PL Stock Report: Mold-tek Packaging (MTEP IN) - Q1FY24 Result Update - Near term headwinds, expect recovery from 2H - HOLD

Mold-tek Packaging (MTEP IN) - Amnish Aggarwal - Head of Research, Prabhudas Lilladher Pvt Ltd

Rating: HOLD | CMP: Rs1,003 | TP: Rs956

Q1FY24 Result Update - Near term headwinds, expect recovery from 2H

Quick Pointers:

§ Volumes up 1.8%, Paints and Lubes volumes decline 7.6% and 1.6%, Food and FMCG volumes up 36% YoY; Realization/ton declines 14,10,18.8% YoY.

§ EBITDA per kg at Rs38.1, likely to move to Rs40-41/42+ per kg in FY24/25.

We are cutting our FY24/25 EPS estimates by 12.3%/9.2% as we reduce volumes, realization and EBIDTA/ton estimates (Rs41/42 per kg) given mixed outlook in near term. MTEP’s 1Q volumes were impacted due to 1) impact of unseasonal rains on ice cream & dairy segment 2) lower sales value on decline in realizations and 3) sub-par capacity utilization (45%) of Khandala due to expansion/modernization shutdown at Asian Paints unit. While overall volume growth should inch up gradually, high single digit volume guidance in paints, tepid growth in edible oils & lubes will curtail FY24 volume growth to ~10-11% and sales growth in low single digits.

MTEP’s long term prospects remain promising given 1) bottomed out EBITDA/Kg driven by price hikes from customers 2) mix improvement with higher growth in F&F segment 3) new plant added at Lucknow & Daman and capacity additions in Mysore & Visakhapatnam to meet demand from Asian Paints 4) expectations of 5000ton demand from Grasim by FY25 (25% of current volumes) with higher realizations and 5) entry into Pharma & OTC business. MTEP is currently trading at 32x FY25EPS which limits scope for re-rating. Retain ‘Hold’ with a target price of Rs956 (Rs968 earlier).

Sales down 10.6%, Volumes grow by 1.8%: Revenues declined 10.6% YoY to Rs1.9bn (PLe: Rs2.2bn). Volumes grew by 1.8% to 9200MT; EBITDA/kg at Rs 38.1 in 1Q24. Gross margins expanded by 437bps YoY/100bps QoQ to 42.3% (PLe: 41.3%). EBITDA declined by 5.7% YoY to Rs350mn (PLe: Rs422mn); Margins expanded by 96bps YoY/declined by 44bps QoQ to 18.8% (PLe:19.5%). Adj PAT declined by 13.7% YoY to Rs187mn (PLe: Rs239mn).

Concall Takeaways: 1) Volume for Paints/Lubes/F&F share at 48%/28%/24% while value at 43%/26%/31% 2) Paint business volumes were impacted by low utilization (46%) in Khandala plant due to expansion/modernization. Utilization has increased upwards of 65% since July 3) Paint business to see pick up in volumes (5000 MT) with Grasim entry from FY25. 4) Paint industry is expected to grow in high single digits in FY24 5) F&F volumes grew by 36.7% as unseasonal rains impacted ice creams & dairy consumption 6) Company expects FY24 volume growth at 10-11% 7) Sulthanpur F&F facility to help strengthen presence in northern markets; exploring further land parcels around the facility 8) Expect EBITDA/kg of Rs40-41/42+ per kg in FY24/25. 9) Price hike by customers to enable gradual pick up in margins in coming quarters 10) Margins to improve with in-house labels printing (currently incur cost of Rs70-80mn/annum) 11) Pharma facility is expected to start trial production by Oct end post audit by clients. Pharma to enjoy higher EBITDA per kg of Rs150-200 12) Capex for FY24/ FY25 budgeted at 1.3bn with Rs300mn spent in 1Q24.

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