Stock Pick From Specialty 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

HERE IS WHY

Strong Financials with positive outlook

Wide product as well as geographic mix

Attractive valuations
BSE CODE:532865 CMP: Rs.45.85
VOLUME : 1083399 FV : Rs.1

Meghmani Organics (MOL) is diversified across products and geographies - servicing 400 plus marquee clients in 75 countries. The company is a leading player in pathalocyanine pigments industry. It deals a lot in agrochemical products across the entire value chain. MOL's basic chemicals segment is buzzing with robust growth following expansion into caustic potash business. The company's subsidiary Meghmani Finechem (MFL) has commenced commercial production of Caustic Potash-Flake (KOH) of 60 Mt per day on April 21, 2016 at its existing manufacturing facility situated at Dahej in Bharuch district of Gujarat.

On the financial front, the top line of MOL increased by CAGR of 5.05 per cent during last five financial years (FY12 to FY16. The company's EBITDA too rose by CAGR of 12.65 per cent during last five fiscal years. Its bottom line also boosted by CGAR of 88.39 per cent from FY12 to FY16.

Considering latest quarterly result, MOL's net sales increased by 17 per cent to Rs 3546 crore in Q1FY17 as compared to the same period of the previous fiscal year. The company's EBITDA too rose by 67 per cent to Rs 749 crore in Q1FY17 on a yearly basis. Its net profit also increased by more than three times to Rs 188 crore in Q1FY17 as compared to the same period in the previous financial year.

MOL's revenue increased by 5.46 per cent to Rs 1337 crore in FY16 as compared to the previous financial year. The company's EBITDA too rose by 41.23 per cent to Rs 287 crore in FY16 on a yearly basis. Its net profit also increased by 88.15 per cent to Rs 82.58 crore in FY16 on a yearly basis. MOL's debt to equity ratio has lowered from 1.17x times in FY15 to 0.9x times in FY16. The company's ROE and ROCE stood at 18.94 per cent and 17.71 per cent respectively as of FY16.

On segmental revenue front, MOL has earned 33.48 per cent from agro-chemicals, 30.73 per cent from pigments, 27.46 per cent from basic chemicals and 8.32 per cent from others during FY16. On geographical segment front, the company earned 54.14 per cent revenue from outside India and 45.86 per cent from within India as of FY16.

According to MOL's management, raw material price may rise amid volatility in foreign exchange market and also there may be increase in crude oil prices in Q2FY17. The global markets prices for pigment and agrochemical products are under pressure, while Caustic Chlorine ECU has shown sign of improvement. It is expecting to see the improvements in revenue from Agro - III Plant.

On valuation front, MOL's share price is trading at PE multiple of 12.3x times as compared to peers such as Rallis India 15.22x times, PI Industries 36.81x times. The company's PE multiple is trading lower as compared to industry PE multiple of 21.92x times. Hence, we recommend our readers to BUY the stock.