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

Got it. Got it. Sir nextly, if I look at the current capacity and the kind of volumes we are doing, we are soon to reach the 70% utilization again -- so will it be fair to assume that another 10 percentage of the 5 CapEx is expected to be there for FY '28?

Another what you said? Yes, .

Today, we are at around 67,000 you would be adding a 6,000 to 7,000. .

Not much. We have already added in this year capacity and some machines are underway. -- which might take it up close to 68, 000, 69,000. And hopefully, the next year, we'll be starting with lesson or around 70,000 capacity. And as I said, always, 70% utilization of the capacity is always very good. And anything beyond 75,000 is generally not workable in a injecting unit. Given the competences of molds and underutilization of the machine capacity, anything around 75,000 is a great number. .

That was the only reason I was asking that we might be acquiring an additional capacity expansion for the next year. .

36,900 will definitely become 70,000 by beginning of the next financial year. And that, again, we'll be aiming at at least somewhere close to 50,000 tonnes from somewhere around 42,000 last year and probably this year, we may end up around INR 46,000, 47,000. Some 46,000, 47,000, we'll be again looking at 50,000, 51,000 for next financial year. So that volume growth is possible. And 1 thing you need to understand is tonnage is not the only date and over days because pails are becoming more or less stagnant, only paint industry is growing, lube industry is falling. So overall paint contribution in the tonnage is more or less stagnant. While the entire growth is coming from food and pharma where the weight of the component is less per tonne, we get much more value add. So even if the volume growth looks 10%, in my opinion, it's equal into 14%, 15% growth of last 3 years because those -- these paints used to be a major contributor to our top line and bottom line. But nowadays, slowly food and pharma and tomorrow Vibe will start contributing to the growth and they are lighter in weight, but add more value to the -- both revenues and EBITDA. .

Right, right, right. . Sir, just 1 last thing from my side. When I look at the finance cost as an expense line item, is it fair to assume that due to this higher -- the incremental rise in crude prices impacting the requirement of short-term borrowings for managing the working capital for now? And as soon as the -- as soon as there will be a normalization requirements or short-term debt would go back to the earlier level. .

Yes, you are correct in guessing that. 1 of the reasons for increased interest rate is higher utilization of working capital for higher raw material prices. But if you look at as a percentage, it was moved up earlier from 4.1% to almost 5% now. And probably, it will come down back to 4%, 4.2% in the future of the total revenue. Maybe once the raw material prices come down. But as it looks, unless there is a sudden complete peace in the West Asia, the parameter prices are not expected to drop in a hurry. So for the year, we are factoring almost 4.5%, 4.7% as a finance cost and building up our model. .

Got it. Got it. And just 1 last if I can squeeze in. Sir, based on my understanding, since last 12 to 24 months, we have been focusing a lot at the export markets, too, if I'm not wrong. So any update on that? Are we getting any clients getting any client onboarding for the export market? .

See, exports are becoming, again, difficult in this scenario of increasing freight costs. But in spite of that, there is a rise in our exports gradually is not jumping in huge numbers. But there are exports still happening, and we see some steady growth, but no multiple growth due to this conflict and the increase in freight costs. We are now on track in December, expecting a client for our pharma products from Egypt and that is a big opportunity, and they've already tested our samples and approved them. So they're coming in for the CPHA show happening end of November and then they have scheduled a meeting with us. towards the end of this month or beginning of December and hopefully, something might fear. But for that other side, exports have stagnated no decline because there are products like resident tax and Mattera, which we export to U.S., they continue to buy. There was a lull in the middle during the war. But again, they also have to sell their products, so they can't get rid of packaging altogether. So again, they restarted and the numbers are slowly inching up. .

The next question is from the line of Akhil Parekh from 360 ONE Capital Markets Private Limited .

And many congratulations for a strong set of numbers. And my first question is, in 1 of the comments you mentioned that the start to the third quarter has been very strong. Would you be able to share some color like how the first month that is month of October has been in terms of overall demand basically?

Yes, the demand is pretty good in October and the numbers compared to the last October, I'm saying is very satisfying. Maybe just too early to talk about it, but definitely, it's much better than what -- on a month-on-month growth rate active stands out as the best 1 so far. Need not to be highest among the months, but because April, June, July or April to June, July are our seasonal demand months, followed by again, in March, we'll see the demand picking up in the fourth quarter. But this month started October ended up on a very strong note. I can say that. .

So is it fair to assume we should be crossing double-digit volume growth for the full year FY '27. .

Yes, that is the target still today. Now today, we are at 8% for the 6 months period up from 7% in Q1. Now we at 10.1%. So we are somewhere around 8%. And hopefully, we are still positive. It may take us to double digit, the second half. .

Sir, second question on the Second question on the...

Opportunities in food and FMCG, I just explained to 1 of the inquiries. So I see a strong performance coming up in the rest of the year. And hopefully, we may pull up the volume growth to 10%. And I also said in that in future, more than looking at the volume growth, I would encourage you to look at the EBITDA growth. EBITDA growth is at 35% through quarter-on-quarter and 23% in H1 on H1, if you compare last year to this year, Q2 to Q2, the -- and the EBITDA -- sorry, PBT has gone up 35% and EBITDA, the absolute number has gone up by almost 30%. So this is where we'll be -- we should be focusing in the future because volume numbers depend more on pails which are heavy, like a 20-liter pail is about 1kg weight, whereas you come to thin-wall ice cream cups, there may be 18 grams, 20 grams, 25 grams each. . So as the growth is coming more and more in the light well like thin-wall section products, we will be noticing the volume growth may not look 14%, 15%. But the bottom line growth will be higher because of the better margins. So I would encourage you all to look at the EBITDA growth, which will be a correct reflective of the company's performance. .

Sure. This is very clear. And my second and last question is on the cash flow front, right? If I look at our EBITDA, we did around INR 100 crore plus it first half and we kind of similar kind of the operating cash flow for first of almost INR 93-odd crores. So assuming we double our EBITDA and kind of do around INR 210 crores to INR 220 crores of EBITDA for full year, how should 1 look at it operating cash flow respective because we have seen a sharp improvement. Should we expect similar kind of improvement in cash flows to sustain -- that is 1 part to my question. And second, given that our CapEx requirements will not be more than INR 70 crores, INR 80 crores. So is it fair to assume we will generate a reasonably good free cash flow for full year FY '27?

Okay. See the cash flow will -- we are aiming at doubling the cash flow from INR 107 crores to INR 215 crores, as I mentioned in the beginning of the year. So I'm still standing on that. I hope to -- we hope to see an EBITDA of INR 250 crores compared to INR 173 crores last year. That had some growth of more than 20%, 23%, 24%. And coming to the investments, as I said, investments have been under, I would say, lower levels compared to the last 3, 4 years, and they should be ending up somewhere around INR 75 crores for the full year. Already INR 60 crores inflows has been spent in the first 7 months and the rest of the machinery and 1 more printing machine and some of the balancing equipment and holds will be adding approved somewhere around INR 75 crores to INR 80 crores for the full year. So there will be adequate cash in the system after removing the interest and income tax. So we still have somewhere around INR 46 crores plus -- almost INR 160 crores inflows and there -- I mean dividend outflows, if you remove, somewhere around INR 100 crores, INR 125 crores, whereas the outflow will be somewhere around INR 80 crores, INR 85 crores. So this time, we'll be a cash surplus. And that may not -- you may see the long-term debt, the debt overall start coming down at least in this year, end of this year.

Thank you. The next question is from the line of Sandeep, investor. .

On good set of numbers. Yes, sir. I wanted to ask some few questions. The new land which we have purchased, when it will be operational .

Just a week ago, we got it react. I think last 2, 3 days ago, the land has been registered. There was a long delay from the industrial department in the east signal and which got reinsured just a few days ago. So we have just taken the position of the land. And now the work has to start. Meanwhile, the Sultanpur block itself, we are setting up our talk product range. So because we can't wait for months together, ready, we waited almost a year. So now the construction activity started in the B-Block and that production has said will start by March and commercial production by April, May next year. So this new area is fully available for our future growth into the auto injector pens or the semiconductors or both of them. So we have not taken a call on that as of now. .

Okay. Okay. Okay. Sir, sir, 1 more question. Total, how many robots we have and how many we are planning to add more .

I last count, I think robust, more than 120, 125 robots we must be having because the cost of our products are now shifting towards IML and our machine machines have become more than 200 recently. So we will be having at least 130 to 140 robots

Okay. Okay. Sir, sir, 1 more thing. How many malls in Vibe and pharma are in process? How many molds in Vibe generation and in pharma are in process. .

In Vibe, there are 7 more molds are under process. 7 are already approved by client, and we are awaiting the signals for commercial malls development which might take another 4 months, as I said in the last quarter. It is progressing well. Another 7 molds, 2 or 3 are already ready, and another 4 components will be ready by end of December. So by end of this year, we'll have 14 components ready and we may get the approval for commercial malls for 7 of them, which may be ready by April next year. That's why I'm saying Vibe numbers will start trickling from next financial year. If all 14 products catch up into commercial production, there can be a sizable contribution that we can expect in the second half of next year.

Okay. Okay. And sir, Pharma, how many companies we are strongly, we are getting orders, et cetera, any good news about pharma .

Yes. In pharma, we are adding clients very rapidly even today, as we speak, Mr. Rana and Amol Deran, Crypto, Bangalore, making 5 clients there. And every quarter, we are adding 2 or 3 big hands and going this rate, we'll be able to maintain our projection of INR 50 crores plus in the full year this year and probably INR 70 crores, INR 75 crores for the next financial year. .

Okay. Okay. Any details about the strategic agreement for expanding business in Egypt and Vietnam? .

No, there's no strategic alliance or anything we are taking. We are working with an export importing company in Egypt who are looking at our products and already tested them. They are in here in the first week of December to inspect our facilities and probably some export opportunities may start based on their visit. .

Okay. Okay. Sir, any new sectors we are planning to start?

Yes, we are looking very seriously at to India opens that is in pharma and then semiconductor trays, gene press. And also, we are planning the regular trades for dairy and other applications, which will add well to our mission area, especially whenever we find idle time. This case can be built up as substate product. But semiconductors and autoinjection are very high value-add products, which require a specialized skill set and model making capabilities. And some cases, patent also. In the case of tape, we need a patent for which we are looking for a partner. In the case of the semiconductor trace, there's a variety of malls, variety of products are very high. and they are very high-cost products requiring very high accuracy and dimensional stability. So this kind of challenging projects will be where Mold-Tek's strength can be used. So we are very excited about these new opportunities. But let me take 1 or 2 years to rectify.

Yes. sir, I got this news from the... .

Mr. Sandeep Maybe I request you to join the question to, as there are several other participants waiting for their turn. The next question is from the line of Richa Agarwal from Equitymaster.

Sir, my question is related to the investment that we are planning in Vice, you could just give us a breakup of bucking of investment in roles and machineries. -- to reach that INR 50 crore kind of mark that you have highlighted? .

Yes. See, the advantage of injection molding is -- all the missionary is fungible. So we may not investing on the machinery until we have some firm commercial orders whose clarity will be coming to now by end of this year. So based on that, the investment will be in the tune of around INR 10 crores to INR 15 crores in the Phase I, which will be sufficient to give a turn or close to INR 40 crores to INR 50 crores. So around INR 15 crores, you can take would be a requirement of why both in malls and the mission side. And some of the missions, which are found idle can also be used for these machines for the production of these components because they don't require any special conditions other than a clean room, which we already have. .

Okay. Okay. And sir, my second question is related to the raw material cost considering that the crude prices are growing up and if this scenario continues, I mean, could you just comment on the willingness of the customer to accept higher prices? I know that we are helped by the product mix. But purely on the gross profit margin itself. What kind of openness is there for the customer to accept the price hike? .

Richa, you have asked me a good question. If the clients are not willing to participate in the price rise and they want to stick on to enroll price, you would not see this kind of performance from Mold-Tek. This is the ability of Mold-Tek to get the price rise actually faster than previously agreed terms because they were equally worried about not having the product packed at their end. See, end of the day, packaging, especially visit packaging is not fungible. Nobody can go back to a metal tin or a glass bottle, while they are selling their products in the plastic containers with IML decoration. So whatever happens, let the price -- I'm not saying that the price should go up further. It's already gone up by 60% in this last 6 months, raw metal price. But everybody is ready to accept and agree with the reality that the raw mat price has gone up, and they are ready to bear the cost because no molder can bear that cost for the sake of retaining a business. After all this business has to go on, and they are now aware of the raw materials price increase. And whenever the price decreases, they take the price benefit. We don't keep it in our pocket. So this is a long-term agreement going on for the last 30, 40 years. Hence, there's no doubt in your mind about whether our ability to get the raw material price hike as and when that happens. If that is not the case, we would not be seeing this kind of performance, while our volumes have gone up by 10%, our bottom line is shot up by 35%. So that kind of volume grew 36%. So that shows very clearly that there is no impact of raw material price on our performance. Had the material being a little lower, let's say, 120 or 115 level, we might have got some more business and that would have added further to our numbers. But nobody stops buying packaging because their entire product cannot go into the market without packaging.

Okay. That was helpful, sir. Sir, just 1 more related point. Like maybe a few quarters ago, you were witnessing heightened competition, but with these higher crude prices, are you also feeling like that the other players may be trials out something like that?

No, I don't think they -- nobody will be chasing out at any stage because as I said, whatever applies to Mold-Tek will -- I mean, more or less applies to other molders also. It's basically our ability to expand the product range, consolidate our operations and bring efficiencies in the costing as what really brought us a better bottom line compared to maybe compared to other side of the comparison. But it's not true to say that because of the raw material price rise, somebody will be shutting shop. They will also be able to pass on if they are a reliable supplier. .

Thank you. The next question is from the line of Tushar from Omega portfolio Advisor. .

I just wanted to know the management aspiration to increase EBITDA per kg INR 46 for 3 years going forward. And in terms of the pharma, the pens which we're talking about. So what are the discussions happening on ground on that regard? And when can track materially contribute to our EBITDA. .

I think, as I said, our EBITDA shot up a clean 15%, 18% in the last 2 quarters from 40.6% last H1 to 46.6% in the current H1. So it's a very big jump looking at past data. But we are still positive that these numbers can still grow as exports and -- sorry, mainly pharma and food and FMCG sales are increasing and Vibe also start contributing. So as you said, in 2 to 3 years, it is going wrong to hope for a INR 50 EBITDA margin in the coming 2, 3 years. So that is what is our internal target is. And that will be a sizable number because if you notice the last 5 years, we have never crossed INR 40 or INR 41. So from there to INR 50 EBITDA is a big call. But I think we are on track on our product range semiconductors -- and those prints also are added in the next 2, 3 years. It may not stop at that level also, it can go further after 2, 3 years. So let us hope everything -- I mean is moving good now, and if things fall in place as plans, INR 50, you can keep it for 2, 3 years at a short-term goal, and it can be better once in case we succeed in semiconductors and injector pens. .

Fair enough, sir. Sir, I just wanted to understand that what gives us confidence in terms of semiconductor rates, I understand is the consumable product -- so any -- what is the right to do in this market? .

So semiconductor trades are at a very nascent stage in the country today. it is better to be there and start making -- understanding the product, understanding the process, which we've already done. And now we are in talks with 3 semiconductor companies that are -- you know the top names in the semiconductor industry who are starting or started recently. And we are in touch with them and understood the criticality of the space and the volumes and the pricing and the materials that are to be used and a variety of malls that are required. So the knowledge is now being embarked and we feel confident that such a product is where Mold-Tek can shine because where there is a complexity, accuracy and several new molds are required. Our strength in tool room and designing and in molding crises, we will be able to contribute. So this is an exciting field, but there's nothing really going to happen in next 2 months or 6 months, it may take a year or 2 to really see the numbers coming in and how our semiconductor industry fares in the country. but it's an exciting field. And again, here also fungibility is there. Most of the injection modeling missions, which we have recently bought in the last 5 years, at least. They're all suitable for manufacturing this kind of precision components. So what is required is molds and then clients. So once that clarity comes in with the material that is already available in the world, compound materials of semiconductors our processing team can easily master the technique. So we are awaiting for more clarity from the clients and also the industry itself, and we are ready. That's sort of how much I can say. But how it fans out how quickly it all depends upon how the industry faces in the country. But as I said, our side, only the mold are required and even the clients are ready to bear the molds cost. So it's a kind of really an exciting new industry, which is coming for us at this juncture. And if that does well, and we do well as that EBITDA margin of 50% can easily be crossed.

Thank you. As there are no further questions from the participants, I now hand the conference over to the management for the closing comments. Over to you, sir.

I take this opportunity to thank Rajesh and Emkay attending this conference and also thank all the participants for sparing their time. And I sincerely hope that we all will have better future, not only in our company but also in general. And I take this opportunity to wish all of you a very happy Diwali and a great year ahead. Thank you very much. .

On behalf of Emkay Global Financial Services Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.