Increased Demand From Surf Excel And Horlicks Will Expand FMCG Production

Key Takeaways

• Expansion into the pharma segment and development of new SKUs are poised to improve revenue and net margins through higher price points and client growth.
  
• Increased capacity for IML print labels and enhanced production at the Panipat plant are set to drive revenue and improve operating margins.
  
• Revenue stability is at risk due to dependency on major clients, pricing pressures, and operational disruptions, leading to potential declines in profitability and margins.

Catalysts

Engages in the manufacture and sale of plastic packaging containers in India.

• Mold-Tek Packaging is consolidating its entry into the pharma segment, with commercial supplies showing significant growth potential. This expansion is expected to enhance revenue as the company gains new clients and increases capacity utilization.
  
• The addition of new printing machines arriving from Italy and Delhi is set to boost the capacity for IML (in-mold label) print labels by 35%-40%, which is crucial for meeting seasonal demand from February to June. This increase in capacity is anticipated to positively impact revenue and operating margins.
  
• The company is developing 12 new bottle SKUs for the pharma industry, with potential high-margin products starting commercial production. This is likely to improve net margins and revenue, given the expected higher price points in the pharma packaging market.
  
• Mold-Tek is looking to enhance its overall capacity utilization from its current level of around 60-70%, which should improve fixed cost absorption, thus aiding in better net margins and overall earnings growth.
  
• In the FMCG sector, the company is seeing an increased demand for its square packs used by clients like Surf Excel and Horlicks. With production expected to commence at the Panipat plant, this expansion is anticipated to drive revenue growth.

Mold-Tek Packaging Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Mold-Tek Packaging's revenue will grow by 14.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.2% today to 9.3% in 3 years time.
• Analysts expect earnings to reach ₹1.0 billion (and earnings per share of ₹31.45) by about March 2028, up from ₹622.5 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ₹1.2 billion in earnings, and the most bearish expecting ₹902 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 34.9x on those 2028 earnings, up from 23.5x today. This future PE is greater than the current PE for the IN Packaging industry at 18.7x.
• Analysts expect the number of shares outstanding to decline by 0.11% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.53%, as per the Simply Wall St company report.

Mold-Tek Packaging Future Earnings Per Share Growth

Risks

• The company has experienced a decrease in Profit After Tax (PAT) due to higher depreciation and interest costs, which can affect net margins.
  
• Loss of volume from a major client, Asian Paints, due to redistributed volumes and pricing competition could impact future revenues.
  
• Challenges with supply-side issues, such as availability of printing machines and molds, have previously impacted capacity and could continue to disrupt operations, affecting earnings.
  
• Competitive pricing pressures in the Paints segment, particularly from companies like Asian Paints, could lead to reduced margins and impact overall profitability.
  
• Dependence on a few large clients like Aditya Birla Group for significant business growth carries a risk. Any future redistribution of their volumes could affect revenue stability.

Valuation

• The analysts have a consensus price target of ₹775.5 for Mold-Tek Packaging based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹1200.0, and the most bearish reporting a price target of just ₹612.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹11.2 billion, earnings will come to ₹1.0 billion, and it would be trading on a PE ratio of 34.9x, assuming you use a discount rate of 12.5%.
• Given the current share price of ₹440.05, the analyst price target of ₹775.5 is 43.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.