Recommendations Specialty Chemicals Sectors

This section gives a recommendation of a stock having stockmargin padding price below Rs 100 with sound fundamentals and expected to give handsome returns over a one-year time horizon

Meghmani Organics 

BREWING THE CHEMISTRY OF PROFIT

HERE IS WHY
Reduction in debt 
Strong exports 
Ongoing capacity expansion

  

Meghmani Organics Limited (MOL) is a manufacturer of pigment and pesticide products. The company's segments include pigments, agro-chemicals, basic chemicals and others. In terms of capacity, MOL is among the top three pigments players globally. 

The company is one of the largest manufacturers of phthalo cyanide-based pigment with a global market share of 7 per cent in terms of volume. The pigment division and agro-chemicals division derives 79 per cent and 67 per cent of its net sales from exports. The company has invested Rs650 crore capex over the last five years.

MOL has a 60 MW captive power plant, which results in lower power cost and high margins since power constitutes about 60 per cent of the total raw material cost of caustic soda production. The company has developed long-term relationships with clients, resulting in 90 per cent repeat business.

The company’s chloro methane plant, with a capacity of 40,000 TPA, is expected to be commissioned by the end of 2018. Its caustic soda capacity will stand enhanced at 2,50,000 TPA from 1,66,600 TPA by June 2019.

Last month, MOL’s wholly-owned subsidiary Meghmani Agrochemicals gave successful exit to International Finance Corporation (IFC) by acquiring 24.97 per cent equity stake held by IFC in Meghmani Finechem for a total consideration of Rs2,212 million.

On the financial front, the net sales of the company increased by 0.54 per cent to Rs280.20 crore in Q4FY18 on a YoY basis. However, the PBIDT of the company declined by about 34.66 per cent to Rs23.25 crore in Q4FY18 as against Rs35.57 crore in the same quarter of the previous fiscal. The net profit of the company also declined by 8.54 per cent to Rs11.85 crore in the fourth quarter of FY18 on a yearly basis. 

On the annual front, the net sales of the company increased by 12.80 per cent to Rs1,260.47 crore in FY18, as against Rs1,117.47 crore in FY17. The PBIDT of the company increased by 28.51 per cent to Rs171.19 crore in FY18 as against Rs133.21 crore in the previous fiscal. The net profit of the company increased by over 85 per cent to Rs76.93 crore in FY18 as against Rs41.51 crore in FY17.

On the valuation front, MOL is trading at an attractive PE ratio of 9.18x vis-à-vis its peers such as Excel Crop Care (43.31x) and Rallis India (29.28x). The company’s debt-to-equity ratio improved from 0.6x in FY17 to 0.4x in FY18 after the company repaid debt of Rs75.1 crore.



Interest coverage ratio improved to 8.4x with better performance and lower debt cost. MOL has return on equity (RoE) and return on capital employed (RoCE) of 13.22 per cent and 15.52 per cent, respectively. The company has good consistent profit growth of 92.34 per cent over the last 5 years. We expect the company’s expansion in higher-value products and increased utilisations to drive growth going forward. We recommend our reader-investors to BUY the stock.