Institutional Equities

Mold-Tek Packaging
26 April 2017

Reuters: MOLT.BO; Bloomberg: MTEP IN

Breaking The Mould BUY

Mold-Tek Packaging (MPL), a pioneer in pail manufacturing business, is all set to Sector: Packaging
take a leap into the high-growth and high-margin orbit. The management of MPL
has taken the right strategic call to transform the company’s business from a CMP: Rs259
mere ‘polymer converter’ to a niche technology-driven ‘in-mould labeler.’ Our
investment thesis is based on three key pillars: 1) Strong earnings visibility from Target Price: Rs351
newly established capacity at Ras Al-Khaimah (UAE) and the plan to set up Upside: 36%
capacity to meet the needs of Asian Paints in Vizag and Mysuru. 2) Rising
contribution to revenues from in-mould labeling (IML) for food and FMCG (F&F) Akhil Parekh
sector, driving margins northwards. 3) High growth potential for IML market in (Research Analyst)
India whose size currently is very miniscule. We believe that MPL derives its akhil.parekh@nirmalbang.com
Initiating Coverage

economic moat from the following: 1) It has the first mover advantage in IML +91-22-3926 8093
business in India. 2) Enjoys cost efficiency from being a sole backward integrated
IML label supplier. 3) Adoption of customer-focused and innovation-led business
model resulting in high customer stickiness. On account of all these reasons, we Key Data
believe MPL will increase its volume/sales/EBITDA/PAT at a CAGR of Current Shares O/S (mn) 27.7
16%/20%/24%/24%, respectively. We value the stock at 25x FY19E EPS with target Mkt Cap (Rsbn/US$mn) 7.2/112.9
price of Rs351, an upside potential of 36% from CMP.
52 Wk H / L (Rs) 268/144
Capacity expansion to drive MPL’s growth in the medium term: MPL currently has
Daily Vol. (3M NSE Avg.) 57,644
capacity of 27,000tn in India spread across its seven plants. During FY16, MPL started
setting up a plant at Ras Al Khaimah (RAK) in the UAE with a capacity of 3,000tn. RAK
plant is going to make meaningful contribution from 1QFY18. MPL has also commenced Shareholding (%) 3QFY17 2QFY17 1QFY17
supplying IML containers to Mondelez (earlier Cadbury) for its ‘Lickables’ product in Promoter 35.8 35.3 34.8
4QFY17. The company also received a Letter of Intent from Asian Paints for setting up Public 64.2 64.7 65.2
two new dedicated pail manufacturing plants at Vizag in Andhra Pradesh and Mysuru in
Karnataka with total 6,000tn capacity. With incremental capacity addition of 9,000tn Others - - -
during the next two years, we believe MPL is well placed to deliver strong volume
growth of 16% over FY17E- FY19E. One-Year Indexed Stock
Higher contribution from IML – F&F sector to drive the margins northward: Until 180
170
2010, MPL was purely a pail manufacturer for paint and lube industries. The company 160
150
introduced IML technology by importing two robots and labels. Since then, IML’s sales 140
130
contribution increased to ~47% by the end of 9MFY17. Since FY14, MPL also started 120
110
getting meaningful contracts for IML containers from the F&F sector. Sales to F&F 100
90
sector increased from 1.3% in FY14 to 5.5% in 9MFY17. With rising contribution from 80
70
IML and F&F segments, MPL’s margins improved from 12.4% in FY11 to 16.5% in Apr-16 Jun-16 Aug-16 Oct-16
MOLD-TEK PACKAGING
Dec-16 Feb-17
Nifty 50
Apr-17

9MFY17. We expect IML sales volume contribution to increase from 40% in FY16 to
52.4% in FY19E and sales in value terms from IML to increase from 44.2% of total sales
in FY16 to 56.4% in FY19E. With higher contribution from IML, operating margin is Price Performance (%)
expected to increase from 16.6% in FY16 to 17.6% in FY19. 1M 6M 1 Yr
Financial summary Mold-Tek Packaging 15.9 15.8 74.4
Y/E March (Rsmn) FY15 FY16 FY17E FY18E FY19E Nifty Index 2.0 6.9 18.3
Revenue 2,850 2,757 3,000 3,620 4,319
YoY (%) 11.7 (3.3) 8.8 20.7 19.3 Source: Bloomberg
EBITDA 400 458 496 616 759
% of sales 14.0 16.6 16.5 17.0 17.6
Adj. PAT 169 241 251 312 388
YoY (%) 85.8 43.0 4.0 24.3 24.5
Adj. EPS (Rs) 7.2 8.7 9.1 11.3 14.0
RoE (%) 20.0 19.7 18.4 20.6 22.7
RoCE (%) 18.9 20.0 18.7 20.8 22.5
P/E (x) 36.1 29.7 28.6 23.0 18.5
P/BV (x) 5.3 5.6 5.0 4.5 3.9
Source: Company, Nirmal Bang Institutional Equities Research
 Institutional Equities
Valuation
We have assigned Buy rating to MPL with a 12-month target price of Rs351, up 36% from the current market
price. Our growth estimates are driven by the following key factors: 1) Multiple capacity expansion plans to
drive medium-term growth. 2) Rising contribution from F&F segment to improve IML contribution and drive
high-margin growth. MPL is expected to clock volume/sales/EBITDA/PAT CAGR of 16%20%/24%/24%,
respectively, over FY17-FY19E. MPL stock currently trades at P/E of 28x FY17E earnings, 22.5x FY18E
earnings, and 18x FY19E earnings. We have valued the stock based on 25x FY19E earnings supported by
PEG ratio of 1x (FY17E – FY19E earnings CAGR of 24.4%).
Exhibit 1: P/E 1-year forward trend Exhibit 2: EV/EBITDA 1-year forward trend
(x) (x)
25 14
12
20
10
15 8

10 6
4
5
2

0 0

Apr-10

Apr-11

Apr-12

Apr-13

Apr-14

Apr-15

Apr-16

Apr-17
Aug-09
Dec-09

Aug-10
Dec-10

Aug-11
Dec-11

Aug-12
Dec-12

Aug-13
Dec-13

Aug-14
Dec-14

Aug-15
Dec-15

Aug-16
Dec-16
Aug-09

Aug-10

Aug-11

Aug-12

Aug-13

Aug-14

Aug-15

Aug-16
Apr-10

Apr-11

Apr-12

Apr-13

Apr-14

Apr-15

Apr-16

Apr-17
Dec-09

Dec-10

Dec-11

Dec-12

Dec-13

Dec-14

Dec-15

Dec-16

PE Mean 1sd -1sd EV/EBITDA Mean 1sd -1sd

Source: Bloomberg, Nirmal Bang Institutional Equities Research Source: Bloomberg, Nirmal Bang Institutional Equities Research

Economic moat
We believe that MPL enjoys a durable competitive advantage over its rivals and which will protect its long-
term profitability and market share in the injection moulded packaging segment. We are of opinion that
MPL’s competitive advantage is durable in the long run on account of its superior in-house
technology, cost advantage that it enjoys because of backward integration, long-term relationship
with its blue-chip clients and smart business strategies adopted by the technocrat management.
MPL operates in the rigid packaging segment where most of the businesses are commoditised. Though the
sales of established organised players in this segment come from big, stable consumer brands, there is hardly
any pricing power which packaging companies enjoy. Supply side (raw material providers) is a group of
behemoth conglomerates that supply polymer/resin to these packaging companies as key raw ingredients.
The packaging industry is highly fragmented with over 22,000 players operating in this segment at various
scales, leaving little headroom for sustainable competitive advantage. The industry is capital-intensive,
requiring companies to keep adding capacity to maintain their growth rate and thus leave little room for margin
of error. Despite all these challenges in the industry, MPL is one of the rare entities which have been
able to succeed and grow at a healthy rate, keeping profitability in focus.
Exhibit 3: Not just a mere “converter”

Source: EY analysis, Nirmal Bang Institutional Equities Research

2 Mold-Tek Packaging
 Institutional Equities
Packaging companies in material industry terminology are usually known as ’converters’
These companies are engaged in converting raw materials (polymers in case of rigid/flexible packaging,
paper and board for carton packaging, aluminum for collapsible foils, tubes, etc and glass in case of bottles,
jars, jugs etc) into value-added products for consumers or industrial users. As a result, packaging companies
are theoretically in a vulnerable position along the value chain.

On the raw material side, key suppliers are usually large global producers that have the power to pass on the
increased commodity costs to their clients (packaging companies), resulting in increased raw material costs
for packaging players. In case of MPL, key raw material is polypropylene (PP) which is mainly supplied by
Reliance Industries. On the customer side of packaging companies, there are large powerful consumer goods
companies like Hindustan Unilever, Mondelez, Asian Paints etc. who usually have high bargaining power.
Many a times they do not want to pass on the rise in raw material costs to their customers and use the threat
of switching their packaging product supplier, thereby putting packaging companies in a weak position.

Exhibit 4: Raw material costs as a percentage of total sales of Exhibit 5: Raw material costs as a percentage of total
packaging players in India expenses of packaging players in India
80% 73.0% 90% 81%
67.4% 64.6% 73%
70% 60.8% 59.1% 80% 70% 67% 69%
60% 53.4% 70% 61%
46.0% 60% 53%
50%
40% 50%
40%
30%
30%
20% 20%
10% 10%
0% 0%
TCPL Packaging Limited
Limited (BSE:533080)

Limited (BSE:523840)
Time Technoplast Limited
Essel Propack Limited

Huhtamaki PPL Limited

Hitech Plast Limited

Innovative Tech Pack

TCPL Packaging Limited

Limited (BSE:533080)

Limited (BSE:523840)
Time Technoplast Limited

Huhtamaki PPL Limited

Essel Propack Limited

Hitech Plast Limited

Mold-Tek Packaging

Innovative Tech Pack

Mold-Tek Packaging
(BSE:526217)

(BSE:526217)
(BSE:500135)

(BSE:500135)
(BSE:509820)

(BSE:509820)
(BSE:523301)

(BSE:523301)
(BSE:532856)

(BSE:532856)

RM%Sales RM% Total Exp.

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 6: Gross margin of packaging players in India Exhibit 7: Polypropylene prices (Rs/kg)
60% 54.0% 100
46.6%
50% 40.9% 95
39.2%
40% 32.6% 35.4% 90
27.0%
30% 85
20% 80
10% 75
0% 70
TCPL Packaging Limited
Limited (BSE:523840)

Huhtamaki PPL Limited

Limited (BSE:533080)
Time Technoplast Limited
Essel Propack Limited

Hitech Plast Limited

65
Innovative Tech Pack
Mold-Tek Packaging

(BSE:526217)
(BSE:500135)

(BSE:509820)

60
(BSE:523301)
(BSE:532856)

55
50
Sep-12

Sep-13

Sep-14

Aug-15

Aug-16
Jun-14

Jan-15

Jun-15

Jan-16

Jun-16

Jan-17
May-12
Jul-12

Jul-13

Mar-16

Mar-17
Feb-13

Feb-14

Oct-16
Apr-13

Apr-14

Apr-15
Dec-12

Nov-13

Nov-14

Nov-15

Gross margins (%) Polyoropylene Prices (INR/Kg)

Source: Company, Nirmal Bang Institutional Equities Research Source: Bloomberg, Nirmal Bang Institutional Equities Research

Raw material costs of most packaging companies account for more than 50% of total net sales while raw
material costs as a percentage of total expenses are more than 60% in most cases. As a result, most
packaging companies are caught between “a rock and a hard place” in the value chain and can be dangerous
to financial health of the company.

3 Mold-Tek Packaging
 Institutional Equities
Exhibit 8: Operating margin of packaging players
22.5%

20.0%

17.5%

15.0%

12.5%

10.0%

7.5%

5.0%

2.5%

0.0%
Essel Propack Limited Time Technoplast Limited Mold-Tek Packaging Limited Huhtamaki PPL Limited Hitech Plast Limited
(BSE:500135) (BSE:532856) (BSE:533080) (BSE:509820) (BSE:526217)

FY12 FY13 FY14 FY15 FY16 LTM

Source: Company, Nirmal Bang Institutional Equities Research

What separates MPL from rest of the pack is its ability to adapt and innovate
MPL was smart enough to realise way back in 2011 that its core bread-and-butter business of pail
manufacturing for paint and lubricant industries has little product innovation left. The paint industry was
growing at a healthy rate (13% over FY08-FY12) and was expected to continue doing so. Although healthy
volume growth in paint industry would have taken care of MPL’s top-line growth, its margin profile would have
stagnated. As there was little product differentiation left in pail manufacturing, it would not have been able to
retain pricing power, especially during the downtrend in commodity cycle.

As a result, MPL was the first company to introduce IML technology in India by importing two robots
from Taiwan and IML labels in 2011. MPL’s management realised the benefits which the company can offer to
clients and hence grabbed the opportunity aggressively. After importing the technology, MPL’s management
was able to convince its existing clients in lube and paint industry to move to IML technology from
screen printing and heat transfer labeling (HTL) technology. Until 2011, the entire rigid packaging
industry in India was using either screen printing or HTL for decorating the containers. Since then almost 60%
of MPL’s clients in lube industry have moved to IML technology while 25%-30% of its clients in paint
industry have moved to HTL or IML. All its F&F clients use IML technology.

Later, MPL’s management realised the need to improve cost economics of IML and thereby decided to go for
backward integration. MPL started manufacturing in-house robots and labels. MPL set up a capacity of
5mnsqm for label manufacturing in Telangana. Promoters’ strong technical background (Mr. J. Lakshmana
Rao – chairman and managing director holds a bachelor’s degree in engineering, while Mr. A.
Subrahmanyam – deputy managing director, apart from holding a bachelor’s degree in engineering was
responsible for manufacturing many precision tools including moulds before joining MPL) came in handy in
doing backward integration. MPL started manufacturing in-house robots that were cheaper by ~40% - 65%
(depending on single/multiple cavity) compared with imported robots (~Rs5mn-Rs6mn). Backward integration
helped MPL to register an improvement in its margin profile.

Since 2014, MPL started expanding its product range. It entered into the F&F segment realising that
margins will be even higher than what IML commands in paint and lube industries. Sales to F&F segment for
MPL increased from 1.3% in FY12 to 7.5% in 9MFY17. In F&F segment, MPL sold ~3mn pieces to Proctor &
Gamble or P&G of its Ariel detergent, netting ~Rs60mn in sales during FY17. MPL expects incremental orders
from P&G for its Ariel product to continue in FY18. Apart from this, the company recently initiated its contract
with Mondelez, manufacturing plastic containers for its ‘Lickables’ product. MPL expects an order run-rate of
3mn pieces/ month from Mondelez in FY18. Sales to F&F segment are expected to touch 15% of total
sales by the end of FY18. IML in F&F segment commands highest margin and is in the range of 21%-22%.

4 Mold-Tek Packaging
 Institutional Equities
Thus, in the past three to four years, MPL moved from its commoditised business of screen printing/HTL for
paint and lube industries to more specialised niche business of IML.As IML (non F&F) commands a margin of
17%-18% as against screen printing which commands a margin of 13%-14%, MPL’s blended operating
margin profile improved from 10.4% in FY13 to 16.5% in the first nine months of FY17. With a rising
proportion of IML sales (from ~20% in FY14 to ~47% in 9MFY17) and higher contribution from F&F segment
in the past three years (from ~1.3% in FY12 to 5.5% in 9MFY17), MPL improved its pricing power despite
crude oil price fluctuations. Going forward, we expect sales from IML segment to continue to contribute more
to total sales of MPL (47.5%in FY17E,54.5% in FY18E,56.4% in FY19E) and completely move away from the
’converter’ tag, which is the norm for most players in the industry.

MPL is lone packaging player in India which has gone for backward integration
MPL has an integrated business model with a centralised tool room to design, develop, manufacture and
maintain moulds and robots.
In-house tool room facility
MPL is among the few players in the rigid plastic packaging industry to have an in-house tool room facility. It
has developed a centralised tool room to design, develop, manufacture and maintain the moulds and robots
which are used for manufacturing a variety of products of different sizes, shapes and models with various
decoration technologies. The in-house tool room is equipped with three-dimensional CNC machine from the
US supported by latest CAD/CAM facility which enables MPL to design and develop complex moulds
including 2 – 8 cavity moulds. The centralised tool room enables quick robot and mould maintenance so
as to ensure uninterrupted supply.
Fully integrated IML manufacturing facility
In-mould labeling uses paper or plastic labels in the manufacture of containers by blow moulding and injection
moulding or thermoforming process. IML for injection moulding means the decoration of the product takes
place in the mould itself. An IML label is inserted in the mould. During the injection process, the injected
molten polymer fuses with the mould label. The end result is decorated packaging part produced in one step.
The demand for in-mould labels is very high because of consumer acceptability and response through high
purchase behaviour ever since this packaging style was introduced. Currently, the in-mould labeling
segment accounts for 2% of the world’s label printing volume and the market forecasts an average
5.6% growth rate by 2020.
Exhibit 9: Benefits of in-mould labeling

Raw material
(PPCP) Handle fix
Quality &
Polypropylene Injection moulding at IML at its robotic facility check Despatch
co-polymer packaging

Injection Screen
moulding printing

Shrink
wrapping

HTL
wrapping

Source: Company, Nirmal Bang Institutional Equities Research

5 Mold-Tek Packaging
 Institutional Equities
As the label is integral to the container, neither handing nor shipment-induced scuffling can compromise its
good look. IML labeling is strong and resilient and protects the product. IML also improves aesthetic value of
the product. It also helps improve efficiency which allows the elimination of a separate label application step
and move from moulding to filling. IML results in better efficiency with 50% better lead time and zero
human contact.
In-mould labelling technology has been in the market since almost two decades now. Despite being
introduced in the market in early 2000s, IML has not been able to capture the labelling market in a big way.
One of the key deterrents in adopting IML technology has been restricted number of IML technology
suppliers. Very few global players have succeeded in IML technology, mainly on account of higher
initial capital outlay requirement and complex IML supply chain which involves dependency on
multiple players across the value chain – polymer/resin manufacturers, label manufacturers, mould
manufacturers, and ink and dye manufacturers. Any delay across the value chain can lead to bottlenecks.
MPL was smart enough to realise this during the early stage of its IML business and it decided to start
manufacturing in-house IML labels in 2012. In-house label manufacturing has reduced the company’s
dependency on third party label manufacturing vendors. MPL currently has 5mnsqm capacity to manufacture
IML labels at its Telangana facility. MPL imported two robots from Taiwan way back in 2010-11. After getting
acquainted with robot technology, MPL started making in-house robots in 2013 and thus became the only
packaging company in the world to manufacture in-house robots. In-house robots are cheaper by ~40%
(one cavity) and by ~65% (multi-cavity) than imported robots. Imported robots usually cost in range of Rs5mn
– Rs60mn. MPL does in-house maintenance of robots and moulds which has enabled uninterrupted
production and supply. MPL is the only company in India which is fully integrated with facilities ranging
from label making, mould adaptation to in-house robot manufacturing. With a fully integrated facility,
MPL has got better control over its processes and as a result its product defect rate is one of the lowest in the
industry and product quality on par with global peers. MPL has manufactured ~43 robots in-house, ranging
from single-cavity to multi- cavity (2, 4, 8 cavity).
Exhibit 10: IML volume contribution Exhibit 11: IML sales contribution
(%) (%)
120 120

100 100

80 80 45.5 43.6
49.6 47.6 52.5
60.0 56.6 55.8
72.9 70.0
60 80.9 60 79.6

40 40
50.4 52.4 54.5 56.4
20 40.0 43.4 20 44.2 47.5
27.1 30.0
19.1 20.4
0 0
FY14 FY15 FY16 FY17E FY18E FY19E FY14 FY15 FY16 FY17E FY18E FY19E
IML Non-IML IML Non-IML

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

Strong client base with high stickiness

IML operations began in late 80’s with a tool room. In early 90’s when the paint industry was still using tin
containers for packaging, Asian Paints approached MPL to convert tin packaging to injection moulded plastic
pail packaging. MPL was able to successfully manufacture pails for Asian Paints. Looking at MPL’s success
with Asian Paints, other paint manufacturers in India started giving contracts to MPL. Some years down the
line, MPL was able to create similar packaging for lube manufacturers such as Castrol, Gulf Oil, etc.

6 Mold-Tek Packaging
 Institutional Equities
Exhibit 12: Industry-wise sales contribution Exhibit 13: Top clients’ sales contribution
5% 5%

10%
26%
35%

60% 11%

11%

Paints Lubricant & Grease Food & FMCG Asian Paints Castrol Kansai Nerolac Akzo Nobel Shell

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

MPL is a pioneer and innovator in pail packaging in India. It introduced spouts and in-mould spout concepts
for paint and lube industries. The company mainly serves paint, lubricant and grease, and food and FMCG
industries. Paint industry accounts for ~60% of total sales of the company. MPL is one of the major
packaging product suppliers for Asian Paints and takes care of ~20% of the latter’s needs. Hitech Plast
and Jolly Containers are some of the major packaging product suppliers to Asian Paints. Currently, packaging
product needs of Asian Paints are taken care of by the Satara plant of MPL while the company is in the
process of setting up two dedicated plants for Asian Paints in Vizag and Mysuru. These plants are expected to
be operational by FY19. Other big clients that MPL serves in the paint industry are Akzo Nobel and Kansai
Nerolac.

MPL is also a major packaging player in the lubricant and grease industry. Lubricant industry accounts for
~35% of the company’s sales. MPL takes care of more than 90% of Castrol’s packaging needs. Only
small grease packs and packaging for a couple of Castrol’s industrial brands are being taken care of by some
other player. Gulf Oil has ~28 brands and has completely shifted to IML technology. MPL takes care of more
than 90% of Gulf Oil’s packaging product needs. MPL recently bagged contracts from Shell and Exxon
Mobil for exclusive packaging product supply for a period of five years.

MPL is slowly making progress in F&F segment. Currently, this segment accounts for ~6% of total sales,
which the management expects to rise going forward as the FMCG industry shifts towards IML labeling.
Procter & Gamble is one of the major clients in FMCG segment for MPL. The company has received a
contract from Mondelez and is expected to commence sales from 4QFY17. Other meaningful clients in
FMCG segment are Amul, Heinz, Haldiram, etc.

MPL’s relationship with most of its major clients dates back to at least 15 years. MPL has not lost any of
its major clients since inception of the business contract with them. In paint segment, MPL’s clients are the
largest paint companies in India. Asian Paints, with more than 55% market share in decorative segment in
India, is biggest customer of MPL since early 90’s. With 26 manufacturing plants, the packaging demand
created by Asian Paints is unprecedented. Likewise, other paint companies such as Kansai Nerolac, Berger
Paint and Akzo Nobel and also lube manufacturers such as Castrol, Gulf Oil, Shell, etc. depend heavily on
their preferred packaging vendors. Any delay can financially impact these companies in a big way. Similarly,
these pail containers are transported across the country. Poor road quality can cause damage to these
containers leading to leakage and loss to companies. Overall costs of these pail containers to customers
in paint and lube industry is not more than 2% of their total raw material costs. Hence, these clients of
MPL cannot take chances in terms of product quality and supply chain. Having established itself as a pioneer
in pail manufacturing with almost three decades of experience, MPL has become their key vendor for meeting
packaging needs. As a result, switching costs for these clients is very high, thus resulting in very high
customer stickiness to MPL.

7 Mold-Tek Packaging
 Institutional Equities
Investment arguments
Capacity expansion to fuel medium-term growth
MPL has consistently added capacity since FY09 on account of growing demand from paint and lube industries. From
FY09 to 9MFY17, MPL increased its capacity by ~19,000tn. During the same period, the company’s sales increased
from Rs1,047mn in FY09 to Rs3,008mn in FY17E. Capacity increased by two-and-a- half times and sales tripled
during the past nine years (FY09 – FY17E).
Exhibit 14: Capacity addition and sales growth Exhibit 15: Capital expenditure
(tn) (Rsmn) (Rsmn)
40,000 5,000 400
35,000 4,500 350
4,000
30,000 300
3,500
25,000 3,000 250
20,000 2,500 200
15,000 2,000
150
1,500
10,000
1,000 100
11,423

12,368

15,000

19,000

21,500

22,500

22,500

36,000
24,000

30,000

30,000

5,000 500 50

135

284

164

270

350

250
81

92

65

75
- -
0
FY09

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY19E
FY17E

FY18E

FY10

FY11

FY12

FY13

FY14

FY15

FY16

FY17E

FY18E

FY19E
Capacity (tn) Sales (Rsmn)

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 16: Plant location

Unit Location State Capacity (mt)
Unit - I Annaram village Telangana 8,750
Unit - II Dommarapochampally village Telangana 3,500
Unit -III Bhimpore Daman 7,500
Unit - IV Mendak Telangana 1,500
Unit - V Hosur Tamil Nadu 750
Unit - VI Jeedimetla Telangana 2,000
Unit - VII Mhavashi village, Satara Maharashtra 3,000
Label manufacturing unit Quthbullapur Telangana 5mn sq. m
New plant Ras Al Khamiah (RAK) UAE 3,000
Not commissioned yet Vizag Andhra Pradesh 3,000
Not commissioned yet Mysuru Karnataka 3,000
Source: Company, Nirmal Bang Institutional Equities Research

MPL currently has total capacity of 27,000tn in India spread across seven units. Through these units, MPL is
serving - paints, lubes, and F&F segments for screen printing, HTL and IML labeling. Of the 27,000tn,
currently 8,000tn capacity is used for IML labeling while the rest is used for screen printing and HTL. All these
manufacturing units are strategically located near client locations. MPL ends up saving lot on transportation
costs, given the fact that its units are near client locations. The added benefit of having units near clients’
plants is that MPL can deliver on time and any urgent incremental order can be executed without any further
delay.
Exhibit 17: Capacity across various plants of MPL
Capacity (MT) FY17 FY19E FY22E
India - Existing 27,000 - -
RAK (UAE) 3,000 - -
Vizag – Asian Paints - 3,000 4,000
Mysuru – Asian Paints - 3,000 4,000
Total 30,000 36,000 44,000
Source: Company, Nirmal Bang Institutional Equities Research

8 Mold-Tek Packaging
 Institutional Equities
MPL has commenced its operations in Ras Al Khaimah (RAK), a free trade zone, with an initial capacity of
3,000tn. Through RAK plant, the company will be selling mostly IML containers catering to paint, lubricant and
dairy industries. MPL has received orders from Shell, Akzo Nobel, RAK Paints etc. MPL has also received
approval from few dairy companies. Some large companies involved in IML technology in the UAE are – JRD
Internationals, Taghleef Industries, Schober, etc.

Exhibit 18: Target market size for IML – MENA region (USmn$) Exhibit 19: In-mould label volume – Global
(bn Sq. m.)
103 77 1.05
284

1.00

568 0.95
1,548
0.90
1.01
0.85
0.93

0.80 0.86

0.75
Europe North America Asia Pacific Africa & Middle East South America 2012 2016 2017

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

MPL’s products are comparable or better in quality (in some cases) than its competitors in the Middle East. Its
products are tamper-proof, better in aesthetic value and strength, and are leak-proof. The management wants
to leverage its expertise and expand to untapped market of the Middle East and also serve the MENA region.
The company has received clearance from various authorities in the UAE to begin commercial production. For
F&F clients, clearance is obtained only after the company submits product samples that are manufactured at
its UAE plant.

We expect RAK plant to hit capacity utilisation level of 40% by FY18 and increase subsequently to 70% and
75% by FY19 and FY20, respectively. At 75% utilisation level, we expect sales from RAK unit to touch
~Rs480mn. As sales from RAK plant will be coming through IML with a healthy proportion coming from the
dairy industry, we believe that operating margin will be better than blended margin of the company. Total
capex incurred on RAK plant is ~Rs200mn.

Exhibit 20: Capacity & utilisation levels at RAK plant Exhibit 21: Sales & operating profit of RAK plant
(tn) (Rsmn) (%)
2,500 80% 600 20.4 20.6
70% 20.4
500 20.0
2,000
60% 20.2
400
50% 20.0
1,500
40% 300 19.8
2,250 19.5
1,000 2,100 19.6
30% 200
1,200 20% 19.4
500 100
10% 19.2

- 0% - 19.0
FY18E FY19E FY20E FY18E FY19E FY20E
Capacity (tn) Cutil (%) Sales (Rsmn) EBITDA (Rsmn) EBITDAM (%)

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

9 Mold-Tek Packaging
 Institutional Equities
Reasons behind starting operations in the UAE
 Through the RAK facility, MPL will be able to serve Middle East countries such as the UAE, Oman,
Muscat, Kuwait etc. and African countries, thus giving enough scope for it to grow.
 The rapid growth of the Middle East economy (real GDP growth at 4.5% over 2010-14) has been a boon
for the packaging industry. Injection moulded thin-wall in-mould labelling pails, buckets, round containers
and pallets are in demand. Sales of packaging industry during the same period (2010-14) grew 6.3%.
 The packaging industry in the MENA region is pegged at US$41.1bn in 2014 and is expected to grow
during 2014-19 at a CAGR of 5.0% to US$52.4bn, according to an industry report. Of the US$41.1bn
packaging market, ~28% is rigid packaging valued at US$11.5bn. In-mould labelling market is pegged
at slightly over 1% i.e. ~US$100mn+.
 Growth in IML segment in the MENA region is expected to come from F&F segment. MPL has developed
strong expertise in IML since foraying into this segment in 2011. Thus, apart from strong technical know-
how, MPL will have strong industry tailwinds.
 The Gulf region has high amount of gas and oil resources and as a result comparatively its energy prices
are low resulting in lower polymer prices. Also, the realisation of IML products is relatively higher
compared with India. As a result, we believe MPL’s RAK unit will help improve its overall blended margin.
 RAK is a free trade zone and as a result sales generated from RAK plant for MPL will be tax-free.
Two dedicated plants for Asian Paints
MPL has received a Letter of Intent from Asian Paints for setting up dedicated pail manufacturing units for the
latter’s upcoming plants at Vizag in Andhra Pradesh and Mysuru in Karnataka. Manufacturing capacity of
these two plants will be the largest among Asian Paint’s units. These two plants will have total capacity of
5,00,000KL and 6,00,000KL per year. We expect these two plants to be operational by the second-half of
FY19 with an initial capacity of 3,000tn each and an ability to increase the capacity by 14,000tn by 2022.
Total capex for these two plants is expected to be Rs350mn–Rs400mn which will be incurred during FY18-
FY19. During FY17, the company spent ~Rs60mn on land purchase for these plants. We expect ~10%
utilisation of total 6,000tn capacity during FY19. Major incremental sales from these two plants will start
flowing in from FY20. With these two major plants to be set up in the next two years, MPL is poised for
healthy double-digit volume growth in the next five years.
IML market in India is still in a nascent stage
As of today, MPL is the only decent size player operating in in-mould labeling in India. Apart from MPL, Kap
Cones and Milan Décor (annual turnover Rs100mn – Rs250mn) are the only two smaller players in
IML segment in India. These two players mainly manufacture small-sized IML containers for dairy industry.
IML technology is still the latest development in packaging industry in the world. Though developed countries
adopted IML decoration for containers since the past 10 years, it was introduced in India only recently by
MPL.

Hygienic and world class decorated containers build brand image for the product, IML decorated thin wall
containers are going to rule the rigid packaging segment in the coming years, especially in the F&F space
The purchasing power and disposable income in India has grown rapidly in the past few years. Changing
lifestyle pattern has shifted consumers’ preference towards branded, well packaged and presented products
including packaged/ready-to-eat food products. In this sense, packaging plays a crucial role in marketability
of a product. As a result, MPL sees a huge opportunity in the packaging business, especially rigid packaging,
in the food, paint and FMCG segments. As per the industry report, Indian Packaged Food Market is expected
to be worth of $50bn by end of 2017 from $32bn in 2016. There has been major shift in food habits in
metropolitan cities. As per the Associated Chamber of Commerce and Industry of India (Assocham) ~79% of
the households in metro cities prefer of have instant food. ~76% of the parents working in big cities prefer to
have ready-to-serve meals at least 10-12 times per month as per the Assocham survey.
Currently, major clients of MPL comprises players in the paint and lubricant industries, but MPL initiated
entry into the F&F space by offering latest IML decorated containers to players in the food industry since
2014.
The scope and opportunity in the food segment is huge. Products that can be packed in IML decorated
containers are Ice creams, jams, milk and nutrition powders, yoghurt, butter, cheese, noodles, cosmetics etc.

10 Mold-Tek Packaging
 Institutional Equities
The potential for packaging in the ice‐cream segment alone stands at around Rs1,500mn annually in India
which is growing 25% annually. In Europe alone, the demand for IML containers topped 10.8bn pieces a year
and even a part of this is adopted in India it translates into a huge business opportunity where MPL is
positioned as a frontrunner.
Even if India’s IML market is at 10% of European market size (~$1.5bn), it works out to be $150mn i.e.
~Rs10bn opportunity where MPL stands tall over its competitors who are still at a very early stage.
India’s FMCG sector is poised to touch US$43bn by 2013 and US$74bn by 2018. Within this, packaging
product demand will be about US$2.5bn. Having acquired the in‐house ability to manufacture moulds,
labels and robots, an advantage no other packaging company can offer, Going forward, MPL expects this
segment to contribute significantly to top-line as well as bottom-line. With a rising thrust on the FMCG space,
MPL’s revenue mix is expected to change to include increased contribution from this segment.
Improved margin profile
MPL has been consistently adding value-added products to its portfolio. Until 2011, MPL was catering purely
to paint and lube industries through screen printing and HTL. In 2011, the company introduced IML
technology by importing robots and labels. Since FY14, sales from IML have consistently been contributing
more to the total sales of the company. Volume contribution from IML containers increased from 19% in FY14
to 43.4% by the end of 9MFY17. We believe that with growing demand for packaged food in India, MPL will
keep increasing the contribution of IML to its total volume. We expect the IML volume to post a CAGR of 24%
over FY16-FY19E. Sales from IML during the same period are expected to post a CAGR of 26%.

Exhibit 22: Contribution from paint segment Exhibit 23: Contribution from lube segment
(Rsmn) (Rsmn)
2,500 1,200

2,000 1,000

800
1,500
600
1,000
400

500
200

- -
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 24: Contribution from food & FMCG segment Exhibit 25: Blended per/kg analysis
(Rsmn) Blended per Kg analysis
185 35
200
180 180 30
160
175 25
140
120 170 20

100 165 15
80
160 10
60
40 155 5
20 150 0
- FY14 FY15 FY16 FY17E FY18E FY19E
FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 Sales/KG EBITDA/KG

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

11 Mold-Tek Packaging
 Institutional Equities
Exhibit 26: Non-IML per/kg analysis Exhibit 27: IML per/kg analysis
200 Non-IML per Kg analysis 21.5 230 IML per Kg analysis 45
195 21.0 225 40
190 20.5 220 35
185 20.0
215 30
180 19.5
210 25
175 19.0
205 20
170 18.5
165 18.0 200 15

160 17.5 195 10

155 17.0 190 5
150 16.5 185 0
FY14 FY15 FY16 FY17E FY18E FY19E FY14 FY15 FY16 FY17E FY18E FY19E
Sales/KG EBITDA/KG Sales/KG EBITDA/KG

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 28: IML volume contribution Exhibit 29: IML sales contribution
(%) (%)
120 120

100 100

80 80 45.5 43.6
49.6 47.6 52.5
60.0 56.6 55.8
72.9 70.0
60 80.9 60 79.6

40 40
50.4 52.4 54.5 56.4
20 40.0 43.4 20 44.2 47.5
27.1 30.0
19.1 20.4
0 0
FY14 FY15 FY16 FY17E FY18E FY19E FY14 FY15 FY16 FY17E FY18E FY19E
IML Non-IML IML Non-IML

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

MPL forayed in the F&F segment in 2014 by manufacturing thin-walled containers for dairy industry. Since
2014, sales from IML – F&F segment have been steadily on the rise. In FY14, sales from this segment
accounted for a meagre 1.3% of total sales while its contribution by the end of 9MFY17 increased to 5.5%.
IML – F&F segment is the highest margin profile segment for MPL commanding EBITDA margin of 20%-
22%. We expect its contribution to increase to ~15% by the end of FY18.
Exhibit 30: Competitor analysis
Mold-Tek Packaging FY12 FY13 FY14 FY15 FY16
Sales 1,754 1,923 2,556 2,858 2,764
EBITDA 211 200 295 400 458
PAT 93 58 91 169 241
EBITDAM (%) 12.1 10.4 11.6 14.0 16.6
RoCE (%) 15.6 10.9 14.5 18.9 20.0
RoE (%) 17.9 20.0 19.7 18.4 20.6
Debt/Equity 1.1 1.4 1.2 0.1 0.2
Asset Turnover (x) 1.4 1.3 1.5 1.7 1.4
WC Cycle 90 103 84 91 94
P/E (x) 49.1 98.1 63.0 35.4 29.1
EV/EBITDA (x) 24.5 32.3 22.0 15.6 16.2
Source: Company, Nirmal Bang Institutional Equities Research

12 Mold-Tek Packaging
 Institutional Equities

Hi-Tech Plast FY12 FY13 FY14 FY15 FY16

Sales 3,852 4,379 4,583 4,630 3,914
EBITDA 461 462 488 405 455
PAT 106.4 90.4 63.5 67.9 133.4
EBITDAM (%) 12.0 10.5 10.6 8.7 11.6
RoC (%) 8.8 7.8 8.3 6.8 9.0
RoE (%) 12.7 9.9 6.5 5.5 9.5
Debt/Equity 1.02 0.85 0.75 0.47 0.22
Asset Turnover (x) 1.5 1.7 1.7 1.8 1.6
WC Cycle 87 70 66 70 81
P/E (x) 32.5 38.3 54.5 51.0 25.9
EV/EBITDA (x) 7.7 7.7 7.2 8.7 7.8

TPL Plastech FY12 FY13 FY14 FY15 FY16

Sales 1,286 1,538 1,901 1,832 1,867
EBITDA 144 159 174 182 210
PAT 59 63 72 76 86
EBITDAM (%) 11.2 10.3 9.2 9.9 11.3
RoC (%) 11.1 10.7 11.1 11.6 14.2
RoE (%) 22.3 20.5 20.2 18.5 18.3
Debt/Equity 1.5 1.2 1.1 1.0 0.5
Asset Turnover (x) 1.4 1.4 1.6 1.5 1.5
WC Cycle 52.5 51.4 48.4 68.3 52.9
P/E (x) 64.7 60.5 52.8 49.9 44.2
EV/EBITDA (x) 28.2 25.4 23.2 22.2 19.2

Time Techno FY12 FY13 FY14 FY15 FY16

Sales 15,282 17,978 21,911 24,796 24,736
EBITDA 2,431 2,920 3,131 3,421 3,495
PAT 898 1,035 954 1,096 1,383
EBITDAM (%) 15.9 16.2 14.3 13.8 14.1
RoCE (%) 8.1 8.5 7.9 8.4 8.0
RoE (%) 12.6 13.0 10.9 11.2 10.8
Debt/Equity 0.9 0.9 0.9 0.7 0.6
P/E (x) 29.9 25.9 28.1 24.5 19.4
EV/EBITDA (x) 13.6 11.4 10.6 9.7 9.5

Essel Propack FY12 FY13 FY14 FY15 FY16

Sales 15,837 18,318 21,266 23,230 21,846
EBITDA 2,671 3,158 3,553 3,971 4,236
PAT 514 810 1,078 1,406 1,821
EBITDAM (%) 16.9 17.2 16.7 17.1 19.4
RoCE (%) 5.4 6.3 7.9 9.5 10.7
RoE (%) 7.2 8.9 13.1 18.9 20.7
Debt/Equity 1.0 1.0 1.4 1.2 0.7
P/E (x) 72.5 46.0 34.5 26.5 20.4
EV/EBITDA (x) 16.6 14.0 12.4 11.1 10.4

13 Mold-Tek Packaging
 Institutional Equities

Pearl Polymers FY12 FY13 FY14 FY15 FY16

Sales 2,145 2,185 2,251 1,988 1,774
EBITDA 151 78 148 86 121
PAT (4) 142 5 (25) 5
EBITDAM (%) 7.1 3.6 6.6 4.3 6.8
RoCE (%) 4 (1) 5 1 4
RoE (%) (1) 26 1 (4) 1
Debt/Equity 0.8 0.8 0.6 0.6 0.5
P/E (x) (167.7) 4.3 114.2 (24.5) 132.6
EV/EBITDA (x) 5.4 10.5 5.5 9.5 6.7

Kanpur Plastipack FY12 FY13 FY14 FY15 FY16

Sales 1,861 1,761 2,132 2,476 2,481
EBITDA 240 226 275 281 365
PAT 104 69 109 114 165
EBITDAM (%) 12.9 12.9 12.9 11.3 14.7
RoCE (%) 16.0 11.9 12.0 11.6 15.3
RoE (%) 42.8 21.8 26.6 22.6 26.3
Debt/Equity 2.1 2.1 1.9 1.3 0.9
P/E (x) 18.1 27.1 17.2 16.4 11.4
EV/EBITDA (x) 10.5 11.1 9.1 8.9 6.9
Source: Company, Nirmal Bang Institutional Equities Research

14 Mold-Tek Packaging
 Institutional Equities
Healthy financials
Exhibit 31: Net sales Exhibit 32: EBITDA
(Rsmn) (Rsmn) (%)
5,000
800 20
17.6
4,500 16.6 18
700
4,000 16
600 14.0 17.0
16.5
3,500 12.4 12.1 14
500 11.6
3,000 10.4 12
400 10

759
2,500

4,327
8

616
2,000 300

3,628

496
6

458
3,008

400
200
2,858

2,764

1,500
2,556

295
211
1,923

200
100

186
1,754

1,000 2
1,504

500 - 0
- FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E
FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E EBITDA (Rsmn) EBITDAM (%)

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 33: PAT Exhibit 34: Cash flow from operations versus free cash flow
(Rsmn) (Rsmn)
450 500

400 400

350 300

300 200

250 100

200 -
388
312

150 (100)
251
241

100 (200)
169

50 (300)
95

91
81

58

- (400)
FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E
CFO CAPEX FCF

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 35: Return on Equity (RoE) Exhibit 36: Return on Capital Employed (RoCE)
(%) (%)
30 25 22.5
20.8
24.0 20.0
25 22.7 18.9 18.7
20
20.0 19.7 20.6
18.4 15.6
20 17.9 14.5
15
15 10.9
12.2
10
10
5
5

0 0
FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

15 Mold-Tek Packaging
 Institutional Equities
Exhibit 37: D/E ratio Exhibit 38: Volume of polymer processed
(x) (MT)
1.6 30,000
1.4
1.4 1.2 25,000
1.2
1.2 1.1
20,000
1.0

0.8 15,000

24,872
21,434
0.6

18,416
10,000

16,883
15,838
14,661
0.4
0.2 0.2 0.2
0.1 0.2 5,000
0.2

- -
FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E FY14 FY15 FY16 FY17E FY18E FY19E

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 39: Quarterly performance

Particulars (Rsmn) 3QFY16 2QFY17 3QFY17 YoY (%) QoQ (%) 9MFY16 9MFY17 YoY (%)
Revenues 677 759 677 0.1 (10.7) 2,052 2,269 10.6
Raw material 401 459 402 0.1 (12.5) 1,262 1,368 8.4
Staff costs 61 68 66 8.7 (2.3) 174 203 16.9
Other expenses 47 54 58 23.8 7.6 140 170 21.0
Total expenditure 561 631 575 2.6 (8.9) 1,725 1,893 9.8
EBITDA 116 128 102 (12.0) (20.0) 327 375 14.9
EBITDAM (%) 17.2 16.8 15.1 210bps 170bps 15.9 16.5 60bps
Depreciation 22 25 25 14.4 2.1 63 74 17.1
Interest 2 4 4 105.7 14.1 8 12 60.3
Other income 1 1 9 571.3 616.7 4 14 215.6
PBT 92 101 82 (11.0) (18.7) 259 303 16.9
Tax 32 35 27 (17.2) (23.6) 89 103 14.8
Net profit 60 66 56 (7.7) (16.1) 169 200 18.8
EPS (Rs) 2.2 2.4 2.0 (7.7) (16.1) 6.1 7.2 18.8
Source: Company, Nirmal Bang Institutional Equities Research

16 Mold-Tek Packaging
 Institutional Equities
Packaging industry
Scenario
Packaging industry in India and overseas has been growing at a rapid pace. Growth rate of packaging
industry has been more than GDP growth in most countries. The global packaging market was estimated at
around US$840bn in 2015 and set to touch US$998bn by 2020, posting a CAGR of 5%. In India, the
packaging industry has posted a healthy CAGR of 16% over 2011-15 and touched the US$32bn mark.
Despite growing at such a healthy pace, Indian packaging industry still accounts for just 4% of global
packaging industry, which is estimated at US$840bn. Per capita packaging product consumption in India
stands at 4.3kg compared to Germany whose per capita packaging consumption is 42kg. Going forward,
Indian packaging industry is expected to grow at a healthy pace of 18% per annum wherein flexible packaging
is expected to grow 25% per annum and rigid packaging is supposed to grow 15% annually.

Exhibit 40: Global packaging industry – segmentation – 2015 Exhibit 41 : Global packaging industry – segmentation – 2020

7% 3% 2%
7%
12% 31%
13% 31%

21%
22%

25% 25%

Paper and board Flexibile Rigid Plastic Metal Glass Other Paper and board Flexibile Rigid Plastic Metal Glass Other

Source: IBEF, Company, Nirmal Bang Institutional Equities Research Source: IBEF, Company, Nirmal Bang Institutional Equities Research

Rigid packaging
Rigid packaging is expected to grow at the fastest space at a CAGR of 4.4% and touch US$223bn by
2020. Within rigid packaging, PET bottles are expected to remain the leader and global consumption is likely
to touch 21.1mt by 2021. Africa and the Middle East will be growth drivers in rigid packaging for the next five
years.

Exhibit 42: Global packaging industry in 2015 (US$bn) Exhibit 43: Global packaging industry in 2020 (US$bn)

300 350 311

261

250 300
210 248
250 223
200 180
200
150
103 129
150
100 62 100 68
50 22 24
50
- -
Paper and Flexibile Rigid Plastic Metal Glass Other Paper and Flexibile Rigid Plastic Metal Glass Other
board board

Source: all4Packs, Company, Nirmal Bang Institutional Equities Research Source: all4Packs, Company, Nirmal Bang Institutional Equities Research

17 Mold-Tek Packaging
 Institutional Equities
Flexible packaging
Demand for flexible packaging (paper, plastic, and complex/multi-D layer materials) increased significantly in
the past 10 years and the market size grew to US$210bn in 2015. It expects to post a CAGR of 3.4% and
touch a market size of US$248bn by 2020. Asian market is going to remain the biggest consumer, with a
market share of ~45% by 2020. Food industry is going to be the leading sector accounting for 70% of flexible
packaging amounting in 2015.
Paper and board packaging
Paper and board packaging (folding, corrugated board or cardboard for liquids) holds on to its leadership
position in global consumption, amounting to US$261bn in 2015. It is forecast to retain this position in 2020
with a CAGR of 3.5%. In 2015, China was the biggest market, ahead of the US, and will account for nearly a
quarter of global consumption in 2020. India and South Korea are forecast to post high growth. Strong
demand from the e-commerce segment has been a major growth driver for paper and board packaging. We
expect the e-commerce segment to continue to be the demand driver for this segment.
Metal packaging
Metal packaging segment accounted for US$103bn at the end of 2015. It is forecasted to touch US$132bn
by 2021, posting a CAGR of 4.5%. Metal cans for beverages make up 65% of metal packaging. In Asia, China
has been a major growth driver for metal packaging. Growth in metal packaging in China has mainly come
from aerosols and personal hygiene, cosmetics and cleaning products. In North America, canned foods and
beverages have been growth driver for metal packaging.
Glass packaging
Glass packaging is forecast to register lowest growth rate by 2020, at US$64bn. Mainly dedicated to drinks
and perfumes, it has become a symbol of luxury, and sometimes transgression with high-end and
sophisticated creations.

Exhibit 44 : Packaging – Industry- wise growth rate over 2015-19E

(mn Units) (%)
2,500 4.5
3.9
4.0
2,000 3.3 3.5
3.0 3.0
3.0
1,500
2.5
2.1 2.0
2.0
1,000
1.5

500 1.0
0.5
0.5

- 0.0
Food Beverages Tobacco Beauty & Personal care Tissue & Hygiene Home care Pet foods

Source: Packaging, Industry Report,, Nirmal Bang Institutional Equities Research

India
Indian packaging industry is valued at US$32bn (~Rs2,000bn) and offers employment to more than 1mn
people. Packaging industry in India is highly fragmented with over 22,000 companies. Packaging industry in
India is expected to post a CAGR of 15% to touch US$65bn. Rigid packaging currently accounts for
~US$3.2bn while flexible packaging accounts for ~8bn. Indian rigid packaging industry is expected to post
a CAGR of 14% while flexible packaging industry is likely to register a CAGR of 18% over FY16-FY20E.
Growth in rigid packaging industry is mainly going to come from four main sectors – paint & lube industry, food
& beverages, packaged food industry and pharmaceutical industry.

18 Mold-Tek Packaging
 Institutional Equities
Exhibit 45: Indian packaging industry Exhibit 46: Indian food & beverage industry growth
(Rsbn) (US$bn)
1,600 90
78
1,400 80

1,200 359 70

1,000 60

800 50

213 40 34
600
989 30
400
510 20
200
10
0
FY16 FY20E 0
FY15 FY20E
Flexible Rigid

Source: Ficci, Company, Nirmal Bang Institutional Equities Research Source: all4Packs, Company, Nirmal Bang Institutional Equities Research

Indian retail industry is one of the most dynamic and fast-growing industries. As per industry reports, it is
believed that Indian retail industry will grow from US$598bn to US$1,256bn. Indian retail market has attracted
many MNCs and as a result, it has boosted the demand for F&B, consumer products, cosmetics etc. With
rising income level, retail market is moving more towards the organised segment, leading to improved
demand for innovative and attractive packaging solutions. Within the retail space, food & beverage (F&B)
segment is one of the biggest end-users of packaging. Growth in F&B segment will drive growth in plastic
packaging. With rising per capita income, urbanisation and rising working women population in India,
packaged food industry in India is at inflection point. There is growing demand for ready-to-eat and ready-to-
serve products. We believe the plastic packaging industry will be one of the major beneficiaries of increased
packaged food demand in India. Apart from F&B segment, we believe the pharmaceutical industry will help
grow India’s plastic packaging industry.

Exhibit 47: Spending on packaged food in India Exhibit 48: Indian pharmaceutical industry
(US$) (US$bn)
400 25
350
350 21
305
300 20

250
203 15
200
11
150
92 10
100
Existing level in India
50 5
10
0
500-1000 1000-2000 2000-3000 3000-5000 >5000
0
avg spend on packaged food ($) FY15 FY20E

Source: Ficci, Company, Nirmal Bang Institutional Equities Research Source: Ficci, Company, Nirmal Bang Institutional Equities Research

Packaging and labeling is equally important as the product inside it. This view is shared by manufacturers,
marketers and consumers. Hence, in-mould labeling has a lucrative future with good supply and demand.
MPL has been smart enough and is the first entity to introduce IML technology in India. The company is
shifting gear as it moves into the highly growing, profitable and brand-driven industries like packaged food &
FMCG. While its competitors in injection moulding have many entry barriers in IML technology, MPL has
already backward integrated into IML labels and even makes robots in-house. MPL already offers specialised
solutions for industry leaders such as Procter & Gamble, Mondelez, MTR Foods, Hindustan Unilever and
Haldirams.

19 Mold-Tek Packaging
 Institutional Equities
What is in-mould labeling?
The In-mould Decorating Association (IMDA) defines the process as “labeling or decorating a plastic object
while the object is being formed in the mould.” While a glue-applied or PS label is stuck on the surface of an
object, the IML label is “imbedded in the wall of the object”.

Exhibit 49: In-mould labeling process

Source: In-Mold Decorating Association (IMDA), Nirmal Bang Institutional Equities Research

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Exhibit 50: IML market share – Region-wise Exhibit 51: IML market share – No. of units (mn)
(mn Units)
4% 3% 12,000
10,800
11%
10,000

8,000
22%
60%
6,000
3,960
4,000
1,980
2,000
720 540
-
Europe North America Asia Pacific Africa & Middle South America
Europe North America Asia Pacific Africa & Middle East South America East

Source: AWA “Global In-Mold Label Market Study”, Nirmal Bang Institutional Source: AWA “Global In-Mold Label Market Study”, Company, Nirmal Bang
Equities Research Institutional Equities Research

IML, although expected to be the fast-growing segment, the technology still remains niche. IML currently
accounts for only 2% of total global labeling market, while pressure-sensitive labels and glue-applied
labels account for 39% and 36%, respectively. Though the market size is currently small for IML, it is
expected to grow 4%-6% globally by 2020.

As per industry data, the demand for in-mould labels is the highest in Europe, which accounts for 60% of
global IML label demand. Followed by Europe, North America has a market share of 22% in IML labeling
while Asia remains the third-biggest market for IML at 11%. South America has 3% market share while Africa
and the Middle East account for 4% of total IML market. Globally, ~18bn packages decorated with IML labels
were sold in 2015. Of the 18bn packages with IML labels, ~11bn were sold in Europe followed by North
America at ~4bn units. Africa and the Middle East are poised for biggest gains at 3.6% through 2018. Asia is
expected to be the second-fastest growing market in IML at 3.4% through 2018. North America and South
America are expected to grow 2.6% and 2.2%, respectively.

Few of the international players operating in IML space are - CCL Industries, Canada, Verstraete, Belgium,
Constantia Flexibles, Austria, Illig, Germany, Xeikon, Netherlands, EVCO, USA, Coveris, Germany.

Exhibit 52: IML labeling market share – Moulding method Exhibit 53: IML usage – Industry-wise
1%
2% 0%

10%
30%

19%

69%
69%

Injection Moulded Blow Moulded Thermoforming

Food Household chemicals Industrial chemicals Beverage Health & Personal care

Source: AWA “Global In-Mold Label Market Study”, Nirmal Bang Institutional Source: AWA “Global In-Mold Label Market Study”, Nirmal Bang Institutional
Equities Research Equities Research

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Exhibit 54: Global market share based on labeling technology Exhibit 55: IML global market
2% 2% (US$bn)
3.5
18%
3.0
39%
2.5

2.0
3.23
1.5
39% 2.58
1.0

0.5

0.0
Pressure sensitive Glue applied Sleeving In-mould Other
2015 2020E

Source: AWA “Global In-Mold Label Market Study”,, Nirmal Bang Institutional Source: Markets & Markets, Nirmal Bang Institutional Equities Research
Equities Research

A major portion of IML comprises injection moulded applications (69%), while the rest comprises extrusion
blow moulding (30%) and a minuscule proportion is accounted for by thermoforming (1%). However, region-
wise this share of IML application varies. IML for injection moulded applications is growing at a healthy rate in
North American market while African and the Middle East markets are doing well in extrusion blow format.
European market has done well in both - IML – injection moulded and IML – extrusion blow moulded
applications.

Growth drivers

Food and FMCG is going to be key driver going forward for IML labeling. European food and dairy markets
have adopted IML. Dairy food products such as cheese, margarine, sauces and ice-cream are well suited for
food applications because the label is protected from water, ice and other environmental factors ( as the label
is a part of the container itself). Other than this, IML labeling method involves zero-human contact. For food &
FMCG industry where hygiene is of utmost importance, zero-human touch makes IML an apt method for
packaging. IML offers better aesthetic value than other traditional methods such as screen printing and heat
transfer labeling. As a result, brand recall value of products improves dramatically.

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 Institutional Equities
Company background
MPL was established in 1986 by two technocrats – Mr. Lakshmana Rao and Mr. Subramanyam. MPL is the
market leader in rigid plastic packaging in India with over two decades of experience. MPL is involved in
manufacturing injection moulded packaging containers, mainly pails (cylindrical containers) for paint, lube,
food and other products. The company has world class integrated facility, right from product inception to mould
designing, processing and decorating the products. It has seven processing plants in India, three stock points
and ~70 moulding machines. MPL has capacity of ~27,000tn in India and 3,000tn in the UAE. In 2011, MPL
imported two robots and labels from Taiwan to utilise them in IML for decorative packaging. MPL is the sole
player in India to use IML technology for labeling. The company did backward integration and started
manufacturing in-house robots (currently has 45 robots) so as to reduce costs and improve quality control.
MPL currently is the only backward integrated player in IML technology globally.

Exhibit 56: Capabilities

Capabilities Key features

 MPL introduced IML decorated packaging for the first time in India.

 Only company in India to have completely integrated facilities ranging from label making, mould
In-mould labeling (IML) manufacturing, to in-house robot manufacturing.

 No dependency on imports – in-house labels, robots and mould manufacture and maintenance.

 Design is printed on the release layer of a label and upon application of heat it is transferred to the
container.
Heat transfer labeling
 MPL has in-house heat transfer labeling and label printing facilities.

 Label is slipped onto the container and upon heating the label shrinks and fits the container snugly.

Shrink sleeving  Aesthetics and picture resolutions are better than screen printing.

 MPL has in-house capability to manufacture shrink sleeves.

 Process where ink is squeezed through exposed screen to the surface of product.

 Most economical option among decorative options.

Screen printing
 Suitable for paints and lubricant pails, but is not preferred for food and FMCG containers.

 MPL has automatic screen printing, ensuring better alignment of different colours.

Source: Company, Nirmal Bang Institutional Equities Research

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 Institutional Equities
Products
Lube packaging: MPL is involved in the manufacture of injection-moulded containers for lubes. These
containers are completely leak-proof as they are made as a single unit. These units are tamper-proof because
of patented locking system. As result of compact size and mould design, these containers are easy to store
and stack. MPL manufactures containers with the size ranging from 5 litre to 25 litre. Castrol (10%-12%) and
Shell Oil (5%-6%) are some of its top clients in this segment. Lube packaging as a whole accounts for ~35% of
total sales of MPL.

Paint packaging: MPL is a leading packaging specialist for paints. It has developed strong expertise in
manufacturing pails of numerous sizes, designs and shapes (classic oval, rectangular and square). Pails are
provided with tamper-proof lids so as to ensure complete safety against adulteration. The company has
expertise in in-mould labeling on packaging pails that helps improve brand recall. Around 60% of MPL’s total
sales come from paint packaging with major clients being Asian Paints (25%-28%), Kansai Nerolac (10%-
12%) and Akzo Nobel (10%). Product portfolio includes containers ranging from 1kg to 20kg in size.

Food and FMCG: MPL has latest technology and experience in manufacturing food packaging for automatic
filling. MPL has capability to manufacture containers of different sizes to satisfy the needs of bulk customers
as well as end consumers. This segment currently caters to ice cream, dairy products and drink powder
consumers. Amul and Mother Dairy are MPL’s key clients in dairy product segment. MPL’s capability to
execute the in-mould labeling process allows spectacular brand visual presentation. This segment currently
contributes ~5%-7% to the company’s total sales. However, the management is confident that this segment
will contribute substantially in the next three to five years. Current product portfolio includes containers with
capacities ranging from 100ml to 1,000ml.

Exhibit 57: Product Portfolio

Source: Company, Nirmal Bang Institutional Equities Research

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Exhibit 58: MPL’s management team
He holds a bachelor’s degree in civil engineering and post graduate diploma in
management from IIM, Bangalore. He promoted MPL in 1985-86 with overall
Mr. J. Lakshmana Rao Chairman & managing director
project cost of Rs5.5mn. He has over 30 years of experience. Under his
leadership, MPL went public in 1993 and got listed on NSE and BSE.

He holds a bachelor’s degree from REC, Suratkal. After working for three years
in Nizam Sugar and ACC, he promoted MPL along with Mr. Lakshamana Rao.
Mr. A. Subramanyam Deputy managing director He has over three decades of experience and is currently looking at in-house
research and development division and in-house tool room for designing and
development of new products.

He holds a bachelor’s degree in arts from Osmania University. He also holds a

Mr. P. Venkateswara Rao (P.V.Rao) Deputy managing director diploma degree in materials management. He has over 27 years of experience
with over 10 years of experience in project execution and co-ordination.

Source: Company, Nirmal Bang Institutional Equities Research

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 Institutional Equities
Financials
Exhibit 59: Income statement Exhibit 60: Cash flow
Y/E March (Rsmn) FY15 FY16 FY17E FY18E FY19E Y/E March (Rsmn) FY15 FY16 FY17E FY18E FY19E
Net Sales (incl. OOI) 2,850 2,757 3,000 3,620 4,319 EBIT 317 373 394 492 615
% growth 11.7 (3.3) 8.8 20.7 19.3
(Inc.)/Dec in working capital (86) (89) (7) (62) (133)
Other income 8 7 8 8 8
Cash flow from operations 232 285 386 430 482
Total Income 2,858 2,764 3,008 3,628 4,327
Raw Material 1,854 1,667 1,809 2,147 2,520 Depreciation 84 87 102 124 145
Staff 213 240 279 321 369 Tax paid (85) (127) (134) (168) (209)
Other expenses 186 192 224 283 381 Net cash from operations 231 245 354 386 417
Total Expenditure 2,451 2,299 2,504 3,004 3,560 Capital expenditure (94) (245) (209) (350) (250)
EBITDA 400 458 496 616 759 Net cash after capex 137 0 145 36 167
% growth 35.4 14.6 8.2 24.2 23.3
(Increase)/Decrease in Investments - (4) - - -
EBITDA margin (%) 14.0 16.6 16.5 17.0 17.6
Other Investing activities 31 - - - -
Depreciation 82 85 102 124 145
Net cash from investing activities (91) (243) (209) (350) (250)
EBIT 317 373 394 492 615
EBIT margin (%) 11 14 13 14 14 Cash from Financial Activities (144) (11) (149) (43) (169)
Interest 73 10 17 20 26 Opening cash 6 10 8 12 13
Profit Before Tax 253 368 385 480 597 Closing cash 10 8 12 13 18
% growth 82.3 45.2 4.6 24.7 24.5 Change in cash 4 (2) 4 0 6
Tax 85 127 134 168 209
Source: Company, Nirmal Bang Institutional Equities Research
Effective tax rate (%) 33.4 34.5 34.8 35.0 35.0
Net Profit 169 241 251 312 388
% growth 85.8 43.0 4.0 24.3 24.5
Exhibit 62: Key ratios
EPS (Rs) 7.2 8.7 9.1 11.3 14.0 Y/E March FY15 FY16 FY17E FY18E FY19E
% growth 78.0 21.5 4.0 24.3 24.5 Profitability & Return ratios
DPS (Rs) 2.4 3.3 3.4 4.2 5.2 EBITDA margin (%) 14.0 16.6 16.5 17.0 17.6
Payout (%) 33 37 37 37 37
EBIT margin (%) 11.1 13.5 13.1 13.6 14.2
Source: Company, Nirmal Bang Institutional Equities Research Net profit margin (%) 5.9 8.7 8.3 8.6 9.0
RoE (%) 20.0 19.7 18.4 20.6 22.7
Exhibit 61: Balance sheet RoCE (%) 18.9 20.0 18.7 20.8 22.5
Y/E March (Rsmn) FY15 FY16 FY17E FY18E FY19E Working capital & Liquidity ratios
Share Capital 138 139 139 139 139 Receivables (days) 57 73 70 65 65
Reserves and Surplus 1,019 1,152 1,292 1,465 1,679
Inventory (days) 54 53 55 55 55
Shareholder's Funds 1,157 1,291 1,431 1,603 1,818
Payables (days) 20 31 30 30 30
Non Current Liabilities
WC days 91 94 95 90 90
Deferred tax liabilities (Net) 44 54 54 54 54
Long Term Borrowings 110 66 48 80 80 Current ratio (x) 2.4 1.7 1.7 1.5 1.6
Long term Provisions 16 21 21 21 21 Quick ratio (x) 1.6 1.3 1.3 1.1 1.2
Current Liabilities Valuation ratios
Short term borrowings 35 186 186 271 301 EV/Sales (x) 2.2 2.7 2.5 2.1 1.7
Trade payables 100 143 149 176 207 EV/EBITDA (x) 15.6 16.2 14.9 12.2 9.9
Other current liabilities 109 114 108 140 153
Adj. P/E (x) 36.1 29.7 28.6 23.0 18.5
Short term provisions 122 166 177 219 272
Adj. P/B (x) 5.3 5.6 5.0 4.5 3.9
Total Liabilities 1,694 2,041 2,174 2,564 2,905
Growth (%)
Total Gross Block 1,155 1,320 1,590 1,940 2,190 Sales 11.8 (3.3) 8.8 20.6 19.3
Accumulated Depreciation 440 510 612 736 880 EBITDA 35.4 14.6 8.2 24.2 23.3
Net Fixed assets 745 897 1,004 1,230 1,336 PAT 85.8 43.0 4.0 24.3 24.5
Long term loans and advances 36 43 45 45 45 Dupont Formula
Other Non-Current Assets/Invest 37 43 43 43 43 Profitability 5.9 8.7 8.3 8.6 9.0
Current Assets
Asset Turnover 1.7 1.4 1.4 1.4 1.5
Inventories 277 241 273 323 380
Leverage 2.0 1.7 1.6 1.7 1.7
Trade receivables 442 548 575 645 769
Cash and carry equivalents 10 8 12 13 18 RoE (%) 20.0 19.7 18.4 20.6 22.7
Short term loans and advances 136 252 211 254 303 Source: Company, Nirmal Bang Institutional Equities Research
Other current assets 12 11 11 11 11
Total Assets 1,694 2,041 2,174 2,564 2,905
Source: Company, Nirmal Bang Institutional Equities Research
272

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Disclaimer
Stock Ratings Absolute Returns
BUY > 15%
ACCUMULATE -5% to15%
SELL < -5%
This report is published by Nirmal Bang’s Institutional Equities Research desk. Nirmal Bang group has other business units with independent research teams
separated by Chinese walls, and therefore may, at times, have different or contrary views on stocks and markets. Reports based on technical and derivative analysis
may not match with reports based on a company's fundamental analysis. This report is for the personal information of the authorised recipient and is not for public
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We have exercised due diligence in checking the correctness and authenticity of the information contained herein, so far as it relates to current and historical
information, but do not guarantee its accuracy or completeness. The opinions expressed are our current opinions as of the date appearing in the material and may be
subject to change from time to time without notice.
Nirmal Bang or any persons connected with it do not accept any liability arising from the use of this document or the information contained therein. The recipients of
this material should rely on their own judgment and take their own professional advice before acting on this information. Nirmal Bang or any of its connected persons
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from any inadvertent error in the information contained, views and opinions expressed in this publication.
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Exchange Limited. NBEPL has registered with SEBI as a Research Entity in terms of SEBI (Research Analyst) Regulations, 2014. (Registration No: INH000001436 -
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27 Mold-Tek Packaging