mold-tek packaging

Mold-Tek Packaging Fundamental Analysis

February 16, 2018 2 Ankit Shrivastav

Introduction:

Mold-Tek packaging is a packaging solutions company and is a market leader in rigid packaging segment. Company provides various packaging solutions such as lube packaging (packaging of lubricants such as engine oil, paints etc), foods packaging (such as chocolates, bulk ice creams, milk etc), and bulk packaging.

Company caters packaging solutions to various sector such as FMCG, Paints, Lubricants and Oil industry. The FMCG and paints sector are the top contributors to the companys revenue.

Some of the major Clients of Mold-Tek packaging from various sectors are mentioned below:

mold tek clients in lubricant segment
mold tek clients in FMCG segment

Financial Highlights:

Company has posted encouraging financial numbers in the past 5 years. Some of the financial highlights of Mold-Tek packaging are given below:

Revenue:

As mentioned earlier, company catres to many sectors such as FMCG, Paints, Lubricants, but some of the major revenue contributors for the company come from FMCG and Paints sector.

With rising demand for packaged foods, increasing disposable incomes in urban and semi urban cities, and a demand shift of consumers from traditional paints to distemper and other types of decorative paints will boost the revenue and profitability of the company.

Net Operating Revenue:

Net Operating Revenue is the Net revenue generated by the business solely from its core operations, after deducting the cost of sales and other expenses.

Mold-Tek Packaging Ltd has posted healthy growth in Net Operating Revenue. In 2013, Mold-Teks Net Operating Revenue was Rs. 191.89 crores while in 2017 it went up to Rs. 308.33 crores, a growth of almost 10% CAGR.

Companys Operating Revenues will get a boost in future as Mold-Tek has acquired two sites for manufacturing plants for Asian Paints, in Hyderabad and Vizag. Additionally, company has also established its new plant in UAE which has achieved its break even point at the end of 2017, and will cater the clients in UAE and North Africa.

Net Profit:

Net profit is also referred to as bottom line, net income and net earnings. Net profit is the part of company’s total revenue left after paying for operating expenses, taxes, interests, preferred stock dividends.

Mold -Tek packaging has posted good growth in net profit in the past 5 years. In 2013, The Net Profit of Mold-Tek Packaging was 5.78 crores while in 2017, it went up to 26.99 crores a CGR growth of 36%.

The profits of Mold-Tek packaging have increased faster than the revenue, which clearly means that company able to acquire new clients at lower cost, is designing new products at economical price and is able to keep its cost of operations under control.

Basic Earnings Per Share(BEPS):

Basic EPS is a measure of how much profit a company is making on per share basis. In other words, it’s a measure of how much money each share of the company will receive if all the profits earned during the year is distributed to its shareholders.

Mold-Tek Packaging has posted good growth in its EPS numbers, from an EPS of Rs.5.14 per share in 2013, to Rs. 19.5 per share in 2017, Company has posted CAGR growth of 30.56%.

Net Profit Margins:

Net Profit margin is the key ratio which is used to compare profitability of two or more companies working in the same sector. Net profit margin is a measure of how much percentage of total sales remains with the company as profit after all the expenses are paid.

Companys net profit margins have been widening for the past 5 years. Companys Net Profit Margins in 2013 was 3.01% which improved to 8.75% in 2017.

Increasing profit margin shows that company is able to charge higher price for the products or services offered by them, and its clients or customers are willing to pay for using their services. In other words, rising profit margins is a sign of improving profitability.

Return on Capital Employed(ROCE):

ROCE or Return on Capital Employed, is a measure of how efficiently the capital of a company is being used to generate profit. ROCE is expressed in percentage terms. A company with ROCE of 20% means out of every 100 rupees employed as capital, company is able to make a return of rupees 20.

Mold-Tek Packaging ?has posted good growth in companys ROCE data, which has improved from 7.78% in 2013, to 17.18% in 2017. Improvement in ROCE shows efficient utilization of capital by the company which is a indicator of management efficiency.

Debt to Equity:

Debt to equity ratio tells us how much of the total financing of the company comes from creditors (those who lend money at an interest) and investors (those who invest in the shares of a company). Higher debt to equity ratios is an indication that majority of company is financed by loans and other debt (such as debentures and bonds).

Mold-Tek packaging has significantly pared down its debt in the past 5 years from a debt to equity ratio of 1.25 in 2013, to 0.2 in 2017, which means that the company is able to pocket larger share of profit earned instead of giving it away in order to service debt.

Future Plans of Mold-Tek Packaging:

Company has recently bagged order from Mondelez (Formerly Cadbury) for their new product, Cadbury lickables. The packaging used is called IML containers and has received lot of appreciation in the foods and chocolate sector. In the future, company expects to get a lot of orders in the foods and FMCG segment.

Company is also expanding its capacity of its Hyderabad plant for manufacturing of food and FMCG thin layer containers. After the capacity expansion the production capacity of the plant will be 3,000 TPA vs current 1,400 TPA, for which, company is going to invest Rs. 25 crores on the plant capacity expansion.

To expand its business and become a global player in packaging segment, company has recently established a plant in RAK (UAE). The plant will cater the clients in UAE and North African countries The plant is currently working at 30% of its total capacity utilization, and hopes to achieve 50% of its capacity (its break even point) by the end of the years 2017 (achieved).

SWOT Analysis of Mold-Tek Packaging:

Strength:

Mold-Tek packaging is a market leader in rigid plastic packaging segment, a niche in the

packaging segment that has widespread use in various sectors such as paints, lubricants and FMCG segment.

The sector has very few organized players in this segment, Mold-tek packaging is a technology-centric company which provides a great advantage to company above competitors.

Company has strong focus on domain and has vast experience in packaging solutions, which enables the company to understand the needs of its clients in a better way and provide innovative packaging solutions.

Weakness:

Although Mold-tek is a pioneer in the packaging technology segment, it is exposed to the risk of being in a single domain. Any drastic change in demand, alternative solution to hard packaging will leave companys business exposed to risk.

Mold-Tek Packaging generates most of its revenue from few of its major clients, if these clients stop placing order, or find another company that is able to provide better packaging solutions, the company may lose large portion of their revenue in such a case.

Opportunities:

With rising consumption in India, improving lifestyle, rising disposable income, and deeper penetration of FMCG products in smaller cities, there is huge growth potential in the packaging segment, which provides a great opportunity to Mold-tek packaging to acquire larger orders from new and existing clients and expand it business.

Company has also established its manufacturing plant in UAE which will cater its international clients especially in UAE and North Africa. This allows company to set foot as a global player and acquire international client, which will increase its revenue.

Threats:

Any slowdown in consumer spending will be a big threat for the company. If Indian economy sees lacklustre demand consumption because of high inflation, economic slowdown, Mold-tek will receive smaller and fewer orders, which will lead to lower revenues and profitability.

Packaging industry is very price sensitive, if any competitor is able to provide better packaging solution at a competitive price, Mold-Tek may lose a great revenue generating client to competition. Maintaining competitive pricing without hurting profit margins is a key challenge for the company.

Should I invest in Mold-Tek Packaging at current levels?

The stock price of Mold-Tek packaging has seen a good run in the past one year and is currently trading at a PE of 34. Looking at company PEG(PE growth) the stock looks expensive as PEG is currently at 3, PEG above 1 is considered to be expensive. Company is trading at 9x its FY2019 PE and 3x its FY2023 PE. An investor investing at these levels can expect to earn 15% to 18% CAGR return from investment in Mold-Tek Packaging.

Looking at the technical charts, stock shows good support at Rs. 300 and Rs. 290 per share. An investor looking to make fresh positions in the stock should look at these levels to make investments

Total Comments ( 2 )

  1. Sasidharan KM says:

    Excellent Analysation … detailed explanation about company and its financial… well done.. Thanks for giving such elaborate details. Appreciated.. Great.. Thanks once again… I wish to follow you continuously ..
    Thanks and Regards