Mold-Tek seems to be looking at huge growth ahead with shift from screen printing to in-mould labeling. It can keep on churning 20-25% volume growth as IML has widened the scope of industries the co. can cater. But I wish to understand what kind of RoE can the co. make for its owners.
I want to focus on competition,my understanding by far has been that after competition catches up with IML technology and achieves similar production efficiency like Mold-tek today,Mold-tek has no advantage over its competition except for in-house capability to build robots and moulds which only translates to lower capital expenditure on machinery or in other words higher asset turns or higher RoE for similar quantity manufactured by a competitor.
Mold-Tek has first mover advantage for IML but after a period of time its going to get commoditised and as it happens in a commoditised industry,2-3 players with best efficiency,quality,consistency and on-time delivery will fight it out in offering lowest cost to customers. This will ensure RoEs to hover somewhere above CoC. Mold-Tek can pass on its efficiency derived out of higher asset turns,offer products cheaper relative to competitors,have a high market share (B2B nature of business will ensure there are 2-3 prominent players,no single will corner market share) and still maintain RoE similar or slightly higher to competitors.
Another concern is rm prices,it has the ability to shrink revenue statement and affect RoE by suppressing asset turns. Mold Tek also churns lower absolute profits for re-investment which I’m sure it has lot to do in future. Margins remaining intact is a saving grace. On the other hand in some years rm prices could bloat the revenue statement and earn higher absolute profits (So,this investment will also require one to take call on direction of crude). Does someone has a clue whether there is a complete pass on if rm prices fall below a certain threshold,meaning will the pass on affect asset turns in such a manner that RoE will fall below CoC?
At best,Mold-tek can be looked at as a co. that earns average RoC and can re-deploy capital to earn average RoC.
My complete understanding is based on the premise of IML tech turning into a commodity in future,1-2 years. Please share contradicting insights on completion,if any.
Edibile Oil containers is a 1000cr mkt. and the co. is banking big time on it migrating from blow-moulded to injection-moulded with IML. The co. designed square containers especially for edible oil industry are seeking patent protection for the same. This exclusivity could help it earn higher returns but its also preposterous to think entire opportunity will be eaten away by one co.
Facility in UAE will seemingly earn higher return but that’s only 10% of the installed capacity when it will be operational.