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Wednesday, November 28, 2007

Mold-Tek Technologies:Spreading its wings

Scripscan:Mold-Tek Technologies Ltd
Duration:6-9 months
Traded in:BSE

Introduction:Mold-tek is the leader in Plastic Pail Packaging industry in the country.The company caters mainly to paints and lubes industry.It is only company from India producing injection and blow moulded containers,PET bottles and jars under one roof.It is the only supplier to its clients like Reliance Petroleum Ltd,ICI, Emirates Petroleum Ltd.etc.With time the company has diversified into providing structural engineering services for global clients in USA, Canada, Gulf & Europe.The KPO Division is currently providing services to more than 25 US Clients and has aggressive marketing plans to add further 10-15 clients in the current year.

Demerger:To unlock value for its shareholders mold tek is demerging its Kpo and Plastic business and plans to list both companies seperately.The demerger is expected to happen by January 2008 and it would be effective from April 2008.The demerger ratio is expected to be 70:30,with plastics packaging accounting for 70% and the remaining 30% would be KPO business.

Platic Business:Mold tek is the only player and market leader with a 38% share in the plastics pail packaging industry.The divison has recently received orders from RPL and Emirates Petroleum,where in the company would be the sole supplier to these companies in the lube sector.The company has also been succesful in adding new clients like ICI and Kirloskar Oil recently.Mold tek is planing to acquire leased premises near its Daman plant to expand its capacity further by 20% at a capex of Rs. 2.5 crs within the next few quarters.It is also planing to provide innovation-packaging solutions for the Pharma,Cosmetic and Food products.With its capacity expansion in Daman plant the revenues and margins are expected to rise considerably.

KPO business:Mold tek"s KPO Division is providing services to more than 25 US Clients and is all set to add 10-15 clients more in the present fiscal.With the company moving into different segments like residential buildings,exploring different lines like Mechanical Engineering and oil platforms, the growth opportunities for KPO business is huge.

Revenue breakup of KPO&Plastic divison of the company:-

KPO Division:Profits up by 71% to Rs.2.69 crores for the 2nd quarter ending 30.09.2007 as against Rs.1.57 crores of last equivalent quarter. Sales up by 89% to Rs.5.00crore from Rs.2.65crore.KPO division Quarter on Quarter (2nd quarter on 1st quarter) growth of sales up by 18% to Rs.5.00crore from Rs.4.23crores and net profits up by 18% to Rs.2.69crore from Rs.2.28crores.The company maintained its profit margins inspite of drop in dollar value during last 6 months. This was achieved through execution of larger structural engineering projects started after the acquisition of Cross Road Detailing Inc in april 07.

Plastics Division:Profits went up by 55% at Rs.0.99 crores against Rs.0.64 crores in previous corresponding quarter.Revenues jumped 4% at Rs.23.12 crores against Rs.22.28 crores.

CRD Acquisition:In april this year,Mold tek acquired the US-based engineering and detailing firm Cross Roads Detailing Inc (CRD) in a $1.3 mn deal.Cross Roads was incorporated in the year 1999 and is providing structural engineering and detailing services to about 20 Fabricators and Builders in USA.On our interaction with the management:these is what they had to say about the acqusition,"The acquisition of Cross Road Detailing Inc has started yielding high value added projects to us. We expect to grow exponentially as we have enhanced the capacity in providing Engineering Services for "High Rise Buildings" for our USA and Canadian clients".Mold tek expects to get orders worth $2.5 million during the fiscal FY08 through its CRD operations.The company expects consolidated sales to rise by Rs. 5-6 crs due to CRD account sconsolidation in FY08.

Merger of Tech Men Tools Ltd:Tech men is engaged into the business of manufacturing small packs having capacity of 500-600 TPA.Tech Men Tools has been merged with the company recently.Tech men posted revenues of 4.5 crs and bottomline of around 45 lacs in 07.The numbers of tech men tools would be reflected in mold tek"s 3rd quarter numbers.Tech men has got a topline clientele of biggies like AsianPaints, Bharat Shell, Tata Coffee, Hyderabad Chemicals etc.

Manpower:The manpower,which was 40 in the year 2005,is now more than 200.Mold-Tek is further planning to double its head count during the current financial year to meet the growing demand for its services.The company is presently constructing a Campus to accommodate 1000 Engineers in Jubilee Hills, Hyderabad, with a total outlay of around Rs. 15.00 crores,Mold-Tek expects to complete the same by Dec,07.

More acquisition:After the strategic acquisition of Cross Road Detailing Inc.(CRD),Mold tek is set to acquire an Ohio-based structural detailing KPO company for a consideration of $2 million.The company plans to raise around $ 6 million from private equity players to fund the acquisition of this KPO firm and a few more companies providing engineering KPO services to high-rise building segment in the US.

Recent financials:Inspite of rupee appreciation and high input costs mold tek performed exceptionally well and came out with robust set of quarterley as well as half-yearly numbers.KPO Division continued its high growth performance by registering increase in sales by 94% during the current half year.Sales went up to Rs.28.12 crores for the 2nd quarter as against Rs. 24.93 crores of last equivalent quarter.Profits escalated to Rs. 3.68 crores as against Rs.2.21 crores of last equivalent quarter.

Concerns:Any delay in the demerger process may affect the stock prices.

Conclusion:Both the plastics packaging and KPO business are doing quite well for the company.Mold tek is expected to close the fiscal with an EPS of around 15rs.The company should get re-rated over the coming few months.Both the divisons of the company has got tremendous potential and prospects.Post demerger,the KPO business is expected to get better valuations and it should attract a P/E of 15-18.The plastic container business can command a P/E of 8-10 times.The both entities combined should atleast quote at a price of above 200 within the next 6-9 months resulting a gain of over 60%.In these sort of market environment its hard to find solid stories which can unfold.Mold-Tek is a scrip which should be a part of every investor"s core portfolio."A great buy".

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