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Organics Stock Idea
Organics Stock Idea
Organics Stock Idea
August 6, 2014
Current
Previous
CMP : Rs.15
Rating : BUY Rating : NR
Target : Rs.3 Target : NR
4
(NR-Not Rated)
STOCK INFO
BSE
532865
NSE
MEGH
Bloomberg
MEGH IN
Reuters
MEGH.BO
Sector
Agro Chemicals
Equity Capital (Rs mn)
254
Face Value (Rs)
1
Mkt Cap (Rs mn)
411
52w H/L (Rs)
16.0/3.8
Avg Daily Vol (BSE+NSE)
289,969
SHAREHOLDING PATTERN
Institutions
Others, Incl Public
Promoters
1.0
48.3
50.7
Source: BSE
21/Jul/14
07/Jul/14
23/Jun/14
09/Jun/14
28/Apr/14
26/May/14
14/Apr/14
12/May/14
31/Mar/14
17/Mar/14
03/Mar/14
20/Jan/14
17/Feb/14
06/Jan/14
03/Feb/14
23/Dec/13
09/Dec/13
28/Oct/13
25/Nov/13
14/Oct/13
11/Nov/13
30/Sep/13
16/Sep/13
02/Sep/13
19/Aug/13
05/Aug/13
04/Aug/14
400
350
300
250
200
150
100
50
Meghmani
Sensex
Daljeet S. Kohli
Head of Research
Mobile: +91 77383 93371, 99205 940
87
Tel: +91 22 66188826
daljeet.kohli@indianivesh.in
Amar Mourya
Research Analyst
Tel: +91 22 66188836
Meghmani Organics Ltd (Meghmani), top 100 global generic agrochemicals playe
r and
one of the largest blue pigments producers in the world, is seeing a significant
business
turnaround after many years of dismal performance. With uptick in Agrochemica
l cycle,
following triggers should lead to business turn-around- (1) margin expansion on
the back
of stabilization of recently commenced facilities, (2) better profitability in absence
of
incremental capex, should lead to commencement of debt repayment, (3) With pe
rmissions
in place from state level Pollution Control Board, Meghmani is well positioned to r
amp-up
amar.mourya@indianivesh.in
operations to peak capacity, (4) Implementation o Changing global dynamics, positive for pigments industry
f stringent Pollutions norms in China,
makes Indian Agrochemical and Pigments busines The pigment industry suffered heavily in last five years on account of
huge
s attractive, and (5) ability to attract
new order wins from MNC clients given that all s competition from Chinese players. The key reason for China becoming
afety and Environment certifications are
more
in place. On a/c of industry down cycle and lever competitive (v/s India) in global market was as follows: (1) huge gov
ed balance sheet of the company,
ernment
Meghmani stock has been trading at lower 1-year incentives for exports, (2) less stringent pollution norms, (3) lower depende
forward EV/EBITDA multiple of ~3.9x.
nce on
With revival in business cycle, we have assigned import for raw material and intermediates. However, in recent years China i
5.9x EV/EBITDA multiple (21% discount
s taking
to global peers) to arrive at FY16E based price ta strict legal initiatives to reduce Carbon emissions. This had forced many agr
rget of Rs 34/share. Given the huge upside,
ochemical
we maintain BUY on the stock.
and dyes companies to close down recently. In our view, this opens tremend
ous
export opportunity to Indian pigment manufacturers. The stricter environme
ntal
norms also take away cost advantage of Chinese players; hence it provides
equal
turf for Indian manufacturer to operate in global market. Additionally, impro
ved
global economic condition led to rise in demand for pigments across
various
industries [E.g Textiles, Printing Ink, Plastic, Paints, Leather, Paper and Rubb
er]. Given
the companys established industry position and global presence [250 custo
mers in
65 countries] Meghmani remains a major beneficiary of changing industry d
ynamics.
IndiaNivesh Securities Private Limited Chowpatty, Mumbai 400 007. Tel: (022) 66188800
IndiaNivesh Research is also available on Bloomberg INNS, Thomson First Call, Reuters and Factiva
INDNIV.
10, in the first 3-4 years, did not earn major profits whereas huge capital
incurred. The total cost of the plant was cRs.5,500 mn (Rs.1,850 mn Equit
Rs.3,700 mn debt). Meaning, nearly 70% of the total long-term debt (Rs.5
on the books was raised to set-up this plant, which resulted in increase in i
expenditure by ~157% Y/Y in FY10. Commencement of plant led to rise in
but profitability took a significant hit. Now, with this plant stabilised, uptick
revenues from this plant should help in debt servicing. In FY15, managem
revenue of Rs.4,750 mn (V/S Rs.2,624 mn in FY14) and EBIT of Rs.750 mn
mn in FY14) from MFL. The caustic-chlorine chemicals are used in
industries such as pigments, plastics, petroleum and natural gas extr
manufacturing of organic chemicals, industrial solvents, water treatment c
and pharmaceuticals.
new facilities were commissioned in FY13-14. This will boost the turnover
as margins going-ahead. Additionally, no further capital investments are o
and hence likely to generate huge free cash flow in order to reduce debts
ahead. Similarly, investments in Pollution related areas are complete and
plans can go back to full capacity utilization without stoppages from Pollut
Most of the plants are ISO 14000/9000 and OSHAs 18000 certified, which
in attracting contract manufacturing business from MNCs. The manageme
guided for only maintenance capex ranging between Rs100-500 mn from
IndiaNivesh Research
August 6, 2014 | 2
Basic Chemicals, and Others (See Table Below). EBITDA went up 20% Y/Y t
quarter, Meghmani reported net profit of Rs.78 mn (v/s net loss of Rs.36 m
Q1FY14).
Quarterly Performance
(Rs Mn)
Net Sales
Other Operating Income
Total Income
Q1FY15
3,078
50
3,127
1,757
1,894
1,370
-7%
28%
Stock Adjustment
Purchase of Finished Goods
Employee Expenses
Other Expenses
Total Expenditure
113
-20
167
610
2,628
256
-476
160
719
2,552
102
108
132
432
2,144
-56%
-96%
5%
-15%
3%
10%
-118%
27%
41%
23%
EBITDA
499
480
416
4%
20%
Interest
Other Income
Depreciation
PBT
Tax
Net Profit
Extra-ordinary Items
Minority Interest
Reported Net Profit
177
18
202
138
-2
140
62
78
199
20
198
103
5
97
-5
57
46
152
13
196
81
115
33
3
36
-11%
-8%
2%
34%
-139%
43%
NM
9%
71%
17%
40%
3%
69%
-102%
NM
NM
2185%
NM
0.3
0.2
-0.1
71%
NM
254
254
254
0%
0%
EPS
O/shares
Q4FY14
2,967
65
3,032
Q1FY14
2,516
44
2,560
Margin %
EBITDA Margin (%)
PAT Margin (%)
Q/Q Ch %
4%
-24%
3%
Y/Y Ch %
22%
12%
22%
BPS
16.0%
2.5%
15.8%
1.5%
16.2%
-1.4%
Segment Performance
(Rs Mn)
Q1FY15
Pigment
1,119
Agrochemicals
1,002
Basic Chemicals
855
Other/Unallocated
342
Total
3,317
Source: Company, IndiaNivesh Research
Q4FY14
1,098
1,044
824
359
3,326
Q1FY14
890
938
651
245
2,724
13
99
Q/Q Ch %
2%
-4%
4%
-5%
0%
29
390
Y/Y Ch %
26%
7%
31%
39%
22%
IndiaNivesh Research
August 6, 2014 | 3
w 7.5x
global peer average. On back of various available triggers (1) debt reducti
on, (2)
margin expansion, (3) higher plant utilization, and (4) favourable business
dynamics
the stock is poised for re-rating. With revival in business cycle, we have as
signed
based
e stock.
Financials
Income Statement
Y E March (Rs m)
Balance Sheet
FY12
FY13
FY14
FY15e
FY16e
Net sales
10,622
10,585
11,783
13,367
14,871
Y/Y Ch %
1.6
0.4
11.3
13.4
11.3
COGS
7,020
6,642
7,495
8,519
9,478
Minority
SG&A
2,045
2,091
2,329
2,642
2,939
Long-term loans
EBITDA
1,557
1,852
1,959
2,205
2,454
Others
4.7
19.0
5.8
12.6
11.3
EBITDA Margin %
14.7
17.5
16.6
16.5
16.5
Interest
735
643
676
568
459
Deprecaition
747
753
802
1,015
1,056
EBIT
75
456
480
623
939
EBIT Margin %
0.7
4.3
4.1
4.7
6.3
Y/Y Ch %
Y E March (Rs m)
FY12
FY13
FY14
254
254
254
254
254
4,505
4,766
4,927
5,551
6,614
Net Worth
4,760
5,020
5,181
5,805
6,868
568
797
924
1054
1187
4903
4217
3773
2773
1773
412
310
431
431
Share Capital
126
134
61
59
60
FY16e
431
Total Liabilities
10,642
10,343
10,308
10,062
10,258
Gross Block
10,343
11,608
12,683
13,195
13,732
Less Depreciation
3,085
3,825
4,627
5,642
6,698
Net Block
7,257
7,783
8,056
7,553
7,035
196
246
Others
1118
1499
1736
1978
2200
Investments
Defered tax (net)
FY15e
PBT
201
591
542
683
999
Current Assets
6,849
6,703
7,823
8,086
8,800
Tax
191
299
181
228
300
Sundry Debtors
3,326
3,429
3,523
3,955
4,400
94.8
50.7
33.4
33.4
30.0
440
99
373
256
252
10
291
361
455
699
1,360
1,363
1,432
1,604
1,784
96.5
2702.8
23.8
26.1
53.8
Inventories
1,722
1,811
2,496
2,270
2,363
119
133
130
133
Current Liabilities
3,095
3,658
4,196
4,437
4,660
10
172
228
325
567
Provisions
1,683
2,229
3,117
3,117
3,117
RPAT Margin %
0.1
1.6
1.9
2.4
3.8
2,071
816
510
532
97.4
1620.2
32.6
42.3
74.6
10,642
10,343
10,308
Y/Y Ch %
Total assets
10,062
1,023
10,258
Source:Companyfilings;IndiaNivesh Research
Source:Companyfilings;IndiaNivesh Research
Cash Flow
Key Ratios
Y E March (Rs m)
FY12
Operaing Profit
810
1,100
Depreciation
747
753
Interest Exp
-735
-227
FY13
FY14
FY15e
FY16e
Y E March
FY12
FY13
FY14
FY15e
1,156
1,191
1,398
Adj.EPS (Rs)
0.0
0.7
0.9
1.3
2.2
802
1,015
1,056
2.9
3.5
4.1
5.3
6.4
-643
-676
-568
-459
DPS (Rs)
189
-541
34
-315
BVPS
ROCE %
FY16e
0.1
0.1
0.1
0.1
0.1
18.3
19.3
20.5
22.9
27.1
594
1,398
742
1,672
1,679
8.4
11.9
12.9
13.9
16.2
-191
-299
-181
-228
-300
ROE %
22.0
29.2
17.8
33.6
33.6
26
343
597
-113
-120
ROIC %
-0.1
1.4
2.0
3.0
5.3
429
1,442
1,158
1,331
1,259
EBITDA Margin %
14.7
17.5
16.6
16.5
16.5
-1,092
-1,278
-1,075
-517
-538
PER (x)
382.7x
22.3x
16.3x
11.5x
6.6x
-662
164
83
814
722
P/BV (x)
0.8x
0.8x
0.7x
0.6x
0.5x
164
-50
240
P/CEPS (x)
5.1x
4.1x
3.6x
2.8x
2.3x
EV/EBITDA (x)
6.2x
5.2x
4.9x
4.4x
3.9x
Dividend Yield %
0.7
0.7
0.7
0.7
0.7
m cap/sales (x)
3.0x
2.5x
2.2x
1.6x
1.6x
-928
-1,328
-835
-512
-538
587
-504
-143
-1,000
-1,000
-25
-26
-25
-25
-25
1.4x
1.3x
1.1x
0.9x
0.6x
123
300
4.1x
3.4x
3.0x
2.3x
1.6x
685
-513
-49
-936
-725
Debtors (Days)
113
117
108
108
108
220
-342
274
-117
-4
Creditors (Days)
38
51
53
54
54
220
440
99
373
256
Inventory (Days)
58
62
76
62
58
440
99
373
256
252
133
127
131
116
112
17
120
89
IndiaNivesh Research
August 6, 2014 | 4
1.
Analyst ownership of the stock
2.
Clients/Company Associates ownership of the s
3.
Broking relationship with company covered
4.
Investment Banking relationship with company
covered
Yes
Yes
No
No
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