Recommendations From Pesticides & Agro Chemicals Sector

Recommendations From Pesticides & Agro Chemicals Sector

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

MEGHMANI ORGANICS : CREATING THE RIGHT CHEMISTRY 

HERE IS WHY
☛Dominant market position
☛Good growth prospects
☛Expansion plans to add to topline.

Meghmani Organics Limited mainly operates through three segments – pigment, agro-chemical and basic chemical i.e. chlor-alkali and derivatives. It is the largest manufacturer of phthalocyanine-based pigments with 14 per cent global market share and is amongst the top three (capacity-wise) global pigments players. It has a strong client relationship with 90 per cent of its business derived from repeat clients. The company is also amongst the largest producers of pesticides in India. Additionally, Meghmani Organics is India’s fourth-largest caustic chlorine player. It exports to over 75 countries and has a global footprint with a portfolio of over 400 clients.

India is among the top global producers of pesticides along with United States, Japan and China. The good news is that products worth USD 3 billion are to go off-patent in the period 2017-20. This gives strong growth opportunity to generic agro-chemical players. The global demand for chlor-alkali products will continue to grow driven by diverse industrial uses – glass, alumina, vinyl, water treatment, polyvinyl chloride (PVC) plastics, soaps, detergents, pulp and paper, textiles, etc. The company’s capex plans are expected to add significantly to its revenue. These are already in the pipeline and expected to be completed in FY21. That includes projects such as Agri-2.4D, agriformulation plant, chlor-alkali-hydrogen per oxide and caustic and CPP expansion. 

The management believes these will together add around Rs 500 crore to the company’s topline. The Board of Directors of Meghmani Organics Limited on the recommendation of its audit committee at a meeting held on January 29, 2020 has considered and approved a composite scheme of arrangement whereby its pigment and agro-chemical business will be separated from the chlor-alkali and other segments. Thereby, two separate entities will be formed. Such a demerger could help boost the sentiment of ‘value unlocking’ and may result in increased returns for shareholders. 

For the quarter ended March 2020, its gross sales decreased 6.7 per cent to Rs 520.35 crore in Q4FY20 from Rs 557.73 crore in Q4FY19. Total expenditure for Q4FY20 stood at Rs 436.31 crore as against Rs 398.99 crore in Q4FY19, showing an increase of 9.35 per cent. PBIDT, excluding other income, showed a decrease of 47.06 per cent to Rs 84.04 crore in Q4FY20 from Rs 158.74 crore in the same quarter last year. PBIDT margin, excluding other income, for Q4FY20 stood at 16.15 per cent as against 28.46 per cent in the same quarter last year.

PAT for Q4FY20 stood at Rs 57.02 crore as against Rs 77.13 crore in the same quarter last year, showing a decrease of 26.08 per cent. PAT margin for Q4FY20 stood at 10.96 per cent as against 13.83 per cent in the same quarter last year. In the past, revenues, EBITDA and PAT clocked 13 per cent, 28 per cent and 59 per cent CAGR during FY15-19. Its debt-toequity (DE) profile has also improved over the years and has reduced from 1.00x in FY15 to 0.62x in FY19. The stock is trading at a PE multiple of 6.71x and a PB of 1.31x. By virtue of these factors, we recommend our readerinvestors to BUY this stock.

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