Explore The Unexplored!
(By Harshit Toshniwal)
harshittoshniwal@bottomsupresearch.com
Link to subscribe for more such posts - Link
Company Mold Tek Technologies
Industry Engineering Consultation Services
Market Cap Rs 510 crores
Ent. Value Rs 480 crore
Business Overview (comparable to IT Service ER&D players) -
• Mold Tek Technologies is engaged in business of civil &
mechanical engineering consulting, with majority of its revenue
coming from US markets. Overall revenue for business stands at
~Rs130 crore (16% CAGR 10-year).
• Vertical 1 – Civil Engineering Consulting - It provides services to
General Builders, Steel fabricators, Architects firms, etc. of the
nature of – (a) detailing & drafting building’s civil design (precast
design), (b) design & calculations of connection of steel structures,
etc. The vertical forms ~80% of its revenue, commanding ~30-35%
margins.
• Vertical 2 – Mechanical Engineering Consulting – It provides
design solutions to Automobile & utility sector for Bodyshop
construction, Assembly Line Automation, etc. Segment has started
to grow on the back of BIW orders (Body-In-White), meaning
interior & exterior design modelling, from EV manufacturers
(Europe & NA). The vertical forms ~20% of revenue, expected to
grow at a faster pace. With increasing scale, it turned profitable
from 2QFY23, recent quarter margins are ~25%.
• Asset-light business, being consulting oriented in nature. Like IT
Services, they have cost advantage as large part of the work is
done offshore (delivery centers in Hyderabad, Chennai,
Vijayawada, Nasik and Pune). They have ~1000 employees on
payroll, implying ~Rs 13-14 lakh revenue per employee.
• Link to understand in detail of the nature of work – Link
Management Overview & Forensics (Positive feel) –
• Mold-Tek technologies is owned by the Mold-Tek packaging group
(MCAP Rs 3600 crore, PAT Rs 75 crore), leading player in injection-
molded containers for lubes, paints, food and other products.
• Both Mold-Tek Packaging & Mold-Tek technologies has same MD
(J Lakhman Rao), however business heads for each vertical very
well laid out, high retention in top leadership - Link (see below)
• Promoter Group Holding 49%, Institutions 0%, Public 51%
February 2nd, 2023
CMP 180
PE (3Q Annualized) 14x
EV/EBIDTA (3Q Annualized) 9x
Positives (play on US infra growth & electric vehicles)–
• Civil engineering business growth is linked to infrastructure
development in US, which has started to show good pick up
(hopes from the Infra Bill Passing). Mold-Tek’s order book has
grown by 37% YoY in this segment (as on Jan-23)
• Mechanical engineering business growth will be supported by
growth in spending on Electric Vehicle, company has seen
multiple-fold increase in its EV design order book.
• They have been able to maintain 20%+ margins in general for
past 10 years, barring FY16-18 (~15% margin range).
• Consistently delivering 20-30% ROCE with ~16% 10-year
revenue CAGR, controlled debtor days of 70-80 days), good
FCF conversion.
• Consistent dividend payout, FY22 payout ratio of ~60%
Risks (Small in size, margin sustenance to be tested) –
• Business is linked to infrastructure growth spending in US &
overall electric vehicle spending in Europe & NA.
• Overall size is still very small, hence may not always be a
preferred vendor for customer.
• Recent quarter margins ranging ~30% (vs general average of
20-25% range) driven largely by operating leverage,
sustenance of margins is to be tested.
Valuations attractive for the growth potential offered –
• Growth momentum should sustain on topline side, given
strong order bookings as on date, medium term growth
expectations of 20-25%.
• Moreover, not much seasonality in business on quarterly basis,
business model comparable to IT Services Industry.
• Annualizing 3Q, business clocked revenue of Rs 160 crore.
Assuming 25% margins (vs 30%+ in 3Q), sustainable EBIDTA
of Rs 40 crore, PBT of Rs 35-38 crore, PAT of ~Rs 30 crore.
• Accordingly, valuations range at ~17x PE (trailing), possible
comparable could be ER&D IT service export players like KPIT,
Tata Elxsi. Etc.
Disclaimer –
• I am not a SEBI registered investment advisor. The information provided here is for education purposes only and are purely personal
opinions. This report is neither an advice nor endorsement. Please do your own research and consult your financial advisor before taking
any decisions.
• Source – Company Website, Company filings (AR, Financials, etc.), Screener