MOLD TEK PACKAGING LIMITED

Reaching new “labels” of growth

Established in 1985 by J. Lakshmana Rao, a first generation entrepreneur; headquartered in Hyderabad & part of Mold–Tek Group which has interests in structural engineering & KPO (Mold Tek Technologies)

Leading domestic player in rigid plastic packaging (pails, thin wall containers, etc); business comprises of Non-IML (screen printing, heat transfer labels) & IML business in paints, lube & food segments

Recognized for several innovations in the industry; pioneered the concept of IML (In Mould Labelling) in India- the only integrated player in the world ; IML offers major advantages over conventional decoration methods

Blue chip end users ---Asian Paints, Castrol, Akzo Nobel, Kansai Nerolac, Amul, HUL, Shell, etc ; new customer wins an ongoing process (~81 small & medium clients added over last 3)

7 manufacturing units - 4 near Hyderabad, 1 each at Daman, Hosur & Satara (all ISO & FSSC certified) ; state-of-the-art tool room to produce world class moulds & robots

Listed since 1993 (BSE); professionally run company employing ~ 600 people ; strong earnings growth expected with increase in IML revenues in the medium term

Figs in Rs mn (unless otherwise mentioned ) Audited Projected

Particulars FY2012 FY2013 FY2014 FY2015E FY2016E FY2017E

Net Sales 1,751.4 1,918.9 2,551.2 3,210.0 4,140.0 5,150.0

EBITDA 211.7 200.4 295.1 421.0 567.3 747.5

PBT 129.8 88.1 138.8 239.0 375.3 547.0

PAT 93.3 57.8 90.7 157.7 247.7 361.0

EPS (Rs.) 8.3 5.1 8.1 14.0 22.0 32.1

Key Ratios            

EBITDA Margin (%) 12.1% 10.4% 11.6% 13.1% 13.7% 14.5%

PAT Margin (%) 5.3% 3.0% 3.6% 4.9% 6.0% 7.0%

Net Debt / Equity (X) 1.15 1.35 1.26 1.05 0.86 0.65

RoCE 21.3% 14.6% 19.6% 26.3% 31.7% 36.1%

RoE 24.8% 12.1% 17.9% 27.3% 34.4% 38.1%

Domestic plastic processing industry

~Rs 850 bn size growing @ 15% CAGR; ~5.3mn MT of raw material processed per annum

Flexible Packaging (pouches, wraps, polybags, etc) ~Rs 510 bn size growing @ 20% CAGR

Rigid Packaging (bottles, jars, pails, etc) ~Rs 210 bn size growing @ 10% CAGR

Rigid packaging in injection moulding requires more intricate technical excellence compared to flexible packs ; it offers a safe mode of preserving liquid, powdered or granulated contents against breakage & pulverization along with tamper-evident properties with various resealing options

J. Laxmana Rao (Chairman & Managing Director); age ~ 54 years

B.Tech (Sri Venkateswara University), MBA (IIM-B) ; has earlier worked in new product development at Nagarjuna Steels Ltd.

A.Subrahmanyam (Deputy Managing Director); age ~ 57 years

B.Tech (REC- Suratkal), has earlier worked with Nizam Sugars, ACC; vast experience in mould design & development

P. Venkateswara Rao (Deputy Managing Director); age ~ 54 years

Post graduate in materials management

Stock Points

Plant locations

Unit Capacity (MT p.a.) Location

I 8750 Annaram (near Hyderabad)

II 3500 Quthbullapur (near Hyderabad)

III 7500 Daman

IV 1500 Alinagar (near Hyderabad)

V 750 Hosur

VII 3000 Satara

Unit VI at Quthbullapur (near Hyderabad) is used for manufacturing labels for other locations (capacity ~5mn sq mt per annum)

Processing capacity ~ 25,000MT* per year with over 55 injection moulding machines (Ferromatik, Engel, etc)

Multi-locational presence for cost efficiency & optimizing logistics

*Present capacity utilization ~70% ; maximum ~ 85% after factoring in mould changeover, maintenance time, etc

By business segment* By clientele

Share of Non-IML revenues gradually declining in favour of IML ; top 5 customers contribute ~ 50% of revenues

*Export revenues ~1% of topline

Volume share in annual demand of key customers

Share of business steadily increasing every year as more SKUs shift to IML

Asian Paints 25%Castrol 95%Kansai Nerolac 55%Akzo Nobel 30%

Indiastar 2012 National Award for Excellence in Packaging (Castrol CRB Turbo with IML)

Old Spout Anti-counterfeit Spout

Anti-counterfeit pail lid comes with a tear-way seal making the lid unusable once opened ; minimizes leakage & improves dispensability of the liquid

Best SME of the Year & Tech Savvy SME of the Year 2012-13 at the prestigious ICICI-CNBC TV18 & CRISIL Emerging –SME India Awards

Screen Printing Stickering /Self Adhesive Label

In-Mould LabellingHeat Transfer Label (HTL)

Raw material –usually Polypropylene co-polymer (PPCP) from Reliance Injection Moulding

Injection Moulding with robotic facility

Screen Printing

HTL Wrapping

Shrink Wrapping

Quality check

Handle fixing & packaging

Dispatching

World class clean rooms & hands free production techniques (esp. in IML) leading to negligible rejections Embedded price variation clause takes care of fluctuations in PPCP rates

Of the non IML sales ~90% of revenues accrue from screen printing ; pails for only lube & paint customers ; commenced HTL for Asian Paints at Satara

Screen printing has lowest per impression cost which is increasing gradually ; preferred for up to 5 colours as high drying time required for each

Mold-Tek provides 100% virgin, food -grade material & has achieved one of the lowest production cycle time ; in-house developed automatic screen printing machines

Offerings range from 1kg to 1000 ml containers; volumes mostly generated from 7.5 litre SKU ; Hi Tech Plast , a key competitor , in this space

Revenues (Rs million)

~79% of revenues ; ~16% CAGR over last 3 years ; average EBITDA margin ~10%

In-Mould Labelling (IML) is a decoration technique that involves robotic label feeder placing pre-printed labels inside the mould & fusing them directly to the container ; this recent development in the packaging industry in developed markets has been introduced in India by Mold-Tek in 2011

Conventional decoration

Photographic quality with no limitation on graphics & complete container coverage Most hygienic as involves direct-to-fill operations with complete automation

Usage should grow exponentially with opening up of modern-day retail trade ; consumption in EU has surpassed 12 bn containers per annum – India only scratching the surface; applications include paints, lubricants, dairy products, toiletries, beverages, biscuits, cosmetics, food supplements, cooking oil,etc

In-Mould Labelling

Minimum linear gap required from the upper & lower ends of pail curves in decoration methods like screen printing & also labels cannot be joined continuously ; no such constraints in IML

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Requires at least ~Rs 40-50 mn investment per SKU (sans land & other overheads)

Mold-Tek’s cost advantage offers an opportunity to scale up export business Technical competence like minimizing rejections, lowering cycle time is extremely critical ;

closest comparable peer at 28 seconds is incurring loss against Mold-Tek’s average of 20 seconds

Mold-Tek is the only injection moulding company in the world with integrated facilities to manufacture container moulds, robots & IML labels thereby offering cost effective solutions

High investments for own moulds & robots

Pricier imported labels

Multi-locational units to minimize logistics ; minimum volumes to sustain operations

Melt Flow Index (MFI) , an important parameter for rigid packaging , implies the rate at which the polymer can melt.& accordingly determines the grade of material that needs to be used. Higher the MFI, the lower would be the container wall thickness & packaging cost more dearer & vice-versa.

State-of-the art in-house tool room with latest CNCs, jig boring & sparking machines from USA, Germany supported by CAD/CAM facilities ; replacement cost ~Rs 500+ mn ; customized & faster mould development by experienced team of engineers

Uses hot runner & berylium copper inserts to make world class multi-cavity hot runner moulds & robots at a fraction of imported costs ; reduced mould downtime & nil supply blackouts

Moulds form ~10% of Gross Block & are changed as per requirements ; many customers co-investing in developing new moulds

Installed necessary facilities in 2012 to manufacture IML compatible labels first time in India ; infrastructure includes 9 colour rotogravure machine & Schober label cutting machines

BOPP films rolls imported; in-house research on various films & inks resulted in labels that sustain all-weather conditions (better heat, moisture & chemical resistance )

Cost of developing them in-house ≤ 50% of price of imported finished labels

Higher setting time for printing machines (maximum ~3 jobs per day) ; minimum stock of labels (~3 months) required based on negotiated volumes

Initially imported 2 robots from Taiwan in 2011 ; reverse engineered them –now has made over 25 static charged robots in-house (only packaging company globally doing this)

Cost of developing them ≤ 50% of price of an imported robot (Rs 13 lakh , for say 2 cavity robot against Rs 35 lakh imported version)

Capable of producing 8 cavity label feeders ; comes with added innovations lie vertical reach, etc ; option to change robot configuration to improve efficiency

Only for lubricant & paint industries ; ~ 72% revenues from the former with ~70% share in overall industry volumes therein

Offerings include 1 litre to 20 litre emulsion packs ; 5 litre to 20 litre lubricant spouts ; better brand visibility to customers

Captive units to cater to demand of key customers (Asian Paints at Satara , planned for Akzo Nobel, etc) ; conversion of new SKUs to also drive growth

~17% of revenues ; ~40% CAGR over last 3 years ; average EBITDA margin ~15%

Pioneered the concept of IML thin-walled containers for food /FMCG segment using 8 cavity hot runner moulds

100 ml to 500 ml sizes in rotolock packs ; prevents any contamination & preserves aroma

Expected to grow substantially on low base (new customer additions like Heinz, Cadburys) ; overall profitability to improve (commands highest EBITDA margins)

Revenues (Rs million) ~3% of revenues ; ~16% CAGR over last 3 years ; average EBITDA margin ~25%

Illustrated for 20 litre lube pail Rs

Maximum Retail Price (MRP) 2300

Pail with non- IML decoration 155

% of MRP 6.7%

Pail with IML 180

% of MRP 7.8%

Despite the cost differential due to higher label prices , IML decoration accounts for 7-9 % of MRP (norm for packaging costs in the industry)

Conventional methods like screen printing suffer from inherent drawbacks like higher area requirements, more labour intensive process & very high drying time for each colour. With both manpower & space getting dearer , the per impression cost gap with IML is narrowing ……….a potent reason for more SKUs (not just premium grades) to convert to IML

Domestic players like Jyoti Plastics ,etc have been doing only lid IML decoration. Among global players, Jokey Plastik GmbH has a similar business model as Mold Tek. Founded in 1989, the Group employs ~ 1400 personnel across 14 plants globally & is known to have reported US$122mn topline in CY2013 .

includes 65% as material cost (assuming 950 gm of polymer required to mould the container) & 5% as label cost

Plant in North India for Akzo Nobel & other companies (~Rs 100 mn outlay)

Expansion of thin-walled container facility (Unit 1) for needs of food/FMCG customers (~Rs 50 mn)

Tool room expansion & modernization to produce more complex moulds (~Rs 50 mn)

Unit at Dubai (first overseas manufacturing foray) to cater to the demand of IML containers for food segment in Middle East (~Rs 100 mn)

Scope to foray into high-end flexible packaging labels

Inorganic growth options (acquisition of underutilized assets )

Increase share of food IML revenues; convert more clients of pails to adopt IML decoration

Rs. in million FY2012 FY2013 FY2014

Net Sales 1751.4 1918.9 2551.2Material cost 1005.5 1067.2 1431.9

% of Net Sales 57.4% 55.6% 56.1%Packing Materials 31.7 36.3 43.2

% of Net Sales 1.8% 1.9% 1.7%Handles 60.7 64.8 71.2

% of Net Sales 3.5% 3.4% 2.8%Printing Materials 34.6 55.8 90.1

% of Net Sales 2.0% 2.9% 3.5%Pigments 31.3 46.7 46.3

% of Net Sales 1.8% 2.4% 1.8%Staff Cost 134.7 153.2 196.7

% of Net Sales 7.7% 8.0% 7.7%Selling & Distribution Expenses 137.8 147.7 187.8

% of Net Sales 7.9% 7.7% 7.4%Power & Fuel 54.7 88.3 92.7

% of Net Sales 3.1% 4.6% 3.6%Other Expenses 48.7 58.5 96.2

% of Net Sales 2.8% 3.0% 3.8%Operating Profit 211.7 200.4 295.1Other Income 2.2 2.5 5.2PBIDT 213.9 202.9 300.3Depreciation & Amortization 44.1 54.6 69.6PBIT 169.8 148.3 230.7Interest 38.0 57.9 84.0PBT & Extraordinary Items 131.8 90.4 146.7Extraordinary Items (Gain)/Loss 0.5 0.0 6.0Prior Period (Income)/Loss 1.5 2.3 1.9PBT 129.8 88.1 138.8Current Tax 36.5 18.1 43.6Deferred Tax 0.0 12.2 4.5Net Profit 93.3 57.8 90.7

Rs. in million FY2012 FY2013 FY2014Equity Share Capital 112.2 112.5 112.8Reserves & Surplus 351.1 378.4 412.2Secured Loans 429.6 664.8 655.1Unsecured Loans 107.2 2.3 13.8Deferred Tax - 12.2 43.7Total Liabilities 1000.1 1170.2 1237.6Net Block 468.5 702.8 720.4Capital Work in Progress 108.3 25.9 24.9Investments 31.6 31.6 31.6Current Assets, Loans & Advances

Inventories 202.5 236.1 281.4Sundry Debtors 286.2 350.3 422.0

Cash and Bank Balance 2.8 4.3 6.0Loans and Advances 102.6 90.6 98.3Other Current Assets 2.8 4.8 71.3

596.9 686.1 879.0Less: Current Liab. & Prov. 205.2 276.2 418.3Net Current Assets 391.7 409.9 460.7Miscellaneous Expenses not w/o - - -Total Assets 1000.1 1170.2 1237.6Net Worth 463.3 490.9 525.0Capital Employed 891.8 1144.3 1212.7

Rs. in mn FY2012 FY2013 FY2014PBT 129.8 88.1 138.8+Depreciation & Amortization 44.1 54.6 69.6-Change in Working Cap 80.8 16.7 49.1-Tax 36.5 30.3 48.1=Operating Cash Flow 56.6 95.7 111.2

-Capital Expenditure 217.9 206.5 86.2-Change in Investments 0.9 0.0 0.0=Free Cash Flow -162.2 -110.8 25.0

+Increase in Equity & Reserves 109.0 3.0 -16.4+Increase in Debt 120.6 142.5 33.3-Dividend 66.2 33.2 40.2 =Net Cash Flow 1.2 1.5 1.7

Opening Net Cash 1.6 2.8 4.3Closing Net Cash 2.8 4.3 6.0

*The damage occurred due to fire accident in FY2013 at Daman is Rs 70 mn against which the Company has received Rs 62.5 mn from the insurance company .After considering the net realizable salvage value of Rs 1.5 mn , the resulting loss of Rs 60 mn has been disclosed as an extraordinary item in FY2014.

Profitability & Return Ratios FY2012 FY2013 FY2014Operating Profit Margin (%) 12.1% 10.4% 11.6%Net Profit Margin (%) 5.3% 3.0% 3.6%ROCE (%) 21.3% 14.6% 19.6%RONW (%) 24.8% 12.1% 17.9%Other Ratios      Net Debt/Equity (x) 1.15 1.35 1.26Fixed Asset Turnover (x) 2.4 1.9 2.4Inventory Days 41.6 44.3 39.7Debtor Days 58.8 65.7 59.5Creditor Days 42.2 51.8 59.0Net Working Capital Days 79.9 76.1 64.2Operating Cash Flow / Sales (x) 0.03 0.05 0.04Valuation Ratios      DPS (Rs.) 5.0 2.5 3.0EPS (Rs.) * 8.3 5.1 8.1Dividend Payout (%) 60.1% 48.7% 37.2%Book Value (Rs.) 41.3 43.6 46.7P/E (X) 21.6P/BV (X) 3.7EV/EBITDA (X)     8.9

*Return ratios computed on average Capital Employed & average Net Worth respectively ; liquidity ratios based on 360 days ; CMP Rs 174 as on15/9/2014 for valuation ratios

Particulars Essel Propack Time Technoplast Manjushree Technopak

Hi-Tech Plast Mold-Tek Packaging

Net sales (Rs mn) 21490.1 21863.0 4376.8 4600.0 2551.2Operating Margin (%) 17.5% 14.1% 22.3% 10.7% 11.6%PAT (Rs mn) 1,078.3 988.0 263.8 80.8 90.7Net Margin (%) 5.0% 4.5% 6.0% 1.8% 3.6%Net Sales CAGR (5year) 5.9% 20.9% 30.9% 14.9% 20.5%PAT CAGR (5year) 14.6% 2.1% 25.7% -15.3% 5.4%ROCE (%) 15.6% 14.2% 14.9% 17.0% 19.6%RONW (%) 13.1% 11.2% 19.5% 8.3% 17.9%Net Debt/Equity (X) 0.95 0.69 1.67 0.75 1.26NWC to Sales 0.16 0.21 0.34 0.15 0.17Average Inventory Days 37.7 69.5 90.4 26.4 39.7Average Debtor Days 61.6 70.7 64.9 57.1 59.5Average Creditors Days 31.1 48.2 18.3 16.2 24.9Fixed Asset Turnover (X) 2.30 1.84 1.82 3.36 3.42

Mold –Tek commands the best return ratios & asset turnover in the pack ; high earnings growth expected on the back of strong entry barriers , compelling cost economics in IML business

Source : Company Annual Reports ; Return ratios computed on average Capital Employed & average Net Worth respectively ; liquidity ratios based on 360 days Peers selected above strictly do not have a similar business model as that of Mold-Tek . Essel is into extruded plastic tubes ; Time is a conglomerate & derives ~60% of revenues from industrial packaging (includes large barrels, bulk containers, etc as well) ; Manjushree is a key domestic player in PET bottles & preforms . Hi Tech with its non-IML business comes somewhat closest in comparison

Shareholding Pattern (30th June 2014) Price Data (as on 15th September 2014)

Bloomberg Code MTEP IN

Share Price (BSE) (Rs) 174

No. of shares outstanding (mn) 11.3

Face Value (Rs) 10

Market Capitalization (Rs bn) 1.97

52 week High/Low (Rs) 177/29

Non-promoters >1% shareholding (30th June 2014)

Passage To India Master Fund 4.47%G.Aravinda 2.30%JNJ Holdings Pvt Ltd 1.99%Najmuddin Gulamhussein Kheraj 1.76%Ail Kumar Goel 1.43%Dolly Khanna 1.09%Mold Tek Packaging Ltd. Unclaimed Suspense Account 1.05%

*No encumbered shares as on date

Registered Office

Plot # 700, Road No. 36, Jubilee Hills,

Hyderabad -500033; Telangana

Tel : 040 40300300/01/02/03/04

Website : http : // www.moldtekplastics.com

Statutory Auditors

M/s . Praturi & Sriram

Bankers

Citibank N.A. Yes Bank

ICICI Bank

Name Designation

J.Lakshmana Rao Chairman & Managing Director

A.Subramanyam Deputy Managing Director

P.Venkateswara Rao Deputy Managing Director

J.Mytraeyi Non-Executive Promoter Director

P. Shyam Sunder Rao Non-Executive Independent Director

Dr.T.Venkateswara Rao Non-Executive Independent Director

Vasu Prakash Chitturi Non-Executive Independent Director

Dr N.V.N.Varma Non-Executive Independent Director

Board of Directors