Mold-Tek Packaging, Set to benefit from a Boom in E-commerce and Organized Retail in India

Integrated facilities ranging from label making, mold adaptations, to making in-house robots
Diverse industries and reputable customer base grant cash flow visibility
Demand for packaging is increasing with consumerism and demand growth
Consumers now prefer branded and well packaged products including ready-to-eat food products

Mold-Tek Packaging (NSE: MOLDTKPAC) is the market leader in the Indian plastic packaging industry. It is a specialist in the manufacture of high-quality plastic packaging products. The company manufactures injection molded rigid plastic packaging containers for lubes, paints, food, and other products.

Mold-Tek operates through seven processing plants, three stock points, and ~ 70 injection molding machines in India. It caters to various industries such as Food, FMCG & Pharmaceutical, Paint, Cosmetics, Lubricant & Grease, etc.  The company is headquartered in Hyderabad and has a wide national sales network. It has an injection molding capacity of ~20000 TPA and a processing capacity of ~18000 MT per annum. The products and services offered by MTPL have a national presence and some of the products are exported to other countries.

The company generates 20-40% of revenue from high-margin segments such as IML food and IML non-food segments. Quality, on-time delivery, structural strength, operational excellence, and reasonable costing are strong competitive advantages for the company. 

Mold-Tek Advantages

i) Well-positioned to gain from changing consumer preferences in India

The Indian packaging market was valued at $75 billion in 2020. With rising demand for consumerism and an increase in disposable income, people now prefer convenience and quality in their lifestyles. With over 30 years of experience, Mold-Tek has built a leading reputation in plastic packaging in India and has developed a strong understanding of its customers’ needs. The company’s intelligent packaging solutions have supported large companies to evolve. For instance, its square packs have enabled the transition by major edible oil players like N.K Protein, Goyal, Damani, Gulab, Halder Group, etc. from tin to plastic. Over the years, the company has built the required technology, scale, and experience to address the evolving needs of its customers through its intelligent and convenient packaging solutions. 

ii) Integrated presence across the value chain

Mold-Tek benefits from backward integration right from inception to product delivery. The company has integrated facilities including mold designing, processing, and decorating the products. Mold-Tek has an in-house tool room, molds, robotic operations, and labels. The company is known to introduce several packaging products such as high-quality airtight and pilfer-proof pails for the Paint, Lubricant, Food, Pharmacy, and Cosmetic industries, in India. It was also the first to introduce the “In-Mold Labeling (IML)” concept for decorating plastic containers using ROBOTS, in India.

iii) Wide customer base

Mold-Tek’s customers include large companies like Asian Paints, Berger Paints, Castrol, ITC, P&G, Amul, Himalaya, Pepsi, MTR, Unilever, etc. The company has customers in diverse industries including Food, FMCG & Pharmaceutical, Paint, Cosmetics, Lubricant & Grease, etc. Mold-Tek has high retention of existing clients, particularly in the paint and lubricant industry. It has a large product portfolio comprising sanitizer containers, dispensing pumps, food containers, paint packaging, lubricant packs, and bulk packaging. Mold-Tek also has rich experience in manufacturing food packaging for automatic filling. The company’s presence in diverse industries and relations with reputable customers grant enough cash flow visibility. Moreover, Mold-Tek’s sales contracts with major customers allow partial pass-through of raw material cost changes. 

iv) Continued Investment in Infrastructure, New Products, and Technology

Mold-Tek is constantly growing through investments and new client additions in the same as well as across new industries. In FY21, the company launched a 12 crore dispenser pump division which will operate at 70% capacity utilization in FY2023. The recent ramp-up at Mysore and Vishakhapatnam plants also enabled running them at 90% utilization. 

Challenges

Increasing crude prices could be a headache for companies like Mold-Tek as its leads to a hike in its raw material cost. The company, however, remarked that the price hike has not impacted the margins adversely owing to its product mix which is now inclined more towards high value-added products like food and FMCG. The company also commented that demand for its packaging materials remained stable in the edible oil and paints industry, though tardiness in prices. Mold-Tek maintained a 20%+ margin despite an increase in raw material prices (~25-30% increase in polypropylene prices in the last nine months).

Other challenges include excessive reliance on the paint and lubricants industry, short-term supply shortages, and increasing competition. 

Future Opportunities

The Indian packaging industry is estimated to reach $205 billion by 2025 growing at a rate of ~27% CAGR during 2020-25 and Mold-Tek with its leading market share is poised to gain from this growth trend. The company is expanding its footprint into new segments like restaurants, dates, growth enhancers, seeds, etc., and expects some of these segments to be growth drivers over the next 2-3 years. It plans to increase capacity by more than 10% in the next two years to meet growing demand. Growing income and improving lifestyles act as strong tailwinds for Mold-Tek Packaging. The company plans to launch 10-12 new products by FY22-end and expects to continue this trend in the future as well.

Another growth driver for MTPL is IML Packaging. The scope and opportunity of IML are huge, especially in the food segment. Other than cosmetics, paints, and lubricants, products that can be packed in IML decorated containers are Ice creams, Jams, Milk and nutrition powders, Yoghurt, Butter, cheese, and noodles. Mold-Tek is already witnessing record-breaking orders from the ice-cream companies this season. Other focus areas for the company include expansion of footprint in the north by setting up a plant in Kanpur (UP), the launch of sweet boxes, exploring new markets like cashew, oats, etc., and 100% recyclable IML containers with QR codes (Digital packaging concept for the first time in India) in FY22. Mold-Tek Packaging will also focus on creating sustainable and beautiful packaging solutions.

Valuation

Mold-Tek shares have almost doubled in the last year and have gained by more than ~2500% in the last decade. It currently sports a market capitalization value of ~Rs. 2,400 crores and is trading just ~10% low than its 52-week high price of ~Rs. 860. The company’s profit after tax has grown at 15% CAGR in the last five years, while sales have also grown at 12% CAGR during the same time.

Source: Stocx.in

Mold-Tek registered a sales growth of more than 40% and profit growth of 54% YoY, in the last nine months. The company’s EPS also grew ~58%. Mold-Tek has decent ROE and ROCE of ~21% and its PAT margin has also been maintained in the higher single-digit range in each of the last five years, touching the 10% mark in March 2021. It has a healthy capital structure and coverage ratios. Mold-Tek distributed a total dividend of Rs.7 per share for FY 2021, which was the highest in the company’s history. It has maintained a healthy payout ratio of ~40%.

Conclusion

Packaging is expected to play a crucial role in product marketability. Given the very recent pandemic, people are more aware of health and hygiene now more than ever and Mold-Tek Packaging is well aware of this fact. The company’s IML decorated thin wall containers are going to be the next big thing in the coming years, especially in the food and FMCG industries. The company witnessed good growth from its new plants at Vishakhapatnam and Mysore, food and FMCG containers, square Q-packs, seeds, and fertilizers in the last year and is targeting to grow at 15% each year.

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