Mold-Tek Packaging Limited (533080) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Mold-Tek Packaging Limited 3Q FY '22 Results Conference Call hosted by Nirmal Bang Equities Private Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand over the call over to Mr. Abhishek Navalgund from Nirmal Bang Equities. Thank you, and over to you, sir.

Thanks, Hemanth, and good evening, everyone. On behalf of Nirmal Bang Institutional Equities, I welcome you all to this earnings conference call of Mold-Tek Packaging for 3Q FY '22. We have with us Mr. Lakshman Rao, Chairman and Managing Director; and the entire finance team at Mold-Tek. Without further ado, I request Lakshman, sir, to start with his opening comments. Post which, we can open the floor for Q&A. Thank you, and over to you, sir.

Good afternoon, and welcome to the conference call of Q3 results of Mold-Tek Packaging. Thank you all for your interest in our company and its performance. I'm glad to inform you that in the Q3, the revenues are up by about 20%, and PAT is up by 11%. And in the 9 months period, the PAT is up by 54%, and revenues are up by 42%. This was the quarter, again, where the raw materials were ruling very high. In spite of that, the per kg EBITDA margin of the company could be maintained or rather a little improved over the Q2. But compared to the Q3 of last year, there's a comfortable 18% up from 36.5 to almost 43.05, so that's a sizable improvement in the EBITDA per kg was achieved, thanks to the robust growth in the Food & FMCG sector products. So I'm also glad to inform you that the first order -- commercial order for our QR-coded IML packs has been received from a company, which is manufacturing aqua products and nutraceuticals for aquaculture industry, in the sizes of 1, 4, I think 5, 10 and 15 kg size packs, which are being produced and delivered to them in the month of February. So that's the beginning of bringing in digital packaging into the country. And many other lube and paint companies are also willing to introduce this, but owing to the COVID, they were not very actively functioning and taking trials and running trial lots in the market and filling trials on their filling lines were getting delayed. But this company, being a local company and having a very good outlook about passability and controlling the counterfeit markets. They have adopted this technology, and I'm glad this will be the beginning of digital marketing of -- digital packaging of products in this country, again, introduced for the first time by Mold-Tek. So as we go forward, I will take the questions and answers to convey more information about the company prospects. Should I hand over back to the operator so that we can have questions one after the other.

[Operator Instructions] The first question is from the line of Rahul Jagwani with PGIM India Mutual Funds.

Lakshman, I just had a basic question. So just again the realization, what we have reached in the segments, what would be our like RM cost per KG like against the segments, including all our raw materials?

The branded raw material cost is about INR 110 for the Q3 compared to it was INR 85 last year. That's almost rise of 30%.

Okay. So on a per kg basis RM is INR 110 per kg, sir?

Yes. INR 120 is per kg. The blended cost effecting the FMCG and all that is coming to INR 110.

Okay. And how are we placing the RM trend now? I mean as price has been increasing.

RM prices are still stagnant at least in the month of January, there's just INR 1 price hike again. There was a little downtrend in December. But again, in Jan, they've rised by INR 1.

The next question comes from Archana Gude with IDBI Capital.

I have 2, 3 questions. So in the press release it's mentioned that we have received some orders from Amul and PVR, et cetera. Can you throw some more light on for which products? And what is the -- in terms of the value side?

You are talking about the -- from the companies like PVR and others, Amul?

Yes, yes, yes. Vital Pharma.

Yes. I just don't have the exact numbers. But Amul, I know is close to about INR 15 crores additional orders. And PVR is starting order. So Biostadt and PVR and others are just starting. There could be opportunities of INR 1 crore to INR 2 crores per annum to start with. Amul, I know because it was a big tender we won, so it is around INR 15 crores.

Sure, sir. Sir, also, we do understand paints is slightly subdued in the Q3. But then how is the scenario in -- like in the beginning of Jan, is there any improvement? Also, can you just quantify like how we did in paints in Q3 in terms of volume and value?

Yes, paints in Q3, in spite of overall growth of Q3-on-Q3 growth of 20% in value, in tonnage terms paints down by about 6.3% compared to the Q3 of last year because of the price rise that has been taken by the paint industry in the month of November. They have picked up in the month of November and December is subdued. That has impacted our sales in the paint sector, which is a major contributor to our company's top line. However, the bottom line has been well guided by the growth in thin wall, that is Food & FMCG, where we have seen 38.5% growth in volumes in terms of thin wall products compared to the Q3 of last year. So whatever improvement what you could see in the per kg EBITDA is mainly due to the increase in sale of thin wall Food & FMCG this quarter.

Sure. And sir, like, is there any improvement than what we saw in Q3, at least in the month of Jan? Like the Jan almost over.

In the month of Jan, yes, things are improving. Actually, if not Jan, Jan was like similar to December, November. But Feb forecast given by the major players of Asian Paints and other paint players is much better. Rather, they are back on track, I can say. Because whenever they take a price rise, a few weeks before onwards their filling lines will take a little cut in their productivity. But the ultimate numbers until the goods in the transit or goods in the distribution channels are all cleared, then they start it all again. So I think the trend is improving from Feb onwards.

Sure, sir. And sir, my last question is on this IBM. I believe that the new machinery should be operational by say, April 2022. Sir, have you received any order for that particular technology?

See, in IBM, we have 3 sectors we are aiming at. One is pharma, regulatory market, one is OTC products and another is cosmetics and general FMCG goods. So in the general FMCG and OTC, we have 1 solid inquiry, which we are about to close maybe in a week or 2 weeks, which would be almost able to fill the capacity of our pilot plant, which is coming up by April, May. And our idea was to, while these products are produced, the pharmaceutical containers will be also produced simultaneously. And clearances of all statutory clearances, DM clearances would take about 5 to 6 months. And by that time, we will have our major plant at Sultanpur ready to go into production. So without wasting idling capacity, we've been in a position to start off with FMCG and OTC products right from April, May onwards, hopefully, in May onwards. And by end of the year, we'll get the clearances from pharmaceutical companies. And by then, our expanded Sultanpur facility will be able to take up those orders.

Sir, how much is spending for these 2, the 1 which is like will be operational by March '22 and the second by December '22. How much is the total CapEx for these 2?

The May '22 plant, the pilot plant is hardly around 9 crores to 10 crores. But the major plant, which is constructed in a 40,000 square feet area as a greenfield project, that will gradually, in the year '22 and '23 together, there will be investment close to around 35 crores to 40 crores. As the demand increases, we'll be in a position to quickly add the machines, but the buildings will be ready to have the facility by hopefully around September, October '22.

The next question comes from the line of Rohit Reddy, Investor.

My question is for Lakshman. Sir, this is regarding raw materials. Did you ever consider collecting used plastic from secondary market and which I think puts into fine pallets and use them in the [indiscernible] molds? The reason I'm asking this, recently I came across an article from Microsoft. Their research [indiscernible] raw material prices has come down.

Rohit, your voice is not so clear. I understand you're asking about use of recycling material, is it correct?

Yes, sir.

Yes, we have just started -- actually with the consent of some of our clients like Asian Paints and some of the FMCG clients, we have started using recycled material, which is completely cleaned and provided in a very, what you call, clean and industry and hygienic manner. Of course, the material cost difference is not much, maybe 15%, 20%. But that material is so clean and segregated that we don't have any problems of processing and slowly companies who are very conscious about cutting down are making use of recyclability, they are slowly asking us to mix that material, which we have started using for the last few months. So recycling now, what it is available recycling material now is way better than what it was a couple of years ago. And there are big plants which are having facilities that completely clean the plastic, remove the dust and also any contamination and provide, even they are claiming that this material is food grade. So I'm glad that the recycling industry in the country has improved a lot. Earlier, such kind of material was only available in Singapore or Thailand and such countries. Now it's available in India. And the process they adopted is very, very suitable for easier recycling in injection molding. So that process has started. And our company is fore heading this development also with companies like Asian Paints and other MNCs.

Yes. Sir, [indiscernible] so are we buying those recycled plastic or like are we only trying to create this from other -- from secondary market products? How are you doing it currently?

No, no. There are recycling companies which have set up in different parts of the country, one in North and one in Daman area. And they are able to supply reprocessed, cleaned and regranulated material directly. So we don't do the process. The process is done by a third party who offer that material back to us, back to us means to us and then we use it in our company.

How much is the cost of the concern like normal one and the recycled one like does it play...

Yes, as I told you the cost difference is hardly 15%, but the idea is not only the cost difference, but also getting into the recycling, which is a point of concern for environmental angle. So some of the companies like Asian Paints and others who are very concerned. And like us, we are also concerned about controlling the -- are bringing in more recycling. So we are working closely with them to adopt this material.

[Operator Instructions] The next question comes from Mrunal Shah with Axanoun Investments.

I have 2 questions. First, can you have the EBITDA margin for all the categories like IML, non-IML and IBM? And second, can you throw some light on company's succession plan, if you have any?

Yes. So coming to the EBITDA margins on segment-wise, I may not able to provide right now, but the EBITDA margins of thinwall food are the highest among all 4 sectors that is paint, lube, square packs and thinwall packs. Probably, if you send a mail, I'll ask my finance department to give you that breakup. But roughly, if you want, I can say that the paint's EBITDA margins will be somewhere around INR 30 to INR 35 per kg. Lube's also will fall in the same category. Square packs also fall similar to maybe better INR 35 to INR 40. And then in thinwall products, it's as high as INR 80 to INR 90 or even INR 80 to INR 100 per kg. So the overall blended EBITDA is around 43. That is your answer to your first question. Coming to the succession plan, I'm very glad to inform you that you might have also interacted, my son Rana Pratap who is from IIT Delhi and IIM Lucknow has been in the company for the last 8 years. He and Mr. Sundeep, who is also son of our Deputy MD and Director. He is an MBA from Purdue and BTech from REC, Kurukshetra. And he's been in the company for last 9 years now. He is completely looking after production planning and controlling and coordination. While Rana Pratap, who is my son, he's taking care of marketing and new business development. And he is instrumental in actually getting into IBM and new product development. He brought in lot of MNCs, especially in the Hindustan Unilever, Procter & Gamble, GSK are brought in after he has taken over the marketing in the last couple of years. And they are also involved in project management, selection of the molds and machinery. I think they are getting well-groomed and I'm confident they will be in a position to succeed and take the company forward.

The next question comes from Hitesh Taunk with ICICI Direct.

Sir, my first question pertains to overall volume growth during this quarter. Our overall volume, if you can give us, sir?

Yes. Volumes are flattish because there was a big drop in -- not a big drop, drop of 6.3% in paint, which contribute more than 55% to our company. So there is a drop of about 2%, 2.5% drop in volumes in this quarter compared to the Q2. And whereas the volumes have gone up in the case of thinwall, that is up by 67% compared to the -- is this compared to Q2? 12%, is it? Yes, there's a 12% growth compared to Q2 in the Food segment that is thinwall segment, whereas other segments have registered, Paints have registered minus 12% in volume terms. Lubes have registered positive, actually they've gone up by 15%. So overall, net it is around 2.5% to 2.6% drop in the volume compared to Q2.

Okay. So sir, we have seen a good traction in the lubricant segment. Is it kind of a one-off event? Or will it be kind of a sustainable demand you are looking at this segment?

See in Lubes if you notice, we never hope Lubes will be a great winner, because Lubes are getting more and more stagnant. And in fact, by getting into our public sector that is BPCL is where we have seen growth. The main reason for our Q3 growth in lubricants is public sector companies, which we generally don't get tenders. We got the tender for BPCL 6 months ago, and they started picking up the numbers from September, October onwards. So the number -- the growth what you see in Lubes is mainly because of BPCL 2 years tender we won recently, which has started picking up from October onwards. So that is the one reason for Lubes growth. But in Lubes, through QR code, we anticipate growth coming in our way, because once they adopt QR-coded container because Lubes are the most affected by counterfeit, next to paint I can say, after lubes it is paints. The #1 product which has been counterfeited in the country is lubricants. So they are very much interested in adopting our QR-coded IML. Unfortunately, because of this COVID situation, their plants -- neither their plants nor their marketing teams are actually coming physically to the office to adopt this change and test the change in the market. Any moment there is some couple of months of peace resumes from this COVID, I'm sure they all will go for it because they already now understood what QR-coded IML with the inside IML code can do. And even the IT part of that controlling of counterfeit, which I explained in my previous talk are all ready now. So we have now tied up all the loose ends, both on the hardware side and the software side, because this is a kind of digital packaging, where sitting in the office, the clients can monitor which pack is lying where and when it is sold, and they can ensure that the pack will not be sold again because of the counterfeiting control they get through the QR code, which is in QR code and outside QR code. So all these concepts are ready. But unfortunately, with the COVID going on, physically they could not test it. I'm sure once the normalcy comes, they all will go for it. That is when I anticipate growth coming in the Lubes sector, a real growth.

Okay. And sir, clearly, you have given a guidance of volume growth of around 20% for the next 2 years. I mean are you still with the same guidance? Or I mean, you...

We are aiming at that. This year, we are at around 14% for the 9 months. Our volume growth is 14%. And hopefully, we may end up similar or maybe 13% to 14% because fourth quarter also we may look at around 10% growth is what looks feasible. So overall, we may end up the overall year at around 13% is my guess. But next year, our IBM products will start and many new products for MNCs in food sector, Food and FMCG, mainly food sector, are on the anvil. I can't tell the names today because the orders are about to be received, but we have stuck deals at least for 4 products, which will contribute handsomely to the Food & FMCG that is thinwall sector from April, May onwards, because the mold development will take 3, 4 months. So hopefully, from May onwards, those 3, 4 products will be added to our thinwall segment. And there will be contributing considerably in the next financial year. So we are aiming at yes, 18% to 20% volume growth again next year, if no pandemic and things go smooth.

And sir, what was the pump revenue during this quarter, sir?

Yes. Pump revenues are now picking up, just about INR 1 crore in the quarter. But we have now got the cadence from Hindustan Unilevers just a few days ago and supplies will start from next month for HUL. Reckitt Benkiser and Himalaya again, these 2 players are also impacted by COVID, some of them, and they could not visit for the final trials. So -- but their corrections were done in their models. Every pump has a small minor difference in the caps on the outside actuator. So those corrections were made and submitted. So once that is cleared, Himalaya and Reckitt Benkiser are also expected to add volumes. As I said, hopefully, from April, there will be at least 100% to 150% improvement in the pump sales.

Okay, good. And sir, my last question will be, recently, we have done a QIP and from that QIP the promoter stake has reduced another 1% on a Q-on-Q basis. Sir, is there any plan to increase the stake? Or what is your take on that, sir?

Yes. See, you have correctly noticed that there is a drop in the promoters holding after the QIP. But there are warrants which are getting converted in the month of April, May this year '22, wherein promoter's stake will come back to almost 33.7% to 34%. So we'll be back to the previous levels of 34% after the warrant conversion.

The next question comes from Akshay Chheda with Canara Robeco AMC.

Yes, sir. Sir, first question will be, sir, if I have to look at the EBITDA per kg for the last 4 quarters, I mean, it has been on the improving side only, I mean, 41.6 to 42.2 and then 42.5 now 43. So like -- but at the same time even the RM was on the inflationary trend. So assuming that the RM stabilizes, then how should we see as a sustainable EBITDA per kg? I mean this is the question before the pharma starts because pharma will again have some positive impact on the EBITDA per kg. So just your comments on that? That will be my first question.

Okay. Okay. I'll answer this. EBITDA increase is mainly due to the increased sale of Food & FMCG. In spite of drop in volumes of paint and overall quarter, why we could make a better EBITDA margin was there is a jump of 38% in tonnage wise compared to Q3 and Q3 in the segment of thinwall Food & FMCG. So that is the main driver of our growth as of today, and pumps is the second segment, which will add to higher EBITDA margin, as high as Food & FMCG or maybe better. And as you correctly said, once we start pharmaceutical or even OTC products in IBM, that is maybe starting from May, June onwards, we will certainly have much higher EBITDA margins coming from those product range. So with the improved sales of thinwall, pumps, pharma and OTC product packagings, our EBITDA margins will gradually improve. How far it will go all depends upon the growth what we achieve. I'm very confident of these 2 segments that is thinwall Food & FMCG and pumps for the next year. Why I am saying IBM and other products may take a little time because the volumes in the beginning won't be really sizable to make an impact. But during the year or maybe second half or maybe in the year '23, '24 onwards, you will see pharma -- IBM segment, that is pharma, OTC, cosmetics also contributing to improving the EBITDA from current levels. So while the next 1 year growth comes from thinwall and pumps, 23 to 24 EBITDA margin improvement per kg will come from IBM and their related products.

Okay. And so second question would be, if you can provide the value and volume breakup between IML and non-IML for Q3.

Volume, IML and non-IML nowadays is getting stagnated because whatever could change have changed. We are at around in tons-wise, 65.5% as against 62.5% last year. On the 9 months period, we are at same level, somewhere around 62.5% -- and it became 62% now. So as I told you that unless some of the existing screen printing brands shift to IML, overall IML growth is only coming through thinwall and Food segment, which is 100% IML. So in the paint and lubes, there's still a stagnation in terms of increasing of IML adoption, but we may have some good news in a couple of months with some of the -- our paint or lube companies looking at IML through QR code or otherwise.

The next question comes from Vijay Karpe with Bryanston Investments.

Am I audible?

Yes, a little bit low voice, but...

My first question is, what is the capacity of the new plant which you are setting up for Berger merger and when would it start? And are we in talks with Grasim?

Sorry?

Are we in talks with Grasim for the same division?

Sorry, your voice is not clear.

Are we in talks with Grasim for our paint division?

Jackie?

Grasim Paints.

Grasim, Aditya Birla group. Yes, the capacity for Berger plant at Lucknow will be decided in the next few months. But the construction of the new plant will start only from middle of this year, because they also deferred their production plans, I think, to the second half of this year. So by then, we will be meeting their needs from our existing lease in premises already set up near Kanpur, and Sandoli where we have taken land next to Berger plant. The plant will be constructed during the financial year '22-'23. And that will be minimum of 2,500 tonnes capacity to start with. And your second question, we are in touch with ABG, but no confirmations of working with them as of now. We are working with them.

Great. And what kind of volume growth do we see in FY '23? And the CapEx for FY '22 and FY '23?

Yes. CapEx-wise, we have major plans in '22, '23, wherein we have to complete our IBM major plant and Kanpur plant for Berger and probably another new plant for a new client and expansion of our Vizag and Mysore. So there will be considerable investment coming up in the year '22, '23, already started at Sultanpur with the construction of the building there. And the pilot plant at Unit 1 is nearing completion. So in the current year, we may end up with a INR 50 crore investment currently, already, we did INR 36 crores. And about INR 11 crores of balance payables for the machineries that are ordered is already there. That means under construction at Sultanpur and other areas and molds will take the investment in the current year to around INR 55 crores. But I see next year, it will be much more in the tune of INR 70 crores to INR 80 crores depending upon how the IBM product demand opens up. So for Kanpur -- for the Berger it is a capacity of 2,500 tonnes to start.

Okay. And what kind of volume growth do we see for FY '23?

We are aiming at anywhere between 15% to 20%, because in IBM and other products, we may not see sizable contributions. But the -- as I told you, some of the major product wins we made in thinwall recently, which will go into production from May onwards might add considerable numbers in that sector again. So hopefully, we should be seeing a 15% to 20% growth during the next financial year.

Sir, volumes [indiscernible] segment-wise for Paint, Lubricants, and [ SMS ] (sic) [ FMCG ].

Sorry, what is the breakup you mean?

The value absolute number for an Paints and Lubricants.

Yes, in terms of absolute numbers of 160 crores, 87 crores is Paints, 37 from Lubes and 36 from 36.5 from Foods -- Food & FMCG.

Volume numbers, I'm asking.

Volume-wise, 4,200 tonnes from Paints, 1,800 tonnes from Lubricants, the balance about 1,320 from Food & FMCG.

The next question comes from Vivek Tolat with Acme Family Office.

Could you actually give us a more -- better idea of the time line for the expansion in Mysore and Vizag and how much we are taking our capacity ahead for? That was my question number one. And question number 2, sir, if you could give us a broad -- how we propose to use the INR 100 odd crores that we have been raised from the QIP given that already the business was throwing about INR 60 crores to INR 70 crores of cash every year. Do we see that QIP amount also going into additional CapEx? And how do you propose to use that, sir?

See, in Mysore and Vizag, the expansion is already underway. The buildings are ready and additional machines will be added as and when Asian Paints indicate their growth. And at Vizag, we are even planning some of the products manufacturing for Castrol Calcutta, which will be supplied directly from Vizag to Kolkata, which will save freight and time for the supplies. So these 2 plants expansion might involve about INR 20 crores to INR 25 crores in the next 1.5 years. In this year, probably half of it in the next 6 months or 9 months and then followed by the balance, 50% in the next 9 months because by '23, '24, we are supposed to have 6,500 tonnes. That is the projections given by Asian Paints at each plant. Currently, we have about 3,500 -- 3,000 to 3,500. So we need to almost double our capacity in these 2 plants in the next 24 months. So accordingly, there will be investment to the tune of about INR 30 crores in both the plants put together. And coming to the QIP utilization of funds, as I told you, we are now getting into a major segment that is IBM. And we foresee IBM and other similar products of OTC, not necessarily in IBM technology, it could be in injection molding. It could be in multi-color injection holding. We are keeping an open mind, but with IBM as a thrust area for regulatory pharma and other OTC products. Along with it, we are also going for ISO 15378. That is pharmaceutical standard for OTC products like Vicks VapoRub or Vicks Inhalers or Iodex are all these products which are like Himalaya's Liv. 52 and such products. They need to be produced in (sic) 15738 premises. Currently, most of the companies are procuring from just ISO companies which is not good enough, and government regulations are becoming tighter and tighter, wherein they are insisting on IS 15378 facility. Very few companies have such facility in the country, and we are ramping up that facility at Sultanpur along with our IBM products facility. So this will enable us to enter into high value-added OTC counter products also, which may have IBM products or which may have injection molding products or bimolding, double color or triple color molding products. So the idea is to enter into OTC products during this phase wherein we may foresee a sudden improvement or jump in investment requirement anytime in the next 6 to 9 months. So that's where these QIP monies will be invested. But anyway, there's a plan to invest about INR 200 crores to INR 250 crores in the next 24 to 30 months. So with this plan in mind, this QIP has been raised. And already projects underway would be requiring at least INR 80 crores to INR 90 crores in the next 12 months. And additional OTC products, the molds requirement can shoot. And we are also planning to expand our tool room's capacity and printing capacity during the next 9 to 12 months. That would need another INR 25 to INR 30 crores. So in my opinion, '22 to '23 we're just making the budgets. We made them at the time of QIP. So there are about INR 100 crores to INR 120 crores requirement may come up during the financial year '22-'23 in the next 14, 15 months. So that is where cash which has been procedured from the QIP issue, and that will be in the next 14 months.

Okay. Understood, sir. If I can squeeze in one more question, sir, with regards to our thinwall containers. What are the next future areas of growth. Over the last 2 or 3 years, we've converted ice cream containers. For a brief time, we had edible oils. At some more strategic level, what are the future areas of growth that we think are possible conversions in the next 1 or 2 years, if you may?

See, nutraceuticals, beverages of nutraceuticals, you have jams, you have butter and cheese. You have dates. We have various FMCG products like detergents, children products. So all these are where we are now stepping into because there is a consent for more and more hygienic way of manufacturing in the country now, not only it's been very late, I would say, because in many countries, these kind of standards are practiced for quite some time. We are a little late to get into that in our country. But all the MNCs have now set up standards that going forward, they will not make these products in ordinary conditions. They have to have highest 378 or FSS satisfied premises or even DMF certified in case of regulatory pharma. So going forward, we see that these nutraceuticals, beverages for children or even patient's protein powders, jams and cheese and other products. There are some cheese and jam, there are some brands which have shifted, but not all. So these are the areas where we would be concentrating. There will be some exotic caps and closures, which are requiring high-end technology. We are open to enter into those segments. So as we mentioned it at the time of QIP, we are looking not restricting ourselves to just containers and bottles. We are also open to look at value-added injection-molded or IBM products. And we see a lot of opportunities. I can't convey some of them because they are at a drawing board stage. But definitely, they will be value adding in nature -- higher value-adding in nature.

[Operator Instructions] The next question comes from Krishna [ Yatapu], an Investor.

Like hiatus in Paints, do you see any large competition from Food and FMCG space?

See, definitely, competition will be there in all segments. It's not that we are monopoly in even Food & FMCG. There are a couple of players as I said [ caps and cons ] in the North and a couple of players in the west are there for last 5, 6 years. But we have the best backward integrated facility, which any MNC or any volume business player will be looking at. Because having an IML robot or having a mold is not just enough to ensure trouble-free supplies. In injection molding, the machines, robots, they all work in very high temperatures, very high pressures, and they run 24/7. So they're all prone to maintenance. They are all prone to breakdowns. So a company like Mold-Tek which makes its own molds, which makes its own robots and even labels is only capable of handling these maintenance breaks without the pain being felt. So that is why even today, we are the single-serve supplier for some of the companies, even if they buy millions of components every month. So that is where our strength lies. And that strength is getting more and more fortified with the addition of new 5-axis deburring and milling machines we imported from Europe in our tool room and also high-end Italian machines with reverse QR-coding facility, which we have imported last year. So like this, we are creating industrial standards. And this QR code reverse printing is something which, in my opinion, it will take a few years more for any of our competitors to follow. So keeping these kind of areas and getting into higher value-add segments is a way forward for us. So even if competition comes up, we'll be in a position to maintain our leadership position.

On that front, in the past, you have mentioned that the reason for foreign players not entering Indian market is there is not enough traction in IML space. But at present, there is a lot of opportunities. So how do you see the risk of foreign players setting up facilities in Indian?

See, even foreign players if they setup facility here, none of the players are so much backward integrated like us. They buy IML from outside, they buy label from outside. Some of them buy even molds from outside. Some of them make their own molds. And their costs are so high that they will not be able to play with Indian costing and Indian pricing, which we have absorbed and survived or rather mastered in the last 30, 35 years. So that is one of the reasons why foreign players with IML technology don't look India with interest. Even the volumes go up, their pricing and the pricing of our Indian companies what they pay will not work out. In fact, we are now setting up a small export sell in our marketing department, 2 persons have been shortlisted for that. And we are trying to find opportunities of exporting thinwall containers or even pumps and our IBM products to as far as U.S.A. We are even in touch with a Chicago-based company. But these are all at the initial phase of discussion. So the companies coming and setting up a plant in India for IML products, I don't see a great threat in that. Even the volumes of IML adoption is increasing because of the pricing standards in India that they cannot meet.

Okay. Great to know that, sir. And my last question is, is it possible to get EBITDA breakup by sector? So paints, what is the EBITDA margin?

I don't have the data immediately, but I can give you a ballpark. In the paint and lubes, it will be in the range of INR 20 to INR 35 per kg. In the square pack, it may be around INR 35 to INR 40. In the thinwall and pumps, it will be in the range of INR 80 to -- anywhere between INR 80 to INR 100 per kg.

Okay. And sir, as you said, we are adopting these technologies using recycled raw materials. I'm assuming that there won't be any margin increase because of that, right?

Not really. In fact, there could be an improvement because when we use the seconds material, there is a technology that goes into in molding where we adopt that without impacting the quality of the end product. So I don't see that will be a margin reducing that anything. It could rather be beneficial to us.

The next question comes from Chandrika Venkatesh, an investor.

Siddharth here. I have a few questions. My first question is dispenser pump from our commodity item, there are a lot of manufacturers of dispenser pumps in India, and there are Chinese import also. So in this competitive segment, what advantage do you have? And how do you compete with your competitors in this segment? And in 3 years, what kind of revenues and EBITDA margin can we expect from dispenser pumps?

Is that all? Okay. So in the dispenser pumps, the advantage we have started with is the high cavitation, high-productivity molds. We -- while our competitors like Reiki and others, they have at the most 16 or 24 cavitation molds. We are using 36 and 48 cavitation molds, which will produce much higher productivity per crore of investment or either way you look at it. And another greatest advantage we have started with this, the design is compatible to give the best leak resistance and higher number of shots withstanding of more number of shots. And the assembly line, which we have adopted is completely automized and right from first item to the last are all, including the deep tube are assembled online, and they have tested 100%. Most of the companies currently in India, they test by batch model or by random sampling, whereas our pumps are tested 100%. That is the reason why we could get within a year approval from Wipro, recently from Hindustan Unilever, and Hindustan -- Himalaya and Reckitt Benkiser at the final stage of giving us clearance. So we are able to get into the likes of these top MNCs because of our quality and adopted technology. In 3 years, we envisaged the full capacity, that is around close to around 85 to 90, you can say 85 -- 8.5 million -- 8 million pumps -- 80 million pumps per annum. That is the price averaging around INR 6 to INR 7, take it INR 6, we'll be able to reach around INR 50 crores turnover with EBITDA margin better than what we are currently doing.

My next question is in IML packaging, your competitive advantage is up that you have everything under one roof. You make your own mold, you have your tool room, you make your own robots. So this all under one-roof model makes you reduce your cost of production and also makes you a very reliable supplier, because there is competitive advantage in IML packaging for understanding. Have I understood it correctly? Am I right?

You're correct. That's what I answered to the previous question. Our ability and completely backward integration right up to robots, right up to IML label, because if we make 10 million containers in a month, I need 10 million labels. And buying 10 million labels at whatever margin or whatever risk of inventory losses would be causing our competitors' pricing pain, which we can control because we manufacture all of them in-house. So that is the greatest advantage which we have over the competitors.

You are the largest IML player in India. But globally, there are bigger players also. What stops these global players from entering into the Indian market and competing with you? Why can't they enter India and compete with you? If they do that, how will you play with it?

See, as I again answered just a few minutes ago, the IML global players are not completely backward integrated like Mold-Tek. Even you take [ Jockey Plus], they make their own molds, but they don't make their robots. I think they don't even make their own IML label. So they have to procure the labels, they have to procure the robots and compete with Mold-Tek in India. The Indian pricing system will be a much bigger challenge for them than to us.

You answered it. Okay. In IML business, you have 2 great growth drivers going ahead. One is Food & FMCG taking to IML and the other is paint companies taking to IML. These are your 2 great drivers for IML in the future. Am I right? Or are there other right drivers also?

You're correct. But there is one more driver that's QR-coded IML, which we have introduced recently, which we also have a hidden QR code underneath the IML with a provision to tear it off at the time of sale. So that will provide complete counterfeit -- anti-counterfeit for the many clients who are suffering from anti-counterfeit and tampering in our country. So that QR-coded IML is what is getting introduced now in the country. The first orders have been received from an aqua food, nutraceutical manufacturing company, which is getting into the market in the month of February. And many lube companies are examining this and they're about to enter into using this QR-coded IML. So that is another area of our growth, we envisage.

Okay. Just 2 questions. You are planning to enter the injection blow molding segment. Now that is again a very competitive segment with a lot of players present. What competitive advantage do you have in this segment? And within 3 years, what kind of revenues and EBITDA margin will you achieve in this segment?

See again, the same advantages. Even in IBM, where we see our tool room, our strength in molding and tool manufacturing and maintenance and even robotics, where we are introducing IML capable machines, even attachable machines, we are getting from -- we are importing. And these machines also will be having molds made by us in the future, not in the first phase. First phase, we are importing these molds. But ultimately, we'll be making our own molds and even labels for the IBM, IML products. So this is the same advantage what we enjoy in injection molding, we want to replicate in IBM. And in IBM, there is competition, but there is not much of competition with backward integrated facilities. They're all standby operators with machines, molds everything imported. And there, we can again show how we can do better in productivity and profitability.

The next question comes from Karan Bhatelia with AMSEC.

Sir, like I understand, we see a [indiscernible] 4x asset turn on the pumps business model. So what kind of revenue assumptions we have for the QR code and IBM projects? So can you help me with that routine investment as of now and the peak revenue potential for these 2 projects?

For QR-coded, the same EBITDA -- I mean, sorry, if at all is possible, like 3 to 3.5 maybe. But in the case of IBM, the value of the product is not so high. So probably it will be in the region of 2.5. But until we really get in and start manufacturing those products, I'm not able to exactly give you a picture.

Right, right. And for QR code CapEx was somewhere around 50 crores rightly said, no?

Sorry?

The total CapEx for the QR code was somewhere from INR 20 crores to INR 50 crores?

No, no, no. For QR code, it's hardly INR 10 crores for the printing machine, which is again a versatile machine. It not only prints the QR code. If you don't want it, you just switch off that feature and it can be used for your regular IML.

Right. And any new updates with respect to the Zomato, Swiggy, [indiscernible] right now, is there anything material out there?

We have a first order for some of their products, Swiggy and Zomato are still under wall. They have not yet decided. They have been in discussion with us for quite -- but some of their major restraints, they are pushing them to adopt our containers where the volumes are sizable. So indirectly, we are getting business of Zomato and Swiggy, but not a direct order from them.

Right, right, right. Got it. Got it. And then one clarification volume growth quarter-on-quarter had a decline of 2.5%, right?

Yes. Actually, historically, our Q3 is always lower than Q2. Only last year, it was an aberration because the -- after the major COVID impact last year, the Q3 was better than Q2 last year. But typically, if you look at '18, '19 and '19, '20 also, our Q2 is -- Q1 and Q2 are higher. Again, Q3 will be a dip and Q4 will be the best. That is the trend.

The next question comes from Pulkit Singhal with Dalmus Capital Management.

Sir, you alluded to how backward integration allows you to be the lowest cost manufacturer for a pretty low-priced country. What is preventing us from therefore, competing in a global landscape in a much more effective manner? What would be the challenges because you already have relationships with some large MNCs.

Yes. See, the point here is trying and exporting from India is the way we want to go forward. And that's what I answered to in my previous questions. But we are looking at exports as a major opportunity thereafter because more and more smaller components, the China-Plus-One concept is coming in, in the minds of Europeans and Americans. There are many more inquiries than they were before in terms of the small components like closures, like pharma bottles, and even thinwalled ice cream and other cheese and butter packs, where which can go one into the other and thereby saving on transport costs and effectively landed cost will be much lower than the local manufacturing cost. So having said that, the export itself is a good opportunity to drive and having a limited bandwidth of management and, I would say, technical people, venturing into setting up plants outside may be a little too early for us and because we had a bad experience with [ RAK ], but that is not a correct example to take because at that time, we are mainly moved there with Iran in mind for their paints business of lubricants and oil, which has boomeranged because of sanctions. But anyway, the idea now is to explore those markets through exports from India.

Right. Would it be fair to say that you have not explored this opportunity much before? So we are not well aware of the historical...

We have been worked down with the local developmental work and not really concentrated on exports. And with the pandemic and concern about China being kept as a single source all these years, Americans and European companies are looking at India with more additional interest. And the inquiry is what we are getting and response we are getting from those companies is much overwhelming than what it was a few years ago. But anyway, the fault lies with on our side also, we are not aggressively taking exports. But going forward, we are slowly creating a team which will focus on exports and which could be of better value add.

Sure. And sir, in the global landscape, how much, I mean, for the product that you manufacture or that you can export out of India? Hello?

Yes.

Yes. How much of China's contribute of -- in terms of the percentage requirement of the global demand for the products that you manufacture?

I would say more than 30% U.S. and European products to 40% of such products of injection molding, thinwall containers, pumps, closures and caps are procured from sale. So even if you...

30% to 40%.

And what would be the TAM, your target addressable market, for products that you manufacture and in your own assessment?

I don't have exact figures for that. We are using [done bat set] for some support in export data, but I don't have exact numbers as of today. But it's considerable. The numbers run into quite a few millions or close to a billion also.

Right, right. So lastly, what competencies do you need to build? Like what action points do you have? And what could be the time line to see this off season exports that you could probably address?

See, what are the advantages? What are the true requisites we already have for export, what even exporting or importing trying to look better is our ability to continuously give supplies without hindrance and consistent quality. So we have proved ourselves with Mondelez, Hindustan Unilevers, or GSK that we are a variable supplier. Even we are a single source, millions of containers are being supplied from us without they're thinking about a second -- developing a second source. So that kind of variability is one thing which we have already established. And as I again say, the backward integrated facilities of even developing the mold, developing design studio where we have a design studio to develop 3D rendered images of products before they are produced and giving them rendered 3D images and reviews to the clients, enables them to get a clear idea of what it is going to be. So that they won't even get in all the packaging companies even in U.S.A., or Europe. So I think we have all the prerequisites, only thing is lack of attention on discount. And once more, I want to give this credit to my second generation, both Rana and his assistant, they both of them are concentrating on exports now. And they initiated creating a team and we even had a couple of talks with the U.S.-based clients recently. And they see a good future maybe in the next few quarters.

Ladies and gentlemen, in the interest of time, we will take a final question from Karan Bhatelia with AMSEC.

Just wanted to understand how is our working capital shaping up given the fact that many of our clients are midsized and small size. Any major business entity?

See, working at the -- if you mean data, we make sure that all small and medium players pay either in advance or along with, so that we don't get into write-offs. And major clients, they generally demand 60 to 70 days, 75 days on average credit and their payments are also completely assured. So if you look at our P&L, there are hardly any [indiscernible] impact.

Right, right. And you mentioned the breakup of IML down. Can you also help the value breakup?

Yes. Value breakup is 68% IML, 32% non-IML. It was 65% last year, 65.4% and 34.5%, which has now become 68.3% and 31.7% in terms of value. This again because thinwall sales have grown in the last 1 year compared to Q3 of last year.

That was the last question. I would now like to hand the conference over to Mr. Abhishek Navalgund from Nirmal Bang Equities for closing comments. Over to you, sir.

Thank you, Lakshman, sir, for taking all the questions, and thanks to all the participants for joining in. Now I would like to hand it over to Lakshman, sir, for his closing comments. Thank you, and over to you, sir.

Thanks, Abhishek and Nirmal Bang for holding this conference. And thank you all the participants for your interest in our company and for actively participating in the questions. And of course, learning more about our company and future plans. And I wish you all the best and take care. I think we are again in the wave of Omicron, but it's not so serious thankfully. Hopefully, there won't be any more variants, and we all live peacefully after a couple of months at least. Wish you all the best, and take care. Thank you.

On behalf of Nirmal Bang Equities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.