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Mold-Tek Packaging (NSE:MOLDTKPAC) engages in the manufacturing of injection molded containers for lubes, paints, food, and other products. It is the market leader in the Indian plastic packaging industry and specializes in the manufacture of high-quality plastic packaging products.
Mold-Tek Packaging is based in Hyderabad and operates through seven processing plants, three stock points, and around 70 injection molding machines in India. The company has a wide sales network across the country. It has a huge injection molding capacity of around 20000 TPA and a strong manufacturing presence with a processing capacity of about 18000 MT per annum.
The company generates more than 20% and 40% of sales from high-margin segments such as IML food and IML non-food segments.
Mold-Tek Strong Competitive Advantages
i) Market leader in the Indian plastic packaging industry - With more than three decades of experience, Mold-Tek Packaging has established its reputation as the leader in rigid plastic packaging in India. Customers trust Mold-Tek products for quality, on-time delivery, uniform wall thickness, and unmatched structural strength. The company is the pioneer and innovator of pail packaging and In-Mold label decoration in India. Mold-Tek has introduced spouts and In-Mold spout concepts for the paint and lube pails. The company continued capacity expansion and new product launches despite the COVID-19 pandemic last year. It added capacity in Satara, Mysore, Vizag, and Hyderabad plants in the last ten months and also doubled its IML label production capacity. Other new launches include that of commercial supply of pumps to prominent companies like Wipro and Godrej, variable QR-printing, etc. This will further widen the customer base and product range.
ii) Benefits of Backward integration - From in-house IML labeling to making its own IML robots, Mold-Tek has unbeatable backward integration. The company has integrated facilities right from product inception to Mold designing, processing, and decorating the products. It designs and manufactures molds in-house for the rapid development of new products. Mold-Tek has an in-house tool room, molds, robotic operations, and labels. The company has its own manufacturing capability and is not dependant on imports. Mold-Tek’s equipment enables making world-class molds at a fraction of costs which provides it an edge over the competition.
iii) Diverse Customer Base - Mold-Tek’s customers include blue-chip and multi-national companies like ITC, P&G, Amul, Himalaya, Pepsi, MTR, Unilever, etc. Over the years, MTPL has grown by continuously adding new clients – both in the same industry and across new industries. The company caters to various industries such as Food, FMCG & Pharmaceutical, Paint, Cosmetics, Lubricant & Grease, etc. Mold-Tek has a high retention rate, especially in the paint and lubricant industry. Mold-Tek is also expanding its footprint into new segments like restaurants, dates, growth enhancers, seeds, etc. The company also offers flexible order volumes ranging from very low to huge quantities. Diverse industries and reputable customer base grant cash flow visibility. Given the consumer’s growing demand for products, the demand for packaging products will always be there. A rising level of population, growing income, improving lifestyles will act as strong tailwinds for Mold-Tek Packaging.
Source: Company’s Annual Report FY 2020
iv) Large Product Portfolio - Mold-Tek has the technology and experience in manufacturing food packaging for automatic filling. The company offers a wide range of food containers that caters to both bulk and end consumers. Mold-Tek’s capability to execute the in-mold labeling process allows a spectacular visual brand presentation. The company has a large product portfolio comprising sanitizer containers, dispensing pumps, food containers, paint packaging, lubricant packs, and bulk packaging. The company’s intelligent packaging solutions have helped companies to evolve. Its square packs have enabled the transition by major edible oil players like N.K Protein, Goyal, Damani, Gulab, Halder Group, etc. from tin to plastic.
Valuation
Mold-Tek shares have returned a whooping 130%+ return in the last year and ~30% in the last decade. It currently sports a market capitalization value of Rs. 1500 crores and is currently trading very close to its 52-week high price of Rs. 537. The company’s profit after tax has grown at 15% CAGR in the last five years, while sales have also grown at 12% CAGR during the same time. Mold-Tek’s borrowings have returned 2018 levels from Rs. 118 crores in the last year to Rs. 99 crores at the end of FY 2021.
Mold-Tek over the years
Mold-Tek registered a sales growth of more than 100% and profit growth of 700% YoY, in the latest June quarter. The company’s EPS has also continued to grow in the last three years. Mold-Tek has decent ROE and ROCE of above 20%. Its operating margins have also been maintained at 17%-20% in the last five years. It has a healthy capital structure and coverage ratios.
Mold-Tek distributed a total dividend of Rs.7 per share for FY 2020-21, which was the highest in the company’s history. It has maintained a healthy payout ratio. Mold-Tek also had a rights issue in October 2020. The company went public within seven years of its existence in 1993. It diversified and started the KPO division in 2001. The packaging division was demerged and listed as a separate entity.
COVID-19 Pandemic
Though Mold-Tek Packaging witnessed a slowdown in its revenue and margin in 1Q’21, both recovered in subsequent quarters. In fact, it added significant clients like BPCL, Gulf Oil, and Kem Agro in the last quarter. The company’s sales for discretionary products like paints were significantly be impacted in the short term as a result of the pandemic. Sales of ice creams were also hit the last summer. However, the company is witnessing better realizations due to increasing pump sales and the growing contribution of IML products.
Future Opportunities
Mold-Tek Packaging is well-positioned to address the growing needs of the packaging industry and cater to the huge demand. Different products need different packaging features and the company has the required technology, scale, and experience to address these needs through its various packaging solutions. The company is favorably placed to provide innovative products to its customers through quality, delivery, and services. Mold-Tek plans to launch 10-12 new products by FY22 end and expects to continue this trend in the future as well.
IML decorated thin wall containers will lead the rigid packaging in the coming years especially in Food and FMCG given new and hygienic decorated containers will build a brand image for the products. Changing lifestyle and consumer preference bode well for branded and well-packaged products including ready-to-eat food products.
Challenges
Bottom Line
Mold-Tek packaging continues to make good progress on its products, technology, and engineering capabilities catering to the evolving needs of the packaging industry. The company is well-positioned to gain from the growing preference of consumers towards hygienically packaged products, especially in a post-Covid world. It plans to increase capacity by 13% in the next two years. The Indian packaging industry is estimated to reach $205 billion by 2025 growing at a rate of ~27% CAGR. Capacity expansions at its various sites, ramp-up of pump capacity, new segment additions, focus on high margin F&F segment, upcoming festive season, and new launches should support future growth.
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