Mold – Tek technologies – Mann Ashar – March 9, 2024
- Started by J. Lakshman Rao of Mold – Tek Group
- Mold – Tek packaging known for Asian paint’s Bucket is a demerged entity from Mol – Tek Tech
Let’s Understand What Mold Tek Does
Mold Tek Tech is a pure play proxy to US infra space with asset light business
Let’s Dig deep into it
So, Let’s get 1 thing clear that for US unlike our Indian way of building Sky scrapper or any piece of residential or commercial Infra through bricks and cement is not known they prefer more of Steel fabricated buildings due to low weight to build ratio – Basically how much weight to add on for every floor addition in tower – Marginal Increase in weight and cost is lower for high stories
Let’s Understand the value chain for the preparation of the above structure
- Steel Fabricator – the person who provides the steel for the Structure giving the precise cutting of length and breadth of which steel part to cut and which is to be built
- Steel Erector – the steel parts received are Assembled into a building stated above
- Mold Tek Type Consulting Companies – So how will a fabricator know how much roads and much steel to provide for in what shape and dimensions to be cut into? And for Erector how will he know which pieces fit together since usne thodi na specification diya he?
- Here comes Mold tek Type companies who has 2 things to do
- Provide information to Fabricator on steel req. through detailed drawing and exact minute detail of which part will be required
- Provide detailed Drawing of where each part will fit into the building
While other 2 are asset heavy AF Mold tek is completely asset light model
The fact of matter is that they started this business around 2010 and as per concall they require 8-10 years if gestation period to establish themselves as a good comp.
Considering that as per them that period for mold tek has been achieved around 2 years back
While the steel Detailing doesn’t have any specific industry size as per Mold tek the cost of the same is around 3 – 5% of total Construction cost of building
Considering the above a person will not fuck up his $ 1m Construction sight just because the person offered detailing of $ 30k against $ 40k of the whole project
75% to 80% of the detailing work is still done within USA at a higher prices because when a fabricator is using the detailing services, he would be definitely interested to save cost, but he will not forego quality and reliability at the cost of that savings. So, still majority of the work is done in US
Typically, project flow starts towards the end of the first quarter of US, that is Jan-March ending. All the new projects are generally initiated at this stage and they start picking up pace from April onwards and by second quarter, that is July to, till Jan or even up to March, there will be progressive delivery and progressive invoicing in our company. So, that’s why the Q1 tend to be the starting of the busy season, but Q2 to Q4 in our Indian FY, the invoicing improves and the numbers also sell
Management is looking for acquisition in Civil side but waiting for right opportunity for the same
Company Has been able to successfully execute Amazon warehouse or 64 storied building in Chicago and World Trade Centre when it was rebuilt, we did a part of the detailing and connection design work. So, that way we have established ourselves.
The company mainly is in the starting phase of the Steel structure’s construction
Generally in this business since it’s a back end Job (Simulations) there is no site visits but their office in Atlanta has direct connections with contractors and Project managers to cater to their needs
For each job in Fixed charge segment they Charge 3,000 – 3,500 $ per head per person utilisation of the same can be checked by their clients
The EBITDA margins are more than 50% in such segment à the share of such business right now is 10 % they intend to increase the same to 15 – 20%
Operating leverage in the business – company hires trainee engineers and the same are then put into training for the Job since a minute mistake can cost the client 1000s of $ hence for 6 – 9 Months you expect 0% output or utilisation, and for 1 year you can expect 20 – 30% Utilisation
You need a back dated hiring in the business – Meaning if you want to execute a project 1 year down the line you need to hire staff today for 100% utilisation
Look below for example
Connection Designing
These various steel members are interconnected using Rivets, Bolts, and Welding. This is known as a connection. Connections can be of various types, based on different criteria. Based on the method of fastening, the connections are of three types-Rivets, Bolts, and Welding.
So Connection design is basically into architectural side of business with bit of steel detailing, Through a proper acquisition of a firm in architectural cum structural designing company they will be directly be dealing with general contractors and take end to end responsibility of the project design, project architectures and even detailing, 3D and 2D detailing. Currently, they are only in 2D and 3D and little bit of connection design, but our connection design is now well established.
They have professional engineer in all that has the stamping design for almost each state in US
Reason for acquisition is – if they were to go on their own it’ll take another 8 – 10 Years like steel detailing to establish themselves as a player in this market à With acquisition they are looking for the promoters who will likely stay with them for another 5 – 6 years helping them to grow
So Steel Designing or Detailing Is very low value adding service or basically a commodity à but Connection designing is high value business basically a high end detailing
Connection design means how do you connect the members. The member design itself is high-end and that member design cannot be outsourced unless there is a PE stamping the drawings calculations
Stamping means the production engineer certified by the Board of American Structural Society or whatever it is. They are only, like, say, your Chartered Accountants here in India or our so-called structure licensed engineers who need to stamp the drawings for a municipality or a city corporation
Civil Engineers have to give exam every year in order to have the authority to sign the stamp
In detailing their main focus is fabricator right now, but with Connection design they intend to deal with architects and structural engineers who deals on behalf of general contractors.
The revenue per hour is double of that of normal detailing à from 25 – 30$ per hour to almost 60$ - 100$ per hour à Such business is around 3% - 4% right now only
- In US firms charge 120 – 150$ per hour in such scenario for the same credential it’s better to pay Indian firm $ 60 - $ 100 per hour
- Potential à maybe 10 times or 100 times in the next few years, but it all takes a proper way to approach the market, gain the conference of the architects and sectoral engineering, I mean, general contractors through a proper execution of variety of projects or through an acquisition.
overall cost of architectural and designing will be typically 4% to 5% including detailing, architectural structural detailing itself would be more than 2% to 3% while detailing maybe around 2% because of the value addition the quantum of hours that you spend in architectural and structural design are much less where your hourly rates are more than double
However this also adds the Risk if they acquire a company – If during restamping the misconduct is found they will face the legal consequences à however professional insurance covers the monetary risk, reputation risk might be something to look out for
Mechanical Side
BIW (Body in White) Fixture Design refers to the process of designing fixtures used in the manufacturing of automobile bodies, particularly in the initial assembly stages known as the Body in White stage. The Body in White stage involves assembling the metal components of a vehicle’s body before painting and other finishing processes.
Fixtures are specialized tools or devices used to hold and position individual parts or components during the assembly process. In the context of BIW fixture design, these fixtures are specifically designed to accurately position and secure various body panels, frame components, and other metal parts of a vehicle’s body as they are welded or joined together.
Basically BIW Fixture is the tool which holds the car roof in particular way such that various assembly function happens on the same
Every OEM requires the BIW Fixture designs in every root of the way
What mold tek does is it prepares the design for the same after proper consulting on site with the client regarding their needs
I think KPIT and Tata tech provides this service
Mold tek has been the supplier to tesla in their BIW designing needs
work on hand for MES has shot up from 200k last year to 1.1 million, s four to four-and-a-half times, and we anticipate the accumulative increase in the project flow in MES because we also entered into Press Tools designing and drafting services and the pilot projects are going on with couple of clients, and hopefully in few quarters, that will emerge as another new segment of business and revenues. So, that is how the MES is shaping up
The company started as pure play 2D design company now they are into robotics, 2D, 3D and even simulations
Let’s Look at anti thesis –
The company is owned by renowned J. Lakshmana Rao Sir who is promoter of mold tek Packaging
Having a business endeavour that is already well-established gives one question does he still have a hunger in himself to build another giant company?
The company is highly linked to US economy which I don’t like very much since there’s a fragile nature of US based private owned business( if anyone who is following private deals in US knows what I’m Talking about)
Recent Concall Takeaway – Q3
Civil Business’s revenue remains flat to slightly positive
They have ventured in 2 – 3 new business division in MES à Wire harnessing, Press tools dice, and SPM à no mention but In my opinion the same will be in regards to design and simulation only
have added resources in fields of three segments which will be under marketing efforts now
business development managers are being recruited not only in India, but also shortlisted a couple of Americans in USA who will be coming on board very soon
leading automobile companies in USA executed by a Mexican Tier-I contractor for the robotic simulation, supply of robotics and simulation. So that project has gone into hold during the last weeks of November December and just now they are talking about reopening it. à This had lead to slower growth
173 new trainees this year which is the highest in last 10 years
RFQ stage we have reached for some of these new segments. But the revenue addition I won’t see happening immediately, at least from April quarter onwards
we are doubling our sales team from 5-6 to around 10 now. All are qualified with experience in MES, mainly MES and a little bit in civil and that impact also will be coming from Q1 onwards, I hope
So now we have decided to go with little established names in M&A and we are now in talks with a couple of them
structural designing side, that will be at a very high cost, somewhere around $50 to $80 per hour even for offshore resources. And that kind of business will also give us direct contact with the general contractors, GCs and architectural firms
Annual people you can easily calculate even at the entry level cost of around 25,000 almost 45 lakhs per month is the additional cost
we have taken at least 12 to 15 seniors whose cost will be something around 1.5 lakhs per month, with experience in different fields. So about 8 to 12 people I think we have taken. So that is another additional cost of about 15 lakhs per month
BD will be 1 or 2 of them joined and other 3 people are ready to join most probably from March.
Attaching SS of J. Laxman Rao sir since, there is no better way I could summarie the same myself better than him
There was a Guidance draw down or Mis understanding in Concall Where management guided 25 – 30% of Growth in CES and then went to 10% excluding acquisition that caused the share price to drop from high of 390 – 399 to 200 currently and still some people bashing on Twitter to management
My thesis follows around Howard Mark’s second level Thinking
See the below valuation analysis
If the company is able to undergo the acquisition for the company to pay 25% p.a. Return the company would have to grow it’s earnings at 19%
Which sounds hard may be doable? So if we notch down the hurdle rate to 17.5%
Implied growth rate comes to 11% which is definitely doable
The company which grew its top line at 16% p.a. in initial stage of business in last 10 years in raging bull market is trading at 17x, 1 Year forward will be less than 15x, Being impatient I have avoided the same in my personal PF but added the same in my family PF where past average holding period is more than 5 Years giving me immense time to hold business → My Personal PF churn is significantly high where as Family PF There has been 1 Exit in last 1.5 Years
I believe for business of this niche, the value will emerge and funny thing is the company was everybody’s darling 8 months Back, and now after 50% Draw down nobody is giving a damn, LOL.!!!
IMHO the business will continue to underperform at least until Completion of H1 25 Due to high operating leverage on Negative side if they find suitable candidate for merger or aquistion they could fly early
One thing I’m not understanding is why management so fixated on Civil business when there is enough tailwinds with multiple business engines as someone stated above regarding KPIT and Tata tech having high TAM where are Niche of this company is basically substituting business where they under cut the prices competition is something i have to understand still (from emerging countries of course or else where will you hire a Engineer for 300 Dollars per month)
Disclaimer – Very Minute position in Family PF and Will Inch up
Not a buy or sale Recommendation