- chats.moneycontrol.comchats.moneycontrol.com/plus/.../meghmaniorganics...meghmani organics ltd...

www.hemsecurities.com

BROKING | DEPOSITORY | DISTRIBUTION | FINANCIAL ADVISORY|MERCHANT BANKING

Meghmani Organics Ltd 24th Aug 2017 BUY

For Private Circulation Only 1 Hem Research

CMP Rs. 72.65

Target Price Rs 95.00

BSE Code 532865

NSE Code MEGH

Market Cap (Rs crore) Rs. 1847.49

52 Week High/Low 78.10/34.10

Industry Chemicals

Face Value Rs 1

Shares O/S 25.43 (Cr)

EPS* 4.00

Book Value 28.25

P/E 18.45

P/B 2.62

Note *: On TTM basis

Shareholding Pattern as on June’ 2017

Research Analyst :Astha Jain Shah

Co has posted strong numbers in Q1FY18 with whopping jump of 17% in topline as compare to Q1FY17 while bottomline of company has witnessed stellar rise of more than 74% on YoY basis in Q1FY18. On margin front also, company has shown growth of 4% in operating profit margin at 19.78% in Q1FY18 while consolidated net profit margin of co has witnessed rise of 48% at 7.11% during the same qtr as compare to Q1FY17. The company has grown at strong CAGR of more than 55% in its bottomline from FY14 to FY17 while net profit margin of co was expanded at CAGR of more than 30% during the same period. The size of the global Pigments market is expected to rise to $32 bn by 2023, growing at a CAGR of 3.8%. The global paints & coatings market is projected to grow at a CAGR of 5.5% during the period of 2017-2022. This is expected to give a strong boost to the global pigments market & thus pave the way for increased opportunity in pigment segment for company present in this segment as co has 8% global market share & is among top 3 Capacity wise global pigments players. In Agrochemical segment, company has 227 export registrations, 496 registrations in pipeline, 354 CIB registrations, and 35 registered trademarks. The Company has a strong global client base .The Company exports technical as well as branded products to Africa, Brazil, LatAm, the US, and European countries.

Co has already spent Rs 6.5bn over last 5 years to increase capacity. Company has strong capex plan involving Rs 5.4 bn of investments over the next 2-3 years. The project will be a major growth-driver, going ahead. In three-four years, all of co’s divisions : pigment, agrochemicals and basic chemicals will touch Rs 1,000 crore of revenue individually, according to management.

Valuation Co has shown strong financial performance during Q1FY18 & going forward all segments of company are expected to progress. Agrochemicals segment will be driven by better industry demand due to good monsoon in FY18 along with the proposed key reforms and increased funds in Budget FY17. Pigments Segment of company will perform with increasing share of higher-value-added products as the Beta Blue plant is fully ramped up and Basic Chemicals Segment of co will show growth with increased utilisation of Caustic Potash.This gives strong revenue visibility going forward.

The company is currently trading at 18.16x of TTM eps of Rs 4.00 while it is trading at 14.86x of FY18E eps of Rs 4.89 & 12.21x of FY19E eps of Rs 5.95. Looking at strong future growth, huge capex plan & margin expansion, we recommend “Buy” on the stock with price target of Rs 95(appreciation of almost 30%) for medium to long term investment.

PROMOTERS,

53.83%PUBLIC, 46.17%



Business Segments: Pigment: Meghmani Organics is one of the largest manufacturers of Phthalocyanine-based pigments with a global market

share of approx 8% in volume terms. The Company has vertically integrated facilities manufacturing CPC Blue (an upstream

product which too is sold to other pigment manufacturers) and end products — Pigment Green and Pigment Blue. These

pigment products are used in multiple applications, including paints, plastics and printing inks. The Company’s pigments

business enjoys strong global presence with exports accounting for almost 68% of net sales. Customers comprise mainly

MNCs, such as Sun-DIC, Flint Group, Akzo Nobel, DuPont, and PPG Industries. The Company’s relationship with its clients is

sticky, with 90% business arising from repeat customers. The Company has a global distribution network of 70 overseas

distributors. Its direct presence (with subsidiaries in the US, Europe, Indonesia, and Dubai) helps it to maintain a front-end

presence and the ability to work closely with end - user customers. The Company also has warehouses in Belgium, Turkey,

Russia, USA, and Uruguay. Meghmani Organics has three dedicated manufacturing facilities to manufacture Pigment products.

These are located at: • GIDC Vatva, Ahmedabad, (2,940 MTPA) where Pigment Green 7 products are manufactured • GIDC

Panoli, near Ankleshwar, (17,400 MTPA), where CPC Blue, Alfa and Beta Blue, Pigment Blue 15 products are manufactured •

Dahej SEZ Ltd, (10,800 MTPA) where CPC Blue, Alfa and Beta Blue are manufactured. Going forward, the Company expects the

share of value-added products to increase, led by its fully ramped up Beta Blue plant. The Company is also focusing on the

high-margin paints and plastics market by improving the product-mix and developing specialty pigment products for

international markets to maintain the growth in exports.

Agrochemical: Meghmani Organics is a leading vertically-integrated Agrochemicals player with product offerings

encompassing the entire value chain — intermediate, technical grade and formulations (bulk and branded). The Company’s

vertical integration of business allows it to effectively manage raw material costs and assure a constant supply of consistent

quality. The agrochemicals industry is highly regulated and the Company enjoys competitive advantage via 227 export

registrations, 496 registrations in pipeline, 354 CIB registrations, and 35 registered trademarks. The Company has a strong

global client base with exports accounting for 69% of its agrochemical sales. The Company exports technical as well as

branded products to Africa, Brazil, LatAm, the US, and European countries. Meghmani Organics produces commonly-used

pesticides for crop and non-crop applications, such as for public health, insect control in wood preservation and foodgrain

storage. Major products include 2, 4-D, Cypermethrin, Permethrin, Metaphenoxy, Benzaldehyde, Chlorpyrifos and

Profenophos. In branded formulations, the Company has established a strong pan-India presence with about 2807 stockists,

agents, distributors, and dealers spread across 17 states. Key brands include Megastar, Megacyper, Megaban, Synergy, and

Courage. The Company has three state-of-the-art manufacturing facilities where capacities have been increased via

debottlenecking. These are located at: = GIDC Ankleshwar, (6,240 MTPA) = GIDC Panoli, (7,200 MTPAup from 3,600 MTPAin

FY16) = GIDC Dahej, (13,740 MTPAup from 10,260 MTPAin FY16),

Basic Chemical: The Company entered the Basic Chemicals segment in 2009 with capacity of 119,000 MTPA at Dahej. It

expanded capacity by 40% in FY15 to 166,600 MTPA, and became the fourth-largest Caustic Soda Flakes producer in India.

The current product portfolio includes Caustic and Hydrogen. Since power cost accounts for almost 60% of total raw material

cost in Caustic production, captive power plant provides power at lower cost resulting in high margins. The Dahej facility is

strategically located due to its proximity to the port, providing ease of importing coal and proximity to chemical

manufacturers. The Company is supplying Caustic and Chlorine via pipeline to select buyers, thus substantially reducing its

logistics costs. The Company has recently changed the membrane of its existing Caustic Soda Plant. The Company’s new

Caustic Potash facility at Dahej of 60 TPD capacity which commenced production at the beginning of the year is ramping up

slowly due to technical issues, which have now been sorted out. Caustic Potash is one of the very few chemicals that find

universal application with makers of Soaps, Detergents, Fertilizers and Chemicals.



0

Strong Capex Plan

Meghmani Organics Ltd holds 57% stake in Meghmani Finechem Ltd, which is planning the Capex of Rs 5.4 bn .The Company’s planned capex of Rs 5.4 bn involving 3 projects over the next 2-3 years is in-line with its strategic intent of expanding the chemicals business. The first Project is the CMS Project of 40,000 MTPAwhich will produce MDC (which mainly used by Pharma and Agro Chemical Industries and India is currently a net importer of same) Chloroform and Carbon Tetra Chloride (CTC) . This is expected to be commissioned by March 2018 and add Rs.4 bn of revenue in the full year of operations. The second Project involves 50% capacity expansion of the Company’s Caustic Soda plant to 2,40,000 MTPA using Zero Gap Membrane Cell technology and increase the Captive Power Plant capacity to 90MW from 60 MW now. The third Project is to set up a Hydrogen Peroxide (50%) project of 25,000 MTPAcapacity which also used in Pharma and Agro Chemical Industries. Expansion of the Caustic Soda and Hydrogen Peroxide projects will involve Rs 4 bn investments, and are expected to be commissioned by June 2019.

Rs 1.4 Bn

Dichloro Chloromethane

(CMS Project)

Setting up a Chloromethane plant of

40,000 MTPA

Will cater to captive consumption of

chlorine & produce MDC ( for which

India is currently a net importer),

Chloroform & Carbon Tetra Chloride.

Expected to be commissioned by Apr’18.

Expected to add Rs 1.2 bn of revenue

post full year of operation

Rs 4 Bn

Hydrogen Peroxide Project Caustic Soda Expansion

Setting up a Hydrogen Peroxide

project of 25,000 MTPA

Increasing capacity by

250 TPD (50% increase)

using Zero gap Membrane

Technology

Increasing Captive Power

Plant capacity from 60

MW to 90 MW

Expected to be commissioned by June ‘19

Expected to add Rs 3 bn of revenue in full

year of operation FY21



Healthy Financial Performance in Q1FY18 During Q1 FY18 , topline of co was up 17% at Rs 415 Cr driven by strong exports growth of 26% and domestic revenue growth of 8% as exports contributes to 54% to revenue .During the quarter, EBITDA was up 22% as raw material cost as percentage of revenue declined from 56.9% to 52.9% while other cost as a percentage of revenue increased from 19.2% to 22.5% . Bottomline of company during Q1FY18 grew whopping 75% to Rs 32.9 Cr from Rs 18.85 Cr. Domestic business grew by 8% led by strong growth in Basic Chemicals, marginally offset by lower revenues in Agrochemicals, while Pigments business had stable revenue. On Segmental front, Pigment Segment is expected to continue with the momentum with its increasing share of value-added products, led by fully ramped-up Beta Blue plant. Co is also focusing on the high-margin paints and plastics market by improving the product-mix and developing specialty pigment products for international markets to maintain the growth in exports.In Agrochemicals Segment, the domestic market of co will further grow in FY18, driven by a better monsoon following the channel inventory drying up after 2 years of drought, and lower imports due to reduced production in China on account of pollution issues. The Company has focused its efforts on strengthening its distribution network which was earlier not being pursued very aggressively due to subdued market conditions. The Company’s export markets are already reviving and co is witnessing increasing demand for its higher-value products which will result in higher realisations and better margins. Co’s Caustic Potash plant, which is now getting ramped up, coupled with continued strong performance by Caustic Soda, will be the key drivers for profitable growth of the Basic Chemicals segment. Overall, FY18 looks to be more promising with all segments expected to progress: Agrochemicals with better industry demand, Pigments with increasing share of higher-value-added products and Basic Chemicals with increased utilisation of caustic potash.



P& L Statement (Rs Cr)

Particulars FY15 FY16 FY17 FY18E FY19E

Total Revenue 1294.21 1453.02 1546.28 1700.91 1956.04

Growth(%) 12.27% 6.42% 10.00% 15.00%

Expenditure 1091.09 1192.21 1257.51 1369.23 1574.62

EBITDA 203.12 260.81 288.77 331.68 381.43

Growth (%) -- 28.40% 10.72% 14.86% 15.00%

EBITDA Margin(%) 15.69% 17.95% 18.68% 19.50% 19.50%

Other income 6.41 25.47 12.42 13.60 15.71

Depreciation & Amortization 74.74 76.76 90.72 99.79 114.76

EBIT 134.79 209.52 210.47 245.49 282.37

EBIT Margin(%) 10.41% 14.42% 13.61% 14.43% 14.44%

Interest 74.63 63.11 50.89 10.00 10.00

Exceptional Item (0.20) 0.00 (3.81) 0.00 0.00

PBT 59.96 146.41 155.77 235.49 272.37

Tax 13.99 35.12 39.55 70.65 81.71

PAT 45.97 111.29 116.22 164.84 190.66

Minority Interest (2.09) (28.78) (28.51) (39.00) (41.00)

Consolidated PAT 43.88 82.51 87.71 125.84 149.66

Growth (%) --- 88.04% 6.30% 43.47% 18.93%

NPM (%) 3.39% 5.68% 5.67% 7.40% 7.65%

Equity Capital 25.43 25.43 25.43 25.43 25.43

Equity Shares 25.43 25.43 25.43 25.43 25.43

EPS 1.73 3.24 3.45 4.95 5.89

Ratios


Return on Equity (%) 7.96 13.07 12.21 15.08 15.37

Return on Capital Employed (%) 15.59 24.71 25.05 26.28 26.29

Current Ratio 1.31 1.27 1.39 1.33 1.33

Book value per share 21.69 24.82 28.25 32.81 38.30



Balance Sheet Rs. Crore


Share Capital 25.43 25.43 25.43 25.43 25.43

Reserves & Surplus 526.10 605.81 693.02 808.86 948.53

Minority Interest 94.35 126.30 154.74 183.54 200.00

Secured Loan 312.93 216.77 121.77 100.00 100.00

Other Long Term Liabilities & provisions 4.36 4.81 4.55 4.76 5.73

Net Deferred tax Liability 47.10 26.70 28.51 33.37 37.98

Sources of funds 1010.27 1005.82 1027.92 1155.96 1317.67

Net Fixed Assets 793.55 820.17 787.79 907.64 1032.77

Non Current Investments 6.56 0.59 0.59 0.59 0.59

Intangible Asset under dev 10.72 7.18 9.45 9.68 14.67

Other Non Current Assets 32.16 19.66 15.78 18.18 20.72

Inventories 215.78 312.58 241.68 271.30 308.69

Sundry debtors 316.70 326.93 330.91 379.12 431.39

Cash and bank balance 15.59 11.02 10.19 19.66 22.37

Other current assets 19.84 20.51 63.99 70.53 80.26

Loans and advances 113.39 74.88 89.96 105.80 120.39

Current Investment 17.34 0.00 28.53 35.27 40.13

Total current assets 698.64 745.92 765.26 881.68 1003.23

Current liabilities and provisions 531.35 587.75 550.90 661.81 754.31

Net current assets (Ex Cash) 151.70 147.15 204.17 200.21 226.55

Uses of funds 1010.28 1005.77 1027.97 1155.96 1317.67



Quarterly Financial Highlights

Rs. Crore

Particulars Q1FY18 Q1FY17 Q4FY17 YoY% QoQ%

Revenues 461.06 392.68 386.96 17.41 19.15

Expenditures 369.85 317.79 313.18 16.38 18.10

Operating Profit 91.21 74.90 73.77 21.78 23.64

Consolidated Net Profit

32.78 18.85 23.42 73.90 39.97

PBIDTM% (ex OI) 19.78 19.07 19.06 3.72 3.77

NPM % 7.11 4.80 6.05 48.11 17.47

EPS* 1.29 0.74 0.92 74.32 39.97

*Calculated on Net Profit/Total Comprehensive Income

Past Price movement of the stock

21 28 5 12

December

19 26 2 9

2017

16 23 30 6 13

February

20 27 6

March

14 20 27 3 10

April

17 24 2 8

May

15 22 29 5

June

12 19 27 3

July

10 17 24 31 7

August

14 21 28 4

September

5000100001500020000250003000035000400004500050000

x100 5000100001500020000250003000035000400004500050000

x100

25500

26000

26500

27000

27500

28000

28500

29000

29500

30000

30500

31000

31500

32000

32500

33000

35

40

45

50

55

60

65

70

75

80MEGHMANI (72.6500, 73.4500, 70.8500, 72.0500, -0.20000), SENSEX (31,407.47, 31,593.39, 31,379.25, 31,568.01, +276.160)




[email protected]

HEM SECURITIES LIMITED

MEMBER-BSE,CDSL,SEBI REGISTERED CATEGORY I MERCHANT BANKER

Sebi Registration No For Research Analyst: INH100002250

JAIPUR OFFICE: 203-204, JAIPUR TOWERS, M I ROAD, JAIPUR-302001

PHONE- 0091 141 405 1000 FAX- 0091 141 510 1757

MUMBAI OFFICE: 14/15, KHATAU BLDG., IST FLOOR, 40, BANK STREET, FORT, MUMBAI-400001

PHONE- 0091 22 2267 1000 FAX- 0091 22 2262 5991

GROUP COMPANIES

HEM FINLEASE PRIVATE LIMITED

MEMBER-NSE

HEM MULTI COMMODITIES PRIVATE LIMITED

MEMBER-NCDEX, MCX

HEM FINANCIAL SERVICES LIMITED

NBFC REGISTERED WITH RBI

http://www.hemsecurities.com/

mailto:[email protected]



Disclaimer & Disclosure: This document is prepared for our clients only, on the basis of publicly available information and other sources believed to be reliable. Whilst we are not soliciting any action based on this information, all care has been taken to ensure that the facts are accurate, fair and reasonable. This information is not intended as an offer or solicitation for the purchase or sell of any financial instrument and at any point should not be considered as an investment advice. Reader is requested to rely on his own decision and may take independent professional advice before investing. Hem Securities Limited, Hem Finlease Private Limited, Hem Multi Commodities Pvt. Limited, Directors and any of its employees shall not be responsible for the content. The person accessing this information specifically agrees to exempt Hem Securities Limited, Hem Finlease Private Limited, Hem Multi Commodities Pvt. Limited or any of its affiliates or employees from, any and all responsibility/liability arising from such misuse and further agrees to hold Hem Securities Limited, Hem Finlease Private Limited, Hem Multi Commodities Pvt. Limited or any of its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays. The companies and its affiliates, officers, directors, and employees, including persons involved in the preparation or issuance of this material may from time to time, have long or short positions in, and buy or sell the securities there of, company (ies) mentioned herein and the same have acted upon or used the information prior to, or immediately following the publication.

Analyst Certification

The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report.

Disclosure of Interest Statement

1. Analyst Ownership of the Stocks No

2. Hem & its Group Company Ownership of the Stock No

3. Hem & its Group Company Director Ownership of the Stock No

4. Broking relationship with Company covered No

- chats.moneycontrol.comchats.moneycontrol.com/plus/.../meghmaniorganics...meghmani organics ltd...

Documents