MOLD TEK PACKAGING---dividend plus growth


(NMB) #61

Hehe. Happy to connect. Im based in Mumbai.

Yeah smart move indeed. Back to 200. You are correct, Q1 could be lukewarm. But all investors who are still in know that already. I doubt if there will be selling.

And yes, makes sense to pick up if there is a correction.


(vivekchoraria) #62

neil i think q1 volume growth will be 2-3 percent but avg rm price in q1 last year was 108 and this year around 102… im expecting a 6-7 percent fall in absolute terms this quarter…so about 70 crores revenue with say 4.8-5 crores pat…do you think the market will shrug it off…is it all in the price already? i an mot sure how many of the other retail investors know about this…they must expect a good set of nos so we might see a lot of supply post the results.

also how should we go about valuing this company? is it scalable…do you exoect the return ratios to improve and can the co generate enough free cash flows to fund its expansion plans and not keep diluting equity? lets try and assess it qualitatively…can a packaging co be a wealth creator? or being in a commoditised business it will not enjoy premium valuations.?

would love to know your and other boarder’s thoughts on all this.

cheers


(Chintan) #63

Asian Paints says Company is in talks with Karnataka Govt to set up manufacturing facility in Mysore - CNBC

I guess, once this is finalised, company will look into expanding its Vizag facility which was planned to cater Asian Paints.


(ASPN) #64

These are some valid questions raised by @vivekchoraria. Commodatised businesses never trade at premium valuations. The end user will desire to buy an Asian paint or NeroIac paint but is he bothered to know who has supplied the plastic pail / the attractiveness of the pail or the quality of the pail? I am positive about the future of this company. When Hiteshbhai discovered it, it was really undervalued and underowned. But now the stock is already trading in a PE band of 15-18, which I believe a fair PE for a commodatised business.

On positive side, the company is making good movements in diversifying to FMCG, Lubricants and margins are expected to improve due to IML & Robotics. Good dividend yield will mean limited downside.

@nvsrinivas, are you still tracking it? Do you plan to attend this years AGM as well?


#65

Premium valuations are given to companies with competitive advantage, they may not be consumer companies. If we see housing finance companies, which are like pure commodity business as the consumer prefers the company which gives loan at cheaper cost. But if you see Gruh or Repco they are highly valued because of their niche business model and return ratios.( not competitive advantage). If Mold tech improves its return ratios then it will defiantly valued at fancy valuation. This depends on they use their IML and robotic technology.

These days I could see so many restaurants using IML packaging for delivering food for online orders through foodpanda etc. I don’t know whether they are buying from MTPL or not.


(Chintan) #66

Kansai Nerolac Paints Ltd has informed BSE that the Board of Directors of the Company at its meeting held on July 30, 2015, has approved setting up of a paint manufacturing unit at Goindwal Sahib near Amritsar in Punjab having capacity of 38000 MT per year, which is expandable in phases, at an estimated cost of Rs. 180.50 Crores.

I guess both Aisan Paints and Kansai board approved their capex plan which Mold Tek Pack management were talking about in their Q4 concall…need to see how management decides on their capex for the respective companies


(NMB) #67

The future of Moldtek is very bright as Paint, FMCG, Lubes etc all are going for major expansion! Bodes well for little Moldtek!


(NMB) #68

Moldtek reported pretty good numbers.

Revenues were flat yoy. (But Volumes were up 7% which is great as they are operating at 100% almost). (Also note that their revenues are derived on ‘value of goods sold’ and a fall in raw material prices result in fall in revenues. Hence look at volumes for Moldtek). (Great thing is that Moldtek has been able to report flat sales despite fall in raw material prices).
EBIT up 16.5% yoy.
Net profit up 52% yoy. (Largely because of fall in interest costs).

Additional notes:–
*Company has started adding clients Adani Wilmar, ConAgra, Ghodawat and Allana group in Edible Oil industry. Proper order uptick is expected from August-Sept 2015 from these clients. Market size is 1000cr.
*Capex is underway in their existing plants.
*Ras Al Khaimah project is awaiting final clearances and should start operations from March 2016.
*IML sales as part of total revenues continue to increase. Now at 40% vs 28% YoY. It will continue to rise.
*Company has recently signed Bharat Shell on a 5 year contract with 11 of their major brands shifting to IML decoration.

Pretty solid. Lets hope they execute well. This can be a good gainer for us!

Disc- Invested since a long time. Vested interests.

Neil


(bibhu ashish panda) #69

Neil, Could you please explain this?
“Great thing is that Moldtek has been able to report flat sales despite fall in raw material prices).” Yes the future looks promising. Depends on the execution capability of the management.


(Krishna Rai) #70

I will let Neil reply in detail because he definitely knows better than me but I would like to contribute based on my little knowledge. The raw material for plastic industry is Crude which has been quoting at historically low prices in the recent times. The lower the Crude would go the lower would be the cost of raw material for Mold Tek. Keeping that in mind looking at the volume growth as the topline growth is right.


(Gurjot) #71

@bibhuashish

I believe @kkrai has already answered your question on what Neil meant. What I remember from the Q4 FY15 earnings call is that management said Mold Tek operates on a cost plus model (believe it has been referenced in the earlier posts of the thread as well). Anyway just taking a very basic example below to explain.

Example :- Taking a very simplistic example to explain the concept.
Cost of Production - Rs 100
Fixed Margin - 20% - Rs. 20
Volume - 1000 units
Revenue - Rs. 1,20,000

Assuming there is a decrease of Rs.10 in cost of production with decrease in crude oil prices. New numbers would be:-
Cost of Production - Rs 90
Fixed Margin - 20% - Rs. 18
Volume - 1000 units
Revenue - Rs. 1,08,000

So revenue of company has decreased but profit margins have remained the same. That is why Neil has mentioned volumes are up by 7% which would ensure revenues remain approximately flat otherwise, Mold Tek would have reported 7-10% decrease in revenues.

Hope this makes it clear.


(bibhu ashish panda) #72

Thanks a lot. This makes a lot of sense. With such a good result and the bullish business outlook the story looks so promising. Hope it corrects a little bit for me to buy some good quantity.


(Chintan) #73

Mold Tek Packaging – Revenue growth muted as RM costs is pass through but margins likely to improve, Strong growth expected in Fy17

Mold-Tec Packging – Company is into molded rigid plastic packing industry which supplies to major lubricants, paints and edible oil manufacturers. Company offers both Screen Print Container (60%) and In-Mould Labelling (IML) Containers (40%) using Injection moulding technology. Injection moulding machines are supplied by Toshiba and Cincinatti and costs around Rs 50 lakhs. Company has in-house mould making and Robotics (for IML) which reduces costs by Rs 50lakhs. 

Industry outlook – Currently, Demand from Paint industry is almost Rs 1000-1100crs of which 50% demand is from Asian Paints in organized sector while Lube Oil demand is in the range of Rs 400-500cr. Apart from organized market, Unorganised market demand is in the range of Rs 350-400crs. Recently, Edible Oil mfgs is also started using rigid packaging in which company is into. Based on initial estimates, the size would be around Rs 1000cr of which company intends to capture 10% share in coming 15-18 months.

In Mould Labeling (IML) Decorated containers – Company offers IML containers and is only company in India with its own in-house process. Company has filed the process patent to Indian Patent Office which has been accepted there, certificate to come in next 2yrs. Currently, most of its existing clients are shifting to IML containers. Asian Paints which is their biggest client is apprehensive as it will make them dependent on the company for the container supply and is not keen to fully shift to IML as of now. Currently, IML sales contributes 40% of sales in Q1 vs 28% last year qtr. Company targets IML sales to increase further to 60% this fiscal and to over 75% next fiscal. IML carries higher margin of 18% vs Screen Printing margin of 13% as it is more decorative and less rejection.

RM benefit is pass through: Supply agreement with the clients is such that any RM cost is a pass through in nature. This is the reason in Q1 Sales degrew -1% yoy while Company reported 7% volume growth while realization declined by 8% as RM Index for the company came down to 100 vs 107.81 in Q1 last year. Company is seeing this trend further coming down to 94-95 in Q2 which will be passed on. However, the cost is pass through, low RM cost helps company to compete with other packaging materials like aluminium, tin and glass packaging. 

Adding 40% capacity this year: Current capacity stands at 22500 tpa which will increase to 32000 tpa by adding 8000tpa of edible moulding plants at Satara and Daman and 3000tpa plant they are setting up in RAK, Dubai. Total capex planned this year will be around Rs 40cr. For FY17, company will look into expansion for Asian Paints and Akzo Nobel plants depending on their plant commissioning timeline. Management also looking to add more capacities at RAK depending on demand and conversion to IML. Overall, they are looking at 40-50% capacity addition every year for next 2-3 years. Sustainable utilization levels will be 75%

QIP Issue – Company recently raised Rs 55cr at price of Rs 220/sh by issuing 25 lakh shares. DSP Blackrock MF, SBI MF, Principal MF, Amundi Funds and Canara Robeco MF are among the investors subscribed to the QIP issue. No plans for raising any equity for next 12-18 months.

Guidance – Company’s growth is primarily driven by Lubricants, Paints and Edible Oil companies, of which, Lubes and Paints industry are currently facing some headwinds while company’s recent entry into edible oil segment is showing significant traction. Company is expanding its edible oil molding capacity by 8000tpa which will get operational in phased manner over FY16. Full benefit to accrue in FY17. Company expect volume growth for FY16e at 10-12% and Realization are linked with input prices so assuming the current RM prices, they expect revenue growth will be muted at 4-5% but margin will improve as penetration as well as utilization levels improve.

(NMB) #74

@gurjota @kkrai - Yes, you both are correct. Hence, volumes are a better way to look at Mold Tek performance.

I am very excited by the signing of Bharat Shell. This is a big deal for little Mold-Tek.

Good times ahead, now we need the management to execute well on the capex. The first plant in UAE should come on-stream by Feb-March 2016 which will make me very happy.

Future is very bright indeed, lets hope for the best.

Cheers
Neil


(Njalan) #76

The story really looks good but just wanted to check couple of things:

  1. Has anyone been able to check with the edible oil companies about acceptance of his product offering. Are his products really so better than peers?

  2. Secondly, what I can see is even in FY11, company talked big in terms of increase of FMCG mix for itself but that never really panned out. What is the reason for this and what is different this time?


(sta) #77

i think Q2 should be flat. its from Q3 that good things should start happening. specially since in last year Q3 crude was at its lowest. what was comforting from the results was that though the sales remained flat there was an increase in profit. mold tek is running at its max capacity possible,ie 70%. from Q3 we will be able to judge if the edible oil part is doing well or not.


(Nikhil Moryani) #78

Hi All,

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.

Views invited.

P.S.

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.


(ankush raghuvanshi) #79

Regarding ROE-company prices its products on cost plus basis. Hence during times of lower raw material prices, operating margins would look to be slightly higher and vice versa during times of higher raw material prices. This would compensate for lower asset turns in low raw material price situation and vice versa. Hence RoE would remain constant, provided volume of products is same, implying constant absolute profits. In fact during times of lower raw material prices, the pass on is not fully in proportion, and some marginal profit is retained by company.
Hence my take on ROE is it would not get impacted by change in raw material prices. Increase in volume would be primarily the main factor.
Regarding competition, company ahead of its peers by 2-3 years in terms of adapting to the changes in product mix/trends and delivering superior quality in lower costs on basis of its lower capex. Even after 2-3 years the low cost with quality product advantage would still exist, as capex is substantially lower compared to other players. (due its ability to build robots reducing cost by 33%).


(GreyFool) #80

On a cursory google search I found the following co’s that claim to be providing some sort of IML solutions(mostly in food & Pharma)

  1. Jyoti Plastics
  2. Hemkunt cones
  3. Cosmo Films
  4. Mudrika Labels
    So there will be some competition in trying to penetrate other categories. We need to figure how big these private co’s are & how well developed are their client relationships. I guess Mold Tek is pretty much established in Paints & Lubes.

Disclosure: Invested at lower levels. Less than 5% of portfolio.


(ankitgor44) #81

Will be meeting management, let me know if you guys have any questions