19 73.6 Other Income 5 2 121.1 4 9 6 61.8 Profit before Tax 116 101 14.9 129 244 221 10.4 Total Tax 43 30 44.8 47 90 80 13.0 Effective tax rate (%) 37.2 29.5 36.3 36.8 35.9 Profit after Tax 73 71 2.3 82 155 142 8.9 PAT Margin (%) 7.2 9.0 8.0 7.6 8.4 EPS 2.6 2.6 2.3 3.0 5.6 5.1 8.9 Source: Company Data, Idea Research November 13, 2018 4
Income Statement (Rs m) Net Revenue 3,014 3,468 4,212 5,142 Raw Material Expenses 1,862 2,059 2,559 3,070 Gross Profit 1,151 1,409 1,653 2,072 Employee Cost 286 364 440 530 Other Expenses 361 430 486 590 EBITDA 504 615 727 953 Depr. & Amortization 103 132 153 180 Net Interest 24 46 68 70 Other Income 8 10 15 16 Profit before Tax 385 447 521 718 Total Tax 143 169 172 237 Profit after Tax 242 278 349 481 Ex-Od items / Min. Int. (1) - - - Adj. PAT 243 278 349 481 Avg. Shares O/S (m) 27.7 27.7 27.7 27.7 EPS (Rs.) 8.8 10.0 12.6 17.4 Cash Flow Abstract (Rs m) C/F from Operations (168) (398) 63 (249) C/F from Investing 49 9 (50) (40) C/F from Financing 266 447 86 95 Inc. / Dec. in Cash 147 58 100 (194) Opening Cash 83 333 (44) (37) Closing Cash 10 9 10 408 FCFF (119) (388) 13 (289) Key Financial Metrics Growth Revenue (%) 9.3 15.1 21.4 22.1 EBITDA (%) 15.1 22.1 18.1 31.1 PAT (%) 8.1 15.1 25.4 37.9 EPS (%) 10.0 14.5 25.4 37.9 Profitability EBITDA Margin (%) 16.7 17.7 17.3 18.5 PAT Margin (%) 8.0 8.0 8.3 9.4 RoCE (%) 14.8 16.7 18.8 21.4 RoE (%) 15.1 16.2 17.6 20.6 Balance Sheet Net Debt : Equity 0.3 0.5 0.3 0.3 Net Wrkng Cap. (days) 89.0 106.7 83.0 83.0 Valuation PER (x) 30.0 26.2 20.9 15.2 P / B (x) 4.6 4.0 3.4 2.9 EV / EBITDA (x) 15.5 13.4 10.9 8.5 EV / Sales (x) 2.6 2.4 1.9 1.6 Earnings Quality Eff. Tax Rate 37.2 37.7 33.0 33.0 Other Inc / PBT 0.0 0.0 0.0 0.0 Source: Company Data, PL Research. Balance Sheet Abstract (Rs m) Non-Current Assets 1,367 1,656 1,706 2,043 Net fixed assets 1,081 1,324 1,446 1,716 Capital Work In Progress 97 148 - - Other Intangible Assets 2 3 3 2 Intangibles under development - 1 - - Investment property 1 1 - - Non-Current Investments 112 103 153 193 Other financial assets 2 2 22 42 Other Non-Current Assets 71 74 82 90 Current Assets 1,094 1,482 1,865 2,144 Inventories 367 523 480 586 Trade receivables 615 845 819 1,000 Cash & Bank Balance 9 10 408 347 Loans 1 1 2 2 Other financial assets 18 27 30 34 Current Tax Assets 8 7 12 17 Other Current Assets 75 70 115 160 Total Assets 2,461 3,138 3,571 4,188 Equity Equity Share Capital 139 139 139 139 Other Equity 1,388 1,599 1,886 2,305 Total Networth 1,527 1,738 2,025 2,444 Non-Current Liabilities 211 212 224 236 Long Term borrowings 118 88 88 88 Provisions 19 20 30 40 Deferred tax liabilities 75 104 104 104 Other financial liabilities - - 2 4 Current Liabilities 722 1,188 1,321 1,508 ST Debt / Current of LT Debt 388 863 950 1,045 Trade payables 147 202 199 239 Other current liabilities 99 102 112 123 Short term provisions 70 3 3 3 Other current liabilities 16 15 50 85 Current Tax liabilities 3 3 8 13 Total Equity & Liabilities 2,461 3,138 3,571 4,188 Quarterly Financials (Rs m) Y/e March Q3FY18 Q4FY18 Q1FY19 Q2FY19 Net Revenue 834 924 990 983 EBITDA 156 170 181 171 % of revenue 18.7 18.4 18.3 17.4 Depr. & Amortization 31 32 34 35 Net Interest 10 13 15 16 Other Income 3 1 5 6 Profit before Tax 118 126 137 127 Total Tax 40 49 47 43 Profit after Tax 77 77 90 84 Source: Company Data, PL Research. November 13, 2018 5
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