Stock Idea - Mold-Tek Technologies

Recommendation: Buy

CMP = Rs 72 (at the time of this recommendation)

Price target: Rs 169

Key points:

  • Q1FY2009 revenues of Mold-Tek grew by 23% yoy to Rs 33.9 crore. While the plastic division’s revenues grew by 24% yoy, the KPO division’s revenues grew by 18.2% yoy during the quarter. The operating profit margin improved by 312 basis points during the quarter on account of better profitability of the plastic division. The earnings before interest and tax margin of the plastic division improved by 10 basis points. Consequently, the company’s operating profit grew by 52.6% yoy to Rs 5.5 crore during the quarter.
  • The interest and depreciation grew by 63.2% and 20.6% respectively during the quarter. The company’s net income grew by 54.9%. yoy to Rs 4.2 crore. It also announced that the high court of Andhra Pradesh has approved the de-merger of its structural engineering KPO operations and the plastic packaging product manufacturing division.
  • Mold-Tek is witnessing traction in its high-rise building business. It has added 2 new & prominent clients in Canada and one in Amsterdam. To cater to these clients and the potential new clients, the company plans to expand its HRB team from 50 to 170 members. It also plans to open a new branch in Nasik and the revenues from this branch are expected to flow from Q3FY2009.
  • At the current market price, the stock is trading at attractive valuation of 4.9x FY2009 earnings estimate and 3.7x FY2010 earnings estimate.
  • I maintain Buy recommendation on the stock with price target of Rs 169 over next 6-7 months.

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