Initiating Coverage

Mold-Tek Technologies Ltd. Rs 118

.... de-merging to unlock value Buy
Industry : Packaging / KPO BSE Code : 526263
Company P/E : 5 x FY09E 52-Week H/L (Rs) : Rs. 195 / Rs. 60
Market Cap. (Rs) : 1,384 mn Daily Traded Volumes : 42,500
Face Value (Rs) : Rs. 10 Dividend (FY07) : 20%

Investment Rationale
We are initiating coverage on Mold-Tek Technologies Ltd. (Mold-Tek) since its consolidated top line is expected
to increase at a CAGR of 45% and bottom line at a CAGR of 78% from FY08E to FY10E. Share of KPO unit in
total revenues is expected to reach 37% by FY10E.
• Acquisitions Leading To In-organic Growth in KPO Segment: Mold-Tek having specialization in detailing
space for Steel / RCC construction, has already executed a couple of designing assignments for its Canadian
client. In order to grow rapidly in the lucrative field of "High Rise Building Structural Detailing", Mold-
Tek acquired US based KPO Engineering and Detailing company Cross Roads Detailing Inc. in April, 2007.
So far the company has been providing services to Pre-Engineered Industrial and residential buildings on
a fixed rate model with average monthly rate of $ 2,200 per resource. The hourly rates in High Rise
Building Designing and Detailing are almost double the existing billing rate, which will enable Mold-Tek
to maintain the growth in profitability despite appreciating rupee. In November, 2007 Mold-Tek has
finalized its second acquisition of a US-based structural detailing KPO specializing in high rise buildings
and also its associate company in India with a total manpower of 100 Engineers.
• De-merger To Unlock Value: In order to unlock the value of its KPO unit, subject to statutory regulations,
Mold-Tek is de-merging its KPO unit. This will enable the company to get better valuation for its KPO unit
and would further facilitate the KPO unit to raise funds for its future acquisition plans. Post de-merger
the company would be divided into 'a KPO company (Mold-Tek Technologies Ltd)' specializing in structural
engineering design and detailing services and into a 'plastic packaging product company' to be named as
'Mold-Tek Plastics Ltd'. The de-merger ratio is 28:72, i.e. for 100 share in the company the shareholder
would get 28 shares of Mold-Tek Technologies (KPO) and 72 share of Mold-Tek Plastics.
• Targeting Existing Customers And Expanding Geographical Spread: Post these two acquisitions, Mold-
Tek's client strength has increased from 40 to 60 clients spread across different geographies. Market
potential for its structural engineering services from US alone will be in billions of US dollars. Building
up expertise and training engineers in SDS/II & TEKLA software used in steel construction by developed
countries, is the only limitation for achieving further high levels of growth. Mold-Tek is using the
expertise of its American Partners to achieve this goal.
Background
• Mold-Tek promoted by first generation entrepreneurs Mr. J. Laxman Rao and Mr. A. Subramanyam is engaged
in manufacturing of injection and blow molded plastic packaging items and providing engineering Knowledge
Process Outsource (KPO) service like structural engineering, CAD-Detailing, Estimation, Mechanical Drafting
and Architectural Services to its clients based in USA, Canada, Europe and Middle East.
• Plastic Packaging Division: Mold-Tek produces injection and blow molded containers, PET bottles and jars
in both standard and made-to-order packaging for leading brands of Pints, Lubricants, Pharmaceuticals,
Cosmetics and FMCG companies, including Castrol, Exxon, Shell, British Petroleum, IOC, Hindustan Unilever,
P&G, Asian Paints etc. Mold-Tek has three manufacturing units, two at Hyderabad and one at Daman,
having in-house designing, mold making, production and printing facilities.
• Engineering KPO Division: Mold-Tek is an offshore service provider for Structural Engineering Services,
which comprises of Structural Designing, Structural Detailing and Estimating for pre engineered buildings,
multi storied steel & RCC structures, residential buildings and other architectural services for oil platforms,
roads, bridges, pipelines, towers etc. with 3D modeling of the structures. In last five years, Mold-Tek has
designed and detailed more than 4,000 buildings of various complexities as per American and Canadian
codes and standards.

LKP Research February

12 1, 2008 Ajay Shah
 Initiating Coverage

Financial Highlights
• For 9MFY08, Mold-Tek has posted total revenues fof Rs. 825.8 mn. (Rs. 723.1 mn.) a growth of 14%,
whereas bottom line has grown by 58% to Rs. 108.1 mn. (Rs. 68.5 mn.), mainly on account of improved
operating margins due to increasing share of KPO unit at more than 20% against 13% for the same period
during last year.
Valuations
• The current market price of Rs. 120 discounts FY09E earnings by 5x and FY10E earnings by 3x. Keeping
in mind the strong growth prospects for the company, we recommend a buy on the stock with a price target
of Rs. 180 over a period of 12 months.

Table 1: Profit & Loss A/c Table 3: Key Ratios

Year End Mar. (Rs. Mn.) FY06 FY07 FY08E FY09E FY10E Year End Mar FY06 FY07 FY08E FY09E FY10E
Total Income 651 882 1,281 1,871 2,692 Fully Diluted EPS (Rs.) 4.05 8.00 12.35 23.73 40.40
Material Consumed 425 553 680 947 1,319 P/E Ratio (x) 29.63 15.00 9.71 5.06 2.97
Staff Cost 47 67 90 150 215 Book Value (Rs.) 17.60 25.82 36.69 60.42 100.82
SG&A Expenses 108 133 280 374 538 Price to Book Value 6.82 4.65 3.27 1.99 1.19
Total Expenditure 581 753 1,050 1,471 2,073 Debt-Equity Ratio 1.33 1.13 1.07 0.77 0.40
PBIDT 70 129 231 400 619
EBIDTA Margin (%) 10.70 14.61 18.00 21.40 23.00
Interest 14 19 30 39 36
PAT Margin (%) 5.44 9.43 11.13 14.63 17.31
PBDT 56 110 201 362 584
ROCE (%) 14.08 18.30 21.77 28.06 34.30
Depreciation 19 24 40 54 60
RONW (%) 23.01 30.77 33.67 39.28 40.07
PBT 37 86 161 308 524
Tax 1 3 18 34 58 EV/EBIDTA 17.86 11.99 7.86 4.71 2.89
Reported Profit After Tax 35 83 143 274 466 Market Cap/Sales 1.62 1.42 1.08 0.74 0.51

Table 2: Balance Sheet Shareholding Pattern

Year End Mar. (Rs. Mn.) FY06 FY07 FY08E FY09E FY10E Promoters
Public
44.13%
Equity Capital 88 105 115 115 115 34.02%
Reserves & Surplus 67 165 308 582 1,048
Shareholder's Fund 154 270 423 697 1,163
Secured Loans 106 195 327 387 307
Unsecured Loans 99 110 125 150 160
Total Debt 205 305 452 537 467
Body Foreign
Total Liabilities 360 575 875 1,234 1,630 Corporates Institutional Holdings
Gross Block 404 562 812 1,112 1,412 17.50% Holdings 2.44%
1.92%
Less: Depreciation 191 213 253 307 367
Net Block 212 349 559 805 1,045
Price Performance Chart
Capital WIP 16 25 50 75 0
200
Inventories 143 135 192 243 350 Mold-Tek Tech BSE Sensex
180
Sundry Debtors 82 135 200 292 420 160
Cash & Bank Balances 13 16 24 35 62 140
Loans & Advances 44 47 69 93 195 120
Total Current Assets 282 333 485 662 1,027 100
Liabilities 138 106 168 235 332 80
Provisions 14 27 51 73 110 60
Total Current Liabilities 152 132 219 309 442 40
May-07

Net Assets 130 201 266 354 585

Mar-07

Apr-07

Aug-07

Nov-07
Feb-07

Jun-07

Jul-07

Sep-07

Oct-07

Dec-07

Jan-08

Total Assets 360 575 875 1,234 1,630

LKP Research February

13 1, 2008 Ajay Shah