Pharma And FMCG Expansion Will Unlock Future Opportunities

Key Takeaways

• Entry into the pharma segment and expansion in food and FMCG sectors are expected to drive significant revenue growth.
  
• Focus on high-margin pharma products and innovative packaging solutions could enhance net and EBITDA margins progressively.
  
• Declining business from major clients and supply constraints, coupled with high competition and costs, threaten revenue, margins, and capital return.

Catalysts

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

• The company's entry into the pharma segment is gaining momentum, with new products and clients being added. They expect significant growth in this area, potentially impacting overall revenue positively.
  
• The recent arrival of printing machines from Italy and Delhi will increase in-mold labeling (IML) capacity by 35-40%, which should enhance production efficiency and contribute to revenue growth during the upcoming season.
  
• The expansion efforts into the food and FMCG sectors, including serving major clients like Hindustan Unilever (with Surf Excel), are expected to drive up revenue, as indicated by anticipated double-digit growth next year.
  
• New product developments in pharma packaging, including projects with U.S.-based clients, are positioned to contribute to high-margin revenue streams, improving overall net margins.
  
• A focus on high-margin business segments such as pharma, and the development of innovative packaging solutions, could incrementally improve the company’s earnings and EBITDA margins over time.

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 9.4% in 3 years time.
• Analysts expect earnings to reach ₹1.0 billion (and earnings per share of ₹31.56) by about February 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 39.3x on those 2028 earnings, up from 29.5x today. This future PE is greater than the current PE for the IN Packaging industry at 23.3x.
• Analysts expect the number of shares outstanding to grow by 0.08% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.59%, as per the Simply Wall St company report.

Mold-Tek Packaging Future Earnings Per Share Growth

Risks

• The company is experiencing a decline in business from major clients like Asian Paints due to pricing and redistribution of volumes, which could harm revenue and overall market share.
  
• Challenges from supply side constraints, such as unavailable printing machines and molds, have been impacting order fulfillment across various segments, potentially affecting revenue and customer satisfaction.
  
• The company is investing heavily in CapEx for expanding capacities, particularly for new ventures like Aditya Birla Group, with no firm assurances of long-term offtake, leading to risks of under-utilization and lower return on invested capital (ROIC).
  
• Increased competition in the food and FMCG segment and the risk of related parties taking business away from major clients pose threats to revenue and profit margins.
  
• High levels of depreciation and interest costs have already led to a dip in PAT despite growth in sales and EBITDA, signaling pressure on net margins and earnings.

Valuation

• The analysts have a consensus price target of ₹875.3 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 ₹1624.0, 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 39.3x, assuming you use a discount rate of 12.6%.
  
• Given the current share price of ₹552.6, the analyst price target of ₹875.3 is 36.9% 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.