Hello everyone…
Many business have been badly hit by the lockdown in the country especially in the sectors like airlines, real estate, tourism, auto etc. It is difficult to find good companies in this situation in small cap space but select companies present great buying opportunities in these challenging times as they are trading at attractive valuations.
Companies with relatively inelastic demand, market leaders in niche segments, competent and ethical managements and strong balance sheets are the ones which will witness strongest rebound in next 3 to 5 years. One such company in small cap space is Mold Tek Packaging Ltd.
Mold Tek Packaging Ltd (MTPL)
Established in 1986, Mold-Tek Packaging Limited (MTPL) is the leader in rigid plastic packaging in India. Mold-Tek Packaging Limited is involved in the manufacturing of injection molded containers for lubes, paints, food and other products.
Mold-Tek is the first company in India to introduce “In-Mold Labeling (IML)” concept for decorating plastic containers using ROBOTS. IML enables photographic quality decoration with complete hygienic and hands free production of containers suitable for food and FMCG products. IT IS THE ONLY COMPANY IN INDIA TO HAVE COMPLETELY INTEGRATED FACILITIES RANGING FROM LABEL MAKING, MOLD ADAPTATIONS TO MAKING IN-HOUSE ROBOTS. In recognition of this technical excellence, Mold-Tek received “Tech savvy” and “Best SME” awards from ICICI- CNBC TV 18 and Crisil for the year 2013.
MTPL has seven processing plants and three stock points spread across India to ensure faster supplies. It has a huge injection molding capacity of around 20000 TPA. As a pioneer and innovator of pail packaging in India, Mold-Tek has introduced spouts and In-Mold spout concepts for the paint and lube pails. With in-house manufacturing capability in place, the company is not dependant on imports.
Key Growth Drivers
Food and FMCG are the key growth drivers for this company. There is huge scope for the country to grow in these sectors. The company already enjoys clientele from this sector and has big names like Amul, Vadilal, HUL, Cadbury etc. in it’s client portfolio. The move from paints and lubricants sector to Food and FMCG industry with clients like Adani Wilmar, Cadbury HUL etc will result in a huge expansion in the end user base for the products of MTPL.
Innovations
One of the innovation of this company in packaging industry is Square Packs. Square plastic containers are equipped with handles and have square or rectangle-shaped lids. These containers are more preferable because they optimize space better than round pails. Made of heavy-duty durable plastic, these pails are useful for dry or liquid storage. MTPL produces world class molds for pails as well as multi-cavity hot runner molds for thin wall containers with IML capability. The company has patents for a locking system to avoid counterfeiting.
| Market Data | |
| Price on 29th May 2020 | 175 |
| NSE Symbol | MOLDTKPAC |
| BSE Code | 533080 |
| 52 week Low/High | 136/321 |
| No of shares (Mn) | 28 |
| Face Value (Rs) | 5 |
| FY19 Dividend / Share (Rs) | 4 |
| Dividend % | 1.5% |
| Market Cap (Rs Cr) | 485.21 |
| P/E | 12.94 |
| Industry P/E | 20.82 |
| Book Value (Rs) | 69.13 |
| EPS (TTM) | 13.53 |
| Price / Book | 2.53 |
Valuations
Once the temporary phase of slowdown due to Covid-19 is over MTPL is likely to do well in long term as the growth drivers of food and FMCG sector start picking up.
In conventional paints segment, the new capacity additions in Vizag and Mysore are likely to contribute to growth. The business model of the company is quite scalable and with increased capacity it is geared up to be future ready.
The company is expected to grow at a CAGR of around 12%. The target price of the stock for FY23 is estimated at 300.
Financials (Consolidated)
| Key P&L items (Rs. Crores) | FY16 | FY17 | FY18 | FY19 |
| Sales | 276 | 301 | 347 | 406 |
| Sales Growth % | -3.3% | 9.3% | 15.1% | 17.0% |
| PBDIT (Profit before Dep/Intt/Tax) | 46.5 | 51.2 | 62.5 | 71.4 |
| PBDIT % (Operating Profit Margin) | 16.9% | 17.0% | 18.0% | 17.6% |
| Net Profit | 24.1 | 24.2 | 27.8 | 31.9 |
| Net Profit Margin % | 8.7% | 8.0% | 8.0% | 7.9% |
| EPS (Diluted) | 8.7 | 8.7 | 10.1 | 11.5 |
| Balance Sheet (Rs. Crores) | ||||
| Current Assets | 98.6 | 109.4 | 148.0 | 131.4 |
| Fixed Assets | 89.5 | 118.2 | 147.7 | 204.1 |
| Investments | 3.2 | 11.2 | 10.3 | 9.7 |
| Other Assets | 12.6 | 7.3 | 7.9 | 10.1 |
| Total Assets | 203.8 | 246.1 | 313.8 | 355.3 |
| Share Capital | 13.9 | 13.9 | 13.9 | 13.9 |
| Reserves & Surplus | 114.9 | 138.8 | 160.0 | 177.8 |
| Current Liabilities | 61.0 | 72.3 | 118.8 | 129.4 |
| Long Term Borrowings | 6.6 | 11.8 | 8.8 | 19.0 |
| Other Liabilities | 7.4 | 9.4 | 12.4 | 15.3 |
| Total Liabilities | 203.8 | 246.1 | 313.8 | 355.3 |
| Key Ratios | FY16 | FY17 | FY18 | FY19 |
| Revenue from Operations / Share | 100 | 109 | 125 | 147 |
| EBDIT/Share | 16.8 | 18.5 | 22.6 | 25.8 |
| Return on Capital Employed | 16.9% | 23.5% | 25.3% | 24.5% |
| Return on Assets | 11.8% | 9.8% | 8.8% | 9.0% |
| Total Debt / Equity (X) | 0.20 | 0.33 | 0.55 | 0.54 |
| Interest Coverage Ratio | 38.8% | 16.8% | 10.7% | 7.3% |
| Shareholding – March 20 | % |
| Category | |
| Promoters | 34.7 |
| Pledged | 5.2 |
| Other Institutional Investors | 10.7 |
| Mutual Funds | 12.4 |
| Others | 37.0 |
| Total | 100.0 |
It is a great opportunity to invest in this small cap which is resilient to Coronavirus crisis and a temporary lockdown in the economy. I believe investors should take a staggered approach to invest in such strong stocks with a view to invest for a long term.
Happy Investing!
Warm regards,
Mayank Talwar
Note: Investors are advised to do their own analysis and consult their financial consultants before making any investments in this stock.
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