MOLD TEK PACKAGING---dividend plus growth


(Hitesh Patel) #1

MOLD TECH PACKAGING

CMP AROUND 62, MARKET CAP 49 CRORES

The company is the leader in manufacturing plastic packaging products including pails. It specialises in both standard and made to order packaging solutions for industries like paints, lubricants, cosmetics, pharmaceuticals etc.

In a new development the company is venturing into providing packaging solutions for icecreams by making tubs for packing ice creams and orders for the same have started from players like Baskin robbins and other ice cream brands.

The company has for the first time in India introduced In Mould Labeling (IML) decorating system to expand the product range.

MANUFACTURING FACILITIES

Company has five manufacturing units out of which 3 are located in Andhra Pradesh, one in tamilnadu and one in Daman.

FINANCIALS

Current equity is around 8 crore with 80 lac shares outstanding. Promoters allotted themselves and others 22 lac warrants convertible into equity shares at a price of around Rs 45 back in Aug 2010 which when converted will lead to total no of outstanding shares to 1.02 cr shares.

Debt as on march 11 was 42 crores.

It holds 10% stake in Mold Tech Technologies whose market cap is around 31 crores.

LAST THREE YEARS PERFORMANCE

YEAR

08

09

10

11

SALES

97

113

131

164

PBT

3.8

4.6

11

12

NP

3.3

3.7

7.36

8

EPS on fully diluted equity comes to 7.5 for fy 11.

DIVIDEND

Dividend declared for fy 11 is Rs 5 per share. Rs 2 declared in may 2011 and already paid and Rs 3 declared recently to be approved by AGM and yet to be paid. At this dividend payout, the dividend yield at cmp works out to around 8%. The catch in this dividend yield is that it needs to be seen whether this kind of dividend and dividend payout is maintained in next few years.

The company has paid dividend of Rs 3 for fy 10 and Rs 2 for fy 09. So the dividend amount continues to increase.


(Hitesh Patel) #2

First quarter results for Mold Tek out and quite encouraging.

Sales is up 34% while PAT is up 35%.

quarter q1 fy 12 q1 fy 11 fy 11(12 months)

sales 56 42 164

PBT 6.15 4.12 15

NP 3.5 2.6 8


(Abhishek Basumallick) #3

How is this company different from Manjushree Technopak in terms of products/pricing and business model?

Sorry, if it is a dumb question, but I don’t know anything about Mold tek, hence the question…


(Hitesh Patel) #4

Essentially it is in same business segment. Packaging. But this one caters mainly to bigger container packaging like pails, containers for paints companies etc. It is the sole supplier to Kansai nerolac from its chennai plant. Now it has some kind of arrangement for supplying ice cream tubs to vadilal and maybe other similar companies on the way also.

It does not cater to the soft drinks segment which is the main domain of manjushree. Plus it is not too much into pre forms as manjushree is.

Coming to financials it gives out excellent dividends and has been doing so for past almost three years. And looking at the first quarter results fy 12 should be also better than fy 11 and seemingly dividend might also increase.

Basic theme here is security of dividend yield which limits downsides and opportunities for growth which the management seems to be stressing on. Reminds me of sree sakthi paper ltd with the difference being higher anticipated growth.


(Akhil) #5

Would a debt level significantly increase the risk factor for a company of this size?


(Hitesh Patel) #6

In normal course of events I would be worried. But I usually look at debt to market cap ratio for most of companies I follow. And I would start worrying once it crosses the level of 1. Here it is marginally below 1.

Plus they have invested heavily in Daman plant which is going on stream in Dec 11 and from what management communicates, it would enhance the total capacity by 50% of the current levels.

On positive side in footnotes of q1 fy 12 results, they have mentioned a tie up with Vadilal ice creams for supply of ice cream tubs. Similar development with Baskin Robbins has also mentioned in the past. So this could be another sector worth watching.

On the dividend side they have been increasing the dividends since past 3 yrs from Rs 2 to Rs 5 which should provide downside protection. Plus it has posted very good first quarter results which have largely gone unnoticed by the markets. So some day these factors should start playing out sooner or later.

My gut feeling is that we might be very early into this scrip’s journey. Fingers crossed.


(Vivek Gautam) #7

The promoters are IIM educated first generation entrepreneur with Fire in Belly.But thay havent scaled up much since mid 90s when they had come with IPO.Why?

They had diworsefied into BPO as well.Where does that business venture stands?


(Hitesh Patel) #8

The KPO business you mention has been demerged into mold tek technologies and has been listed as a seperate entity. Its price is around 60-65. I dont track it too much actively. But the good thing it has done is that the markets will value this packaging company with more clarity.

Regarding them not going anywhere, I think they might be on the cusp of going somewhere after all these years. Last three years track record seems to be quite good.

Only negative I can think about is the debt of around 42 crores. But most of it is for expansion of capacities to the tune of another 50% of the existing capacity.

If you look at the results of first quarter closely, there has also been some margin improvement at the EBIT level which seems quite encouraging.


(VijayaRaghavan K) #9

Recent Interview from MD - http://www.indiainfoline.com//Research/LeaderSpeak/Mr.-Lakshmana-Rao-MD-Moldtek-Packaging-Ltd./28222733


(Akhil) #10

Molded plastics seem to be low margin high capital business.

From what I could gather there are 2 types of companies here. Low precision stuff like chairs and other day to day use plastics - very low entry barrier.

Others are high precision which need expensive machinery and high cost man power like dye setters. The margins are low here. There are too many unlisted SMEs operating in this area.

I don’t see the moat here.

This sector reminds me of textile sector. And the reasons Buffet gave to get out of it…due to constant capital need.

Unless I am missing something?


(Amey Desai) #11

Hitesh bhai,

I am invested into this one since Sep 10 and I am happy with the dividend yield … lets see how long can it continue with this track record. my 2 cents on this one …

Today, the rigid packaging industry in India is driven by pails and plastic containers and the evident shift from other packaging forms to plastics is proof of the various advantages that it offers

)- More hygienic, rust-free, non reactive when compared to other packaging solutions

)- Developed through a hands-free process in a clean room environment especially for food products

)- Completely leak proof as they are made as a single unit

)- Drop resistance due to exceptional structural strength

)- Tamper evidence due to our patented locking system

)- Very attractive aesthetics with exquisite decoration to project your product

)- Easy to store and stack due to compact size and mould design

)- End user benefits due to many secondary uses of pails and plastic containers

I think - they need to innovate with their products (lubricant containers, food containers, bulk containers, paint containers etc.)- venture more into decoration technologies - something that can fetch them seasonal extra income, explore new markets - where molded plastics are not a taboo yet, acquire additionalwallet share with clients like kwality walls, vadilal, heritage, castrol, mapro, amul etc.overall - they are into areas where small small innovations will cost less to come but fetch quick profits


(Amey Desai) #12

hitesh bhai,

this one had recently fallen to its 52W low of 41.7

have the promoters really started ignoring Mold tek packaging & concentrating into Mold Tek Technologies?


(Santosh Sinha) #13

Is any body still tracking it, It seems the tide is turning with IML and it is gaining market share in high margin FMCG business, Q1 results are really great , PAT up 110 %.

High debt is the only concern.

This kind of commodity play, what should be the fair PE ?

Despite recent run up it is still @ 8 PE

What are the risks in this business ?


(JKS) #14

I have seen a few of the usual sites going gaga over this. Would like the experienced VPians to chime in on this.


(Syntharz) #15

Dolly Khanna holds around 1% in Mold-Tek


(Vikas) #16

Mold-tek is breaking from its mold of supplying to Paints, Lubricants and gaining significant market share in FMCG and Pharma space. Further, its In-mould labelling packaging technique will receive significant traction as the Indian consumer evolves. Added to this, they claim they got low-cost advantage which will help them to target the export market as well. Off-late, few bulk deals have started to happen which I believe is sign of informed investors entering. This one looks good for the long-term I believe.


(Kunal) #17

It is one of the best Proxy play for FMCG as long term story. Decent clients spread with high growth in top, bottom lines. Debt level is not alarming.

It is trading on discounts compared to peers because of current market size. Close competitor (by means of Market Cap ) Manjushree Technopack is trading at 68% premium even though Manjushree has higher debt level.

However Manjushree has better growth and return ratio till date.

Kunal
Disc : significant investment


(Aksh) #18

It’s quite comparable to Manjushree Technopack in many aspects. In last two years, It has shown superior growth with better return ratios, lower debt and lower valuations. It has shown very good top line and bottom line growth not only on YOY basis but even on QOQ basis and is expected to do well even in future with recent capacity expansion, effects of which will be visible in coming quarters.

Manjushree Technopack was a steal when It was trading around 8x PE mulitples, Similarly Mold-Tek is very attractive at these valuations in this bull frenzy when a decent bargain with good growth prospects is very difficult. Management is also quite bullish.

Aksh

Disc: Invested and adding on dips.


(Kunal) #19

Packaging industry is growing at fast pace. Out of following growing packaging companies,

Paper Products (Huhtamaki)
Manjushree Tech
Hindustan Tin Works
Control Print

Mold-tek Packaging growth delivered highest growth in bottom line 118% yoy.

Ideal Proxy play in indianconsumptiontheme, big opportunity size, growing at above 30%. Above 1% dividend yield for 30% grower is attractive.

Negative : Environment related regulation may affect, past performance is not stable.

Kunal
Disc : invested


(Kunal) #20

Indian packaging industry to touch $32 bn by 2025

Some Extracts from above link

  • In the world scenario, the total turnover of packaging industry is about $ 550 billion where Indian share is about $ 24.6 billion per annum.
  • The annual growth rate of this sector is about 15 per cent per annum and it is expected that annual turnover of Indian packaging industry will touch $ 32 billion by 2025
  • As per the Mckinsey report, there will be ten times increase of middle class population by 2025 in India which will further trigger the consumption of packaging material and thus, the packaging industry will grow further, he said, adding that the country needs more packaging professionals.