Mold-Tek Technologies Limited Building (on) Infrastructure Management and Cloud Computing September 23, 2014
Recommendation BUY Snapshot CMP (Rs.) Rs.147 Target Price (Rs.) Rs.192 (Upside 30%) Stock Details BSE Code Bloomberg Code Market Cap (Rs. cr) Free Float (%) 52- wk HI/Lo (Rs) Avg. Volume (Fortnightly) Face Value (Rs) Dividend(%) (FY 14) 526263 IN MTEK Shares o/s (Crs) 0.47 Relative Performance 1Mth 6Mth 1Yr 67 49 148/20 80220 10.0 MTEK IN (%) 103.6 246.6 445.3 NIFTY (%) 1.8 24.0 36.7 620 540 460 380 300 220 140 60 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 MOLD-TEK TECH Shareholding Pattern as on June 30 2014 Promoters Holding 49.1% Institutional (Incl. FII) 3.6% Corporate Bodies 5.3% Public & others 42.1% Vishal Jajoo Sr. Research Analyst (+91 22 3926-8136) Email id: vishal.jajoo@nirmalbang.com NSE CNX NIFTY INDEX 18 is the IT and engineering wing of Mold-Tek Group, growing at a strong pace over the last several years. Investment Rationale Decent traction in the US markets augurs well for the company: Mold-Tek Technologies derives a significant portion of the core earnings from the US markets. With improving data points from the key markets coupled with the company s focus on upcoming business segments Cloud Computing and BIM(Building Information Modeling), we expect the company to continue reporting good set of numbers going forward as well. Decent dividend pay-out ratio: The company s dividend pay-out ratio has averaged at ~45 per cent over the last three years. We expect this trend to continue going forward as well on the back of improvement in earnings. Clean Balance Sheet with inherent asset value: The company s Balance Sheet has hardly any meaningful debt while a lot of inherent asset has come in at book value. Valuation & Recommendation The company posted net sales of Rs.40.2 crore during FY 14, an increase of 14.4 per cent y-o-y. EBITDA registered a 13.5 per cent increased to Rs.6.9 crore. PAT for the year stood at Rs.2.1 crore compared to Rs.1.2 crore in FY 13. EPS for the year stood at Rs.4.4. During Q1FY 15, the company posted net sales of Rs.11.6 crore, an increase of 34.7 per cent y-o-y. On the back of EBITDA at Rs.2.8 crore (an increase of 45.6 per cent y-o-y), PAT for the quarter stood at Rs.1.4 crore, an increase of 89.3 per cent y-o-y. EPS for the quarter stood at Rs.3.02 compared to Rs.1.6 during Q1FY 14. The company has delivered consistent growth in the past backed by qualified management personnel. The growth levers are in place and traction is being witnessed across key verticals with recovery in the US markets. With new segments like BIM, expected to be the key growth driver going forward, we expect the share price to be Rs.192 over the next 12 months. We shall be coming up with a detailed report post Q2FY 15 earnings. Particulars (Rs Cr) Net Sales (Rs. Cr.) Growth (%) EBITDA EBITDA(%) PAT EPS (Rs) P/E (x) FY'11 22.4 41.77% 6.5 29.0% 2.9 6.2 23.7 FY'12 29.8 33.04% 5.9 19.8% 1 2.1 68.6 FY'13 35.2 18.12% 6.1 17.3% 1.2 2.6 57.2 FY'14 40.2 14.20% 6.9 17.2% 2.1 4.5 32.7 2 P a g e
INVESTMENT RATIONALE With signs of stability coming from the US markets, the company has reported excellent set of numbers, not only in FY 14 but also Q1FY 15. This trend is expected to continue going forward as well with contribution coming from newer verticals like Building Information Modelling Key beneficiary of uptick in the US Mold-tek Technologies Limited (Mold-tek Technologies) derives key earnings through it s core services from clients based out of the US. The US markets is showing decent traction in key verticals like civil/structural, MES(Manufacturing Execution Systems) and IT services and this augurs well for Mold-tek Technologies. The company has reported a 14.4 per cent y-o-y topline growth at Rs.40.2 crore in FY 14. PAT for the year stood at Rs.2.1 crore, an increase of 73.3 per cent y-o-y translating into an EPS of Rs.4.4. The growth in the US economy is reflected in increasing demand for the company s services in civil/structural and MES domains. During the year, the company has entered the latest segment of civil/architectural engineering services - BIM (Building Information Modelling) which is widely being used in all major residential/commercial/industrial structures. The company has received silver partnership status from salesforce.com, the leading cloud computing company in the world. Impressive performance expected to continue in future as well.. The financial improvement in numbers continued in Q1FY 15 as well. Net Sales for the quarter stood at Rs.11.6 crore compared to Rs.8.6 crore, an increase of 34.7 per cent y-o-y. EBITDA registered a 45.6 per cent growth at Rs.2.8 crore. The company reported an adjusted PAT of Rs.1.4 crore compared to Rs.0.75 crore during Q1FY 14. We expect that with demand set to improve for the company s services in civil/structural and MES domains, along with high growth coming from the Building Information Modelling segment, the growth momentum is expected to continue in future as well. Various expansion plans in place The company s Nasik branch is well established and a 200 per cent expansion is being taken up there to enhance overall capacity by 50 per cent by December 2014. The PEMB(Pre-engineered Metals Building) sector which had been lagging over the last five years is showing signs of improvement, auguring well for the company s revenues. The recent entry into the latest segment of Building Information Modeling and growth the cloud computing segment should contribute in a big way over the coming years. Clean Balance Sheet Mold-tek Technologies has a clean Balance Sheet and has significant asset value in the books recorded at historical book value. Decent dividend payment track record The company has a decent dividend payment track record. On the back of expected improvement in performance coupled with a strong Balance Sheet, the dividend figure (on the back of better earnings) can be even higher going forward. 3 P a g e
Particulars FY'11 FY'12 FY'13 FY'14 EPS 7.01 2.15 2.52 4.44 DPS 1.5 1 1.2 1.8 Payout ratio 21% 47% 48% 41% (Source: Nirmal Bang Research) COMPANY BACKGROUND Started in 1986 by two Entrepreneurs - Mr. Laxman J. Rao, a gold medallist civil engineer and MBA and Mr. A. Subramanyam, a mechanical engineer Mold-tek Technologies has a team of wellexperienced and professionally qualified senior management with proven track record., is the IT and engineering wing of Mold-tek Group, growing at a strong pace over the last several years. At present, the company derives a major portion of revenues from the US and Canadian clients. The various verticals in which the company operates has been given below in a tabular form: Table IT services Mobility Business-Solutions-ERP & CRM IT-Staffing-Services Application-Development Web-Design-Development Testing & QA Data-Management Civil & Structural Engineering Services Mechanical Engineering Services Building Information Modelling Energy, Gas & Power ConventionalSteel Structures Pre-Engineered Metal Buildings Precast and RCC Buildings Residential Buildings Rebar Services Miscellaneous Steel Detailing Product Development Design Support Analysis and Optimization Manufacturing Support Technical Documentation Custom Software Development BIM Services 3D Modeling Construction Documentation Upstream/Offshore Downstream/Onshore Piping Engineering Mechanical Equipment Design 4 P a g e
RISKS & CONCERNS High dependence on a single geography The company derives a major portion of its revenues from the clients based out of the US. A delay in the complete recovery of the US markets does not augur well for the company. Slow ramp up in the Building Information Modelling(BIM) segment The company has recently entered this segment. The demand for this segment is dependent on the infrastructure and new projects coming up. Any delay from this segment can negatively impact the performance going forward. VALUATION AND RECOMMENDATION The company posted net sales of Rs.40.2 crore during FY 14, an increase of 14.4 per cent y-o-y. EBITDA registered a 13.5 per cent increased to Rs.6.9 crore. PAT for the year stood at Rs.2.1 crore compared to Rs.1.2 crore in FY 13. EPS for the year stood at Rs.4.4. During Q1FY 15, the company posted net sales of Rs.11.6 crore, an increase of 34.7 per cent y-o-y. On the back of EBITDA at Rs.2.8 crore (an increase of 45.6 per cent y-o-y), PAT for the quarter stood at Rs.1.4 crore, an increase of 89.3 per cent y-o-y. EPS for the quarter stood at Rs.3.02 compared to Rs.1.6 during Q1FY 14. The company has delivered consistent growth in the past backed by qualified management personnel. The growth levers are in place and traction is being witnessed across key verticals with recovery in the US markets. With new segments like BIM, expected to be the key growth driver going forward, we expect the share price to be Rs.192 over the next 12 months. We shall be coming up with a detailed report post Q2FY 15 earnings. 5 P a g e
Particulars (Rs Cr) Net Sales (Rs. Cr.) Growth (%) EBITDA EBITDA(%) PAT EPS (Rs) P/E (x) FY'11 22.4 41.77% 6.5 29.0% 2.9 6.2 23.7 FY'12 29.8 33.04% 5.9 19.8% 1 2.1 68.6 FY'13 35.2 18.12% 6.1 17.3% 1.2 2.6 57.2 FY'14 40.2 14.20% 6.9 17.2% 2.1 4.5 32.7 Particulars (Rs. Cr.) FY11 FY12 FY13 FY14 Equity 3.6 4.1 4.7 4.7 Reserves 9.2 16.7 17.2 17.3 Debt 11 10.3 8.1 7.7 Total 28.9 32.3 30.5 34.1 Gross block 30.9 32.4 32.9 33.7 Net block 24.5 23.4 21.3 23.4 Inventories 2.06 2.23 1.34 1.21 Sundry Debtors 4.4 7.6 8.1 9.7 Cash & Bank 0.09 0.58 1.07 1.7 Current assets 7.9 12.7 13.1 12.01 Current liabilities 3.4 3.5 2.8 2.7 Net current assets 3.5 8.1 8.6 8.6 6 P a g e
Disclaimer This Document has been prepared by Nirmal Bang Research (A Division of Nirmal Bang Securities Pvt Ltd). The information, analysis, and estimates contained herein are based on Nirmal Bang Research assessment and have been obtained from sources believed to be reliable. This document is meant for the use of the intended recipient only. This document, at best, represents Nirmal Bang Research opinion and is meant for general information only. Nirmal Bang Research, its directors, officers or employees shall not in, anyway be responsible for the contents stated herein. Nirmal Bang Research expressly disclaims any and all liabilities that may arise from information, errors, or omissions in this connection. This document is not to be considered as an offer to sell or a solicitation to buy any securities. Nirmal Bang Research, its affiliates and their employees may from time to time hold positions in securities referred to herein. Nirmal Bang Research or its affiliates may from time to time solicit from or perform investment banking or other services for any company mentioned in this document. 7 P a g e