Meghmani Organics Ltd (MEGH IN) Ignored so far, but not for long

Transcription

1 INSTITUTIONAL EQUITY RESEARCH Meghmani Organics Ltd (MEGH IN) Ignored so far, but not for long INDIA SPECIALTY CHEMICALS Initiating Coverage One of the leading manufacturers of caustic soda in India through recent expansion MEGH entered caustic soda manufacturing through a 57% JV (Meghmani Finechem Ltd) with International Finance Corporation (IFC) in 29 with an investment of Rs 5.5bn, for a capacity of 119, MTPA at Dahej. In FY15, it expanded capacity by 4% to 167, MTPA, making it the fourth largest caustic chlorine flakes capacity in India (after Grasim Industry, Gujarat Alkali, and DCM Shriram). Expansion in the high margin caustic soda business to drive value growth MEGH is already one of the most efficient manufacturers of caustic soda with margins in the 31 35% range led by its strategic location (in the middle of India s highest consuming region Gujarat), captive power plant, and its usage of latest membrane cell technology from Asahi Kasei Chemical Corporation, Japan. It has recently undertaken a brownfield expansion of caustic potash (21, tonnes) with a minimal investment of Rs 65mn (internal accruals). The new project is ready to commission in April 216. With this, we estimate FY15 18 sale/profits CAGR for its caustic operations (3% of sales) at 16%/27%. Pigment: Stable price and operating leverage to lead profitable growth MEGH is one of the largest phthalocyanine based pigment manufacturers in the world with a global volume market share of ~7%. Its vertically integrated facilities for CPC blue and end products such as pigment green and pigment blue give it a competitive advantage the pigments are crude derivatives and their prices are relatively stable despite sharp correction in crude. Steady improvement in volumes and improving asset utilisation supplements value growth. We estimate 14% sales CAGR over FY16 18, which will improve its plant utilisation to 54% (from current 36%) and lead profitable growth. Agrochemicals: Rising focus on branded business is the key MEGH has vertical integration in its agrochemicals business, which is largely dominated by intermediates and technical grade products (these constitute 65% of agrochemical sales). Exports of both technical and branded products in Africa, Brazil, LatAm, US, and European countries account for 7% of these sales. We expect healthy growth in its branded business based on (1) likely recovery in the global agro market, (2) anticipated favourable monsoon in India, and (3) its rapid domestic penetration in difficult times (plans to gain pan India presence by expanding its branded distribution chain at 2,37 stockists and distributors YTD FY16 from 1, in FY15). Therefore, we build in 14% revenue CAGR over FY16 18 to Rs 5.3bn. With lower crude prices, MEGH s vertically integrated operation and improving asset utilisation will lead to profitable growth in agrochemicals. No incremental capex; 3% EPS CAGR over FY16 18 Aggressive capex over the last five years (>Rs 5bn to fund its greenfield agrochemical and pigment plant in Dahej and to expand its caustic plant) has increased its leverage position to 1.2x of equity in FY15 (1.5x in FY14). However, it has no visible capex over the next two years. This, along with improving asset utilisation across all its segments and planned debt repayment (already repaid Rs 1.5bn since FY14 and plans to cut debt by >Rs 2bn), should lead to 3% earnings CAGR over FY15 18 to Rs 1.1bn in FY18. Initiate coverage with a BUY and TP of Rs 4, implying upside of 1% Considering its diverse business profile, we value the company on SOTP. Taking into account its strategic positioning, expansion, and superior margin profile of over 3%, we value its caustic operation at 5x FY18 EV/EBITDA and the other two segments at 4x arriving at a valuation of Rs March 216 BUY (Maintain) CMP RS 2 TARGET RS 4 (+1%) COMPANY DATA O/S SHARES (MN) : 254 MARKET CAP (RSBN) : 5 MARKET CAP (USDBN) :.1 52 WK HI/LO (RS) : 28 / 14 LIQUIDITY 3M (USDMN) :.4 PAR VALUE (RS) : 1 SHARE HOLDING PATTERN, % Dec 15 Sep 15 Jun 14 PROMOTERS : FII / NRI : FI / MF : NON PRO : PUBLIC & OTHERS : PRICE PERFORMANCE, % 1MTH 3MTH 1YR ABS REL TO BSE PRICE VS. SENSEX Apr/14 Oct/14 Apr/15 Oct/15 Meghmani Source: Phillip Capital India Research BSE Sensex KEY FINANCIALS Rs mn FY16E FY17E FY18E Net Sales 12,65 14,363 15,725 EBIDTA 2,71 2,944 3,145 Net Profit ,13 EPS, Rs PER, x EV/EBIDTA, x P/BV, x ROE, % Debt/Equity (%) Source: PhillipCapital India Research Est. Surya Patra ( ) spatra@phillipcapital.in Mehul Sheth ( ) msheth@phillipcapital.in Page 1 PHILLIPCAPITAL INDIA RESEARCH

2 About Meghmani Almost 3 years old. MEGH began operations in It is a leading manufacturer of pigments and pesticides in India. One of the largest producers of pigment blue in the world, leading producer of pigment green, and one of the largest producers of pesticides in India. Proven management team founders have +1 years collective experience in pigments and pesticides. More than 8% of its pigment products and +5% of pesticides are exported. Four multifunctional production facilities in Gujarat (India) of which three are ISO Meghmani s evolution MEGH started operations in 1986 First Agro plant setup in 1995 New Pigment plant setup at Panoli in 1996 Converted into a Public Ltd. Co. in 1995 Started Blue Pigment production at Panoli plant in 1996 Got listed in India in 27 Net Sales (Rs mn) Established MFL with IFC participation in 27 Price Started production in MFL in 29 Two new sites for Agrochem at Panoli and Dahej in 29 New Pigment plant at Dahej SEZ in 213 Expansion of CausticChlorine facility in 214 Diversification into Caustic Potash in Private Equity investment in MOL in 1997 Acquired Agro assets from Rallis in 24 Got listed in Singapore in Mar 3 Mar 4 Mar 5 Mar 6 Mar 7 Mar 8 Mar 9 Mar 1 Mar 11 Mar 12 Mar 13 Mar 14 Mar 15 Business model Meghmani organics Pigment (35% of sales) CPC blue, pigment green, pigment blue Agrochemicals (33% of sales) Leading products Cypermethrin, 2,4 D Acid, Permethrin Tech, MPB Basic Chemicals (3% of sales) Caustic soda, chlorine and caustic potash Market Leadership in blue pigment with ~7% global market share Global presence with ~8% of pigment revenue from exports Long term client relationships with 9% business from repeat clients Muted 9% sales CAGR over the last five years Global client base with ~7% business from exports Well known brands such as Megastar, Megacyper, Megaban, Synergy, Courage Muted 1% sales CAGR over the last five years Expanded caustic chlorine capacity to 476 TPD from 34 TPD Uses fourth generation membrane cell Technology from AKCC (Japan) Fourth largest caustic chlorine flakes capacity in India 34% sales CAGR over last the last five Source: Company, PhillipCapital India Research Page 2 PHILLIPCAPITAL INDIA RESEARCH

3 Investment rationale Basic chems: High margin + expansion = value growth One of the leading manufacturers of caustic soda in India MEGH entered the caustic soda manufacturing through a 57% JV (Meghmani Finechem Ltd) with International Finance Corporation (IFC) in 29 with an investment of Rs 5.5bn for a capacity of 119, MTPA at Dahej. It expanded capacity by 4% in FY15 to 167, MTPA, making it the fourth largest caustic chlorine flakes capacity in India (after Grasim Industries, Gujarat Alkali, and DCM Shriram). As a result, its current product portfolio includes caustic soda, chlorine, and hydrogen. Basic chemicals has been the fastest growing segment for MEGH, delivering 34% sales CAGR over the last five years (primarily led by capacity expansion) to touch Rs 3.31bn in FY15; 1% yoy growth YTD FY16. Basic chemicals has been the fastest growing segment for MEGH Caustic soda sees expansion led growth MEGH has one of top four caustic capacities in India 175 Caustic Soda TPA Caustic Soda Utilisation Level (%) (rhs) FY Grasim Gujarat Alkali DCM Shriram Ltd. Meghmani Conducive industry scenario supplements growth Caustic soda has a wide range of industrial applications in pharmaceuticals, soaps and detergents, PVC, chemicals, and textile manufacturing. Steady growth in enduser industries ensures demand growth for caustic soda. With 4mn tonnes of caustic soda capacity, India accounts for just ~5% of the world market. With domestic capacity remaining static, domestic demand has been fed by imports (that saw 15% CAGR over the last five years). Imports of caustic soda account for 12% of domestic demand. The price of caustic soda has stayed comfortably stable over the last few years international and domestic market prices move in tandem. Caustic soda price is not linked to crude prices. Page 3 PHILLIPCAPITAL INDIA RESEARCH

4 India contributes 4% of world capacity Indian caustic soda capacity is optimally utilised already Global Caustic soda production (mn TPA) Others (mn TPA), 49 India (mn TPA), 4 China (mn TPA), Capacity ('MT) Production ('MT) Consumption ('MT) Capacity Utilization (%) (rhs) 88% 9% 88% 85% 84% 86% 83% 84% 81% 81% 8% 82% 8% 78% 76% 74% FY9 FY1 FY11 FY12 FY13 FY14 FY15 Import dependancy of caustic soda is increaseing Domestic/global prices of causitc soda are comfortably stable Exports Imports Import sepandancy (%) (RHS) Domestic Caustic Soda Price (Rs/kg) 5 25 Global Caustic Soda Price Index (rhs) 35 14% 3 12% % 8% % % 2% 1 5 FY9 FY1 FY11 FY12 FY13 FY14 FY15 % Aug 11 Aug 12 Aug 13 Aug 14 Aug 15 Casustic soda application in different end user industries Others 21% Caustic soda consumption in India Pulp & Papers 16% Textile 9% Water Treatment 3% Alumina 17% Soaps & Detergents 7% Inorganics (Sodium silicate, STPP) 1% Organics (Incl. Pharma, Polycarbonate) 17% Source: chemicals.nic.in, PhillipCapital India Research Page 4 PHILLIPCAPITAL INDIA RESEARCH

5 High margin due to backward integration and better technology It is one of the most efficient manufacturers of caustic soda with an integrated captive power plant that uses the latest fourth generation membrane cell technology from Asahi Kasei Chemical Corporation, Japan (one of the most established technology providers for chlor alkali products). Strategic location is a big advantage MEGH Dahej facility is strategically located within an industrial area that is close to the Dahej port; this eases imports of coal, and more importantly, provides proximity to customers (i.e., chemicals manufacturers). Capability of supplying caustic and chlorine by pipeline to selected buyers helped MEGH to reduce logistics costs substantially. MEGH s Dahej plant strategically located within an industrial area Source: PhillipCapital India Research Capacity expansion to drive value growth Considering the flourishing chemical industry in Gujarat led by the most successful petroleum, chemical and petrochemicals investment region (PCPIR) and rising demand for caustic soda there, MEGH is in the middle of a brownfield caustic potash expansion in Dahej. It has set up a plant with 21, tonnes capacity with a minimal investment of Rs 65mn (internal accrual) in FY16. Its captive power plant will meet the electricity requirement. We believe the expansion in this highest margin segment would lead to optimal utilisation of existing resources and drive value growth. We estimate basic chemical sales CAGR of 18% over FY15 18 that would raise its revenue contribution to 3% and would drive value growth for MEGH. Page 5 PHILLIPCAPITAL INDIA RESEARCH

6 Enhanced capacity will reach optimum level on strong demand of caustic soda Caustic Soda TPA Caustic Soda Utilisation Level (%) (rhs) FY Sees capex led sales growth Causitc soda enjoys operating profit margin >3% 6 Sales (Rs mn) YoY growth (%) (rhs) EBITDA (Rs mn) EBITDA margin (%) (rhs) FY1 2 FY1 Page 6 PHILLIPCAPITAL INDIA RESEARCH

7 Pigment: An established global business Leading global player in phthalocyanine pigments industry MEGH is one of the largest phthalocyanine based pigment manufacturers in India and among the top three players in the world, with a global market share of ~7% in terms of volume. The global phthlocyanine pigments market is estimated at ~US$ bn 2% of the total organic pigment market and it is expected to maintain steady growth. Largest phthalocyanine based pigment manufacturers in India and among the top three players in the world MEGH s pigment business is vertically integrated and manufactures and markets various grades of pigment green, pigment blue, and CPC blue an upstream product sold to other pigment manufacturers. US leads the export market for its pigments business Pigment Net sales by country mix (%) as FY15 Others 8% Beta and CPC are MEGH s leading products Pigment Net sales by product mix (%) as FY15 Others 2% Europe 11% US 32% Alpha 11% Beta 39% South America 14% Pigment Green 7 2% Asia 17% India 18% CPC 28% Source: Company, PhillipCapital India Research These pigment products are used in multiple applications including paints, plastics, and printing inks. Thanks to the steady growth in these sectors (which together account for 9% of end use), pigments is a steady play for MEGH it has delivered 9% sales CAGR over the last five years to touch Rs 3.68bn in FY15; 6% yoy growth YTD FY16. The pigment division derives ~8% of its net sales from exports with leading customers including Sun DIC, Flint Group, Akzo Nobel, DuPont, and PPG Industries. MEGH s expertise and high degree customisation has helped it to develop long term client relationships resulting in 9% business from repeat clients. It has a global network with ~7 distributors. Its direct presence (with subsidiaries in the US, Europe, Indonesia, Dubai and representative office in China) helps it to have a frontend presence and ability to work closely with end user customers. MEGH also has warehouses in Belgium, Turkey, Russia, USA, and Uruguay. Stable price and operating leverage to lead profitable growth Pigments are crude derivatives and pigment prices are relatively stable despite sharp correction in crude prices. Additionally, steady improvement in volumes as well as improving asset utilisation supplements value growth. MEGH has three dedicated manufacturing facilities with a consolidated capacity of 311, tonnes in Gujarat, which operated at a utilisation of 33% in FY15 and ~37% in FY16. We see 14% sales CAGR over FY16 18, which should improve utilisation to 54%, leading to profitable growth. Page 7 PHILLIPCAPITAL INDIA RESEARCH

8 MEGH s leading product phthalocyanine maintained its prices despite crude fall 12 Phthalocyanine Blue price (Rs/Kg) Crude oil price Source: PhillipCapital India Research Pigment capacity utiliation to see gradual ramp up Pigment sales growth to remain stable over FY Pigment Capacity (tons) Pigment Utilisation Level (%) (rhs) Pigment Sales (Rs mn) YoY Sales growth (%) (rhs) Pigment EBITDA (Rs mn) Page 8 PHILLIPCAPITAL INDIA RESEARCH

9 Agrochemicals: Integrated; seeing rising branded play MEGH is one of the leading vertically integrated agrochemicals players in India, with product offerings covering the entire value chain intermediate, technical grade, and formulation (bulk and branded). Its integration allows it to effectively manage raw materials costs and assures a constant and consistent quality supply. Largely dominated by intermediates and technical grade products MEGH s agrochemical business is largely dominated by intermediates and technicalgrade products 65% of its agrochemical sales. It produces commonly used pesticides for crop and non crop applications such as public health and in insect control in wood preservation and food grain storage. In branded formulations, it has a strong pan India presence with about 2,37 stockists, agents, distributors, and dealers (major expansion from 1, in 17 states in India in FY15). Intermediates and technical grade products constitute 65% of its agrochemical sales. Major products include 2,4 D, cypermethrin, permethrin, metaphenoxy benzaldehyde, chlorpyrifos, and profenophos. Key brands include Megastar, Megacyper, Megaban, Synergy, Courag India still the largest market for MEGH Others 51% Agrochemicals Net sales by country mix (%) as FY15 Branded portfolio will drive growth ahead Agrochemicals Net sales by product mix (%) as FY15 Others 37% Branded 27% India 3% South America 6% Africa 6% Europe 7% Bulk 8% 2,4 D 8% Cypermethri n Tech Z 2% Source: Company, PhillipCapital India Research It has a strong global clientele base with exports contributing to about 7% of its agro chemical sales. It exports technicals as well as branded products to Africa, Brazil, LatAm, US, and European countries. Rising focus on branded business to drive growth MEGH s agrochemical sales saw moderation in FY16, both domestic and exports. While the on going global slowdown impacted international sales, unfavourable climate in India slowed domestic sales. We expect healthy growth in its branded business based on (1) likely recovery in the global agro market, (2) anticipated favourable monsoon in India, and (3) its rapid domestic penetration in difficult times (plans to gain pan India presence by expanding its branded distribution chain at 2,37 stockiest and distributors YTDFY16 from 1, in FY15). Therefore, we build in 14% revenue CAGR over FY16 18 to Rs 5.3bn. With lower crude prices, MEGH s vertically integrated operation and improving asset utilisation will lead to profitable growth in agrochemicals. Page 9 PHILLIPCAPITAL INDIA RESEARCH

10 Focus on branded portfolio will drive value growth EBITDA margin to remain at 18 19% 18 Branded sales(rs mn) YoY Change (%) (RHS) 3 35 EBITDA (Rs mn) EBITDA margin (%) FY12 FY13 FY14 FY15 FY16E FY17E FY18E 3 No major capex over FY16 18; 3% EPS CAGR MEGH has continuously added capacities across all business verticals in the last five years it has invested >Rs 5bn (to fund its greenfield agrochemical and pigment plant in Dahej and in expanding its caustic plant), which has increased its leverage position to 1.2x of equity in FY15 (was 1.5x in FY14). With no visible capex over next two years, improving asset utilisation across all its segments, and planned debt repayment (already repaid Rs 1.5bn since FY14 and targets to cut debt by >Rs 2bn), we estimate 3% earning CAGR over FY15 18 to Rs 1.1bn in FY18. Visible sweating of assets 14 Capex (Rs mn) Assets turnover (x) (rhs) Financial deleveraging to improve earnings performance Debt (Rs mn) Equity (Rs mn) Debt/Equity (x) Page 1 PHILLIPCAPITAL INDIA RESEARCH

11 Financial performance Basic chemicals (Caustic Soda) see relatively faster growth Amt in Rs mn Pigment % yoy growth % to sales Agro Chemicals % yoy growth % to sales Basic Chemicals % yoy growth % to sales Others % yoy growth % to sales Total sales % yoy growth Steady revenue growth 3% earning CAGR over FY Pigment (RsBn) Agrochem (Rs Bn) Basic Chems (Rs Bn) Others (Rs Bn) Revenue growth (%) (rhs) PAT (Rs mn) EBITDA margin (%) (rhs) Source: PhillipCapital India Research No major capex in the near future; improves asset efficiency Strong Cash generation over FY Capex (Rs mn) ROCE(%) (rhs) Operating cashflow (Rs mn) Free Cashflow (RS mn) Capex (Rs mn) 1 Page 11 PHILLIPCAPITAL INDIA RESEARCH

12 Valuations and outlook Over FY15 18, we estimate MEGH to deliver revenue CAGR of 7% to touch Rs 15.7bn in FY18 (primarily due to lower crude) and profit CAGR of 3% to touch Rs 1.13bn. Margins should see an expansion of over 4bps to around 2%. While expansion in the higher margin caustic operation will boost efficiency, improving asset utilisation in agrochemicals and pigments will lead earning growth. Considering diverse business profile of MEGH s segments, we value the company on an SOTP basis. Looking at the strategic positioning, expansion, and superior margin profile of over 3%, we value its caustic operations at 5x FY18 EV/EBITDA. We value agrochemicals and pigments at 4x FY18 EV/EBITDA, considering likely recovery in agrochemicals and steady growth profile coupled with its global positioning in pigments. We arrive at a value of Rs 4 and initiate coverage with a BUY rating. Particulars (Rs mn) FY18 EBITDA Target Multiple (x) Value Pigment EBITDA Agrochemicals EBITDA Basic chemicals EBITDA Enterprise Value (RS mn) Net debt (Rs mn) 4695 Mcap (Rs mn) 9727 No of shares (mn) 254 Target Price (Rs) 4 CMP (Rs) 2 Upside 1% One year forward PE band One year forward EV/EBITDA band 45 4 Rs P/E 12x 25 Rs mn EV/EBITDA 8x x 6x 3x x 4x 2x 5 Apr 9 Apr 1 Apr 11 Apr 12 Apr 13 Apr 14 Apr 15 Apr 9 Apr 1 Apr 11 Apr 12 Apr 13 Apr 14 Apr 15 Source: Bloomberg, PhillipCapital India Research Estimates Page 12 PHILLIPCAPITAL INDIA RESEARCH

13 Operating leverage to strengthen ROCE Financial deleveraging powers earnings 2 ROCE (%) EBITDA growth (%) (rhs) 7 18 ROE (%) PAT growth (%) (rhs) Downside risk to valuation: Increase in Chinese competition (particularly in agrochemicals and pigments) led by yuan devaluation can hurt growth. Further extension of weak agricultural environment in India as well as globally impact growth as well as profitability Any price competition in caustic soda either due to new capacity or cheaper imports could hit profitability Page 13 PHILLIPCAPITAL INDIA RESEARCH

14 Financials Income Statement Y/E Mar, Rs mn FY15 FY16e FY17e FY18e Net sales 12,942 12,65 14,363 15,725 Growth, % Other income Total income 12,942 12,65 14,363 15,725 Raw material expenses 7,64 6,68 7,756 8,57 Employee expenses Other Operating expenses 2,545 2,458 2,81 3,66 EBITDA (Core) 2,31 2,71 2,944 3,145 Growth, % Margin, % Depreciation EBIT 1,284 1,899 2,76 2,248 Growth, % Margin, % Interest paid Other Non Operating Income Non recurring Items 11 Pre tax profit 591 1,324 1,521 1,778 Tax provided Profit after tax ,125 1,316 Others (Minorities, Associates) Net Profit ,13 Growth, % Net Profit (adjusted) ,13 Unadj. shares (m) Wtd avg shares (m) Balance Sheet Y/E Mar, Rs mn FY15 FY16e FY17e FY18e Cash & bank Debtors 3,167 3,18 3,542 3,877 Inventory 2,158 2,17 2,4 2,628 Loans & advances 1,379 1,489 1,68 1,737 Other current assets Total current assets 7,223 7,48 8,387 9,12 Investments Gross fixed assets 13,35 13,815 14,275 14,685 Less: Depreciation 5,221 6,32 6,9 7,798 Add: Capital WIP Net fixed assets 8,43 7,933 7,494 7,12 Total assets 15,444 15,52 16,62 16,279 Current liabilities 1,774 1,818 2,5 2,238 Provisions Total current liabilities 2,79 2,153 2,418 2,644 Non current liabilities 6,97 6,436 6,167 5,451 Total liabilities 8,985 8,589 8,586 8,95 Paid up capital Reserves & surplus 5,261 5,734 6,278 6,986 Shareholders equity 6,459 6,932 7,476 8,183 Total equity & liabilities 15,444 15,52 16,62 16,279 Cash Flow Y/E Mar, Rs mn FY15 FY16e FY17e FY18e PAT ,13 Depreciation Change in WC Cash flow from operating activities 1,684 1,582 1,98 1,4 Capital expenditure Misc Exp 124 Cash flow from investing activities Equity Dividends Debt 1, Investments Cash flow from financing activities 1, ,96 Net chg in cash Opening cash balance Closing cash balance Valuation Ratios FY15 FY16e FY17e FY18e Per Share data EPS (INR) Growth, % Book NAV/share (INR) FDEPS (INR) CEPS (INR) CFPS (INR) DPS (INR) Return ratios Return on assets (%) Return on equity (%) Return on capital employed (%) Turnover ratios Asset turnover (x) Sales/Total assets (x) Sales/Net FA (x) Working capital/sales (x) Fixed capital/sales (x) Receivable days Inventory days Payable days Working capital days Liquidity ratios Current ratio (x) Quick ratio (x) Interest cover (x) Dividend cover (x) Total debt/equity (%) Net debt/equity (%) Valuation PER (x) PEG (x) y o y growth Price/Book (x) Yield (%) EV/Net sales (x) EV/EBITDA (x) EV/EBIT (x) Page 14 PHILLIPCAPITAL INDIA RESEARCH

15 MEGHMANI ORGANICS LTD INITIATING COVERAGE Rating Methodology We rate stock on absolute return basis. Our target price for the stocks has an investment horizon of one year. Rating Criteria Definition BUY >= +15% Target price is equal to or more than 15% of current market price NEUTRAL 15% > to < +15% Target price is less than +15% but more than 15% SELL <= 15% Target price is less than or equal to 15%. Management Vineet Bhatnagar (Managing Director) (91 22) Kinshuk Bharti Tiwari (Head Institutional Equity) (91 22) Jignesh Shah (Head Equity Derivatives) (91 22) Research Automobiles Infrastructure & IT Services Strategy Dhawal Doshi (9122) Vibhor Singhal (9122) Naveen Kulkarni, CFA, FRM (9122) Nitesh Sharma, CFA (9122) Logistics, Transportation & Midcap Anindya Bhowmik (9122) Agri Inputs Vikram Suryavanshi (9122) Telecom Gauri Anand (9122) Media Naveen Kulkarni, CFA, FRM (9122) Banking, NBFCs Manoj Behera (9122) Manoj Behera (9122) Manish Agarwalla (9122) Metals Technicals Pradeep Agrawal (9122) Dhawal Doshi (9122) Subodh Gupta, CMT (9122) Paresh Jain (9122) Yash Doshi (9122) Production Manager Consumer Midcap Ganesh Deorukhkar (9122) Naveen Kulkarni, CFA, FRM (9122) Amol Rao (9122) Editor Jubil Jain (9122) Oil & Gas Roshan Sony Cement Sabri Hazarika (9122) Sr. Manager Equities Support Vaibhav Agarwal (9122) Pharma & Speciality Chem Rosie Ferns (9122) Economics Surya Patra (9122) Anjali Verma (9122) Mehul Sheth (9122) Engineering, Capital Goods Mid Caps & Database Manager Jonas Bhutta (9122) Deepak Agarwal (9122) Hrishikesh Bhagat (9122) Sales & Distribution Corporate Communications Ashvin Patil (9122) Sales Trader Zarine Damania (9122) Shubhangi Agrawal (9122) Dilesh Doshi (9122) Kishor Binwal (9122) Suniil Pandit (9122) Bhavin Shah (9122) Execution Ashka Mehta Gulati (9122) Mayur Shah (9122) Contact Information (Regional Member Companies) SINGAPORE: Phillip Securities Pte Ltd 25 North Bridge Road, #6 Raffles City Tower, Singapore Tel : (65) Fax: (65) JAPAN: Phillip Securities Japan, Ltd 4 2 Nihonbashi Kabutocho, Chuo ku Tokyo Tel: (81) Fax: (81) THAILAND: Phillip Securities (Thailand) Public Co. Ltd. 15th Floor, Vorawat Building, 849 Silom Road, Silom, Bangrak, Bangkok 15 Thailand Tel (66) Fax: (66) MALAYSIA: Phillip Capital Management Sdn Bhd B 3 6 Block B Level 3, Megan Avenue II, No. 12, Jalan Yap Kwan Seng, 545 Kuala Lumpur Tel (6) Fax (6) INDONESIA: PT Phillip Securities Indonesia ANZ Tower Level 23B, Jl Jend Sudirman Kav 33A, Jakarta 122, Indonesia Tel (62) Fax: (62) FRANCE: King & Shaxson Capital Ltd. 3rd Floor, 35 Rue de la Bienfaisance 758 Paris France Tel (33) Fax : (33) HONG KONG: Phillip Securities (HK) Ltd 11/F United Centre 95 Queensway Hong Kong Tel (852) Fax: (852) CHINA: Phillip Financial Advisory (Shanghai) Co. Ltd. No 55 Yan An East Road, Ocean Tower Unit 2318 Shanghai 2 1 Tel (86) Fax: (86) UNITED KINGDOM: King & Shaxson Ltd. 6th Floor, Candlewick House, 12 Cannon Street London, EC4N 6AS Tel (44) Fax: (44) UNITED STATES: Phillip Futures Inc. 141 W Jackson Blvd Ste 35 The Chicago Board of Trade Building Chicago, IL 664 USA Tel (1) Fax: (1) AUSTRALIA: PhillipCapital Australia Level 37, 53 Collins Street Melbourne, Victoria 3, Australia Tel: (61) Fax: (61) INDIA: PhillipCapital (India) Private Limited No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 413 Tel: (9122) Fax: (9122) SRI LANKA: Asha Phillip Securities Limited Level 4, Millennium House, 46/58 Navam Mawatha, Colombo 2, Sri Lanka Tel: (94) Fax: (94) Page 15 PHILLIPCAPITAL INDIA RESEARCH

16 MEGHMANI ORGANICS LTD INITIATING COVERAGE Disclosures and Disclaimers PhillipCapital (India) Pvt. Ltd. has three independent equity research groups: Institutional Equities, Institutional Equity Derivatives, and Private Client Group. This report has been prepared by Institutional Equities Group. The views and opinions expressed in this document may, may not match, or may be contrary at times with the views, estimates, rating, and target price of the other equity research groups of PhillipCapital (India) Pvt. Ltd. This report is issued by PhillipCapital (India) Pvt. Ltd., which is regulated by the SEBI. PhillipCapital (India) Pvt. Ltd. is a subsidiary of Phillip (Mauritius) Pvt. Ltd. References to "PCIPL" in this report shall mean PhillipCapital (India) Pvt. Ltd unless otherwise stated. This report is prepared and distributed by PCIPL for information purposes only, and neither the information contained herein, nor any opinion expressed should be construed or deemed to be construed as solicitation or as offering advice for the purposes of the purchase or sale of any security, investment, or derivatives. The information and opinions contained in the report were considered by PCIPL to be valid when published. The report also contains information provided to PCIPL by third parties. The source of such information will usually be disclosed in the report. Whilst PCIPL has taken all reasonable steps to ensure that this information is correct, PCIPL does not offer any warranty as to the accuracy or completeness of such information. Any person placing reliance on the report to undertake trading does so entirely at his or her own risk and PCIPL does not accept any liability as a result. Securities and Derivatives markets may be subject to rapid and unexpected price movements and past performance is not necessarily an indication of future performance. This report does not regard the specific investment objectives, financial situation, and the particular needs of any specific person who may receive this report. Investors must undertake independent analysis with their own legal, tax, and financial advisors and reach their own conclusions regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realised. Under no circumstances can it be used or considered as an offer to sell or as a solicitation of any offer to buy or sell the securities mentioned within it. The information contained in the research reports may have been taken from trade and statistical services and other sources, which PCIL believe is reliable. PhillipCapital (India) Pvt. Ltd. or any of its group/associate/affiliate companies do not guarantee that such information is accurate or complete and it should not be relied upon as such. Any opinions expressed reflect judgments at this date and are subject to change without notice. Important: These disclosures and disclaimers must be read in conjunction with the research report of which it forms part. Receipt and use of the research report is subject to all aspects of these disclosures and disclaimers. Additional information about the issuers and securities discussed in this research report is available on request. Certifications: The research analyst(s) who prepared this research report hereby certifies that the views expressed in this research report accurately reflect the research analyst s personal views about all of the subject issuers and/or securities, that the analyst(s) have no known conflict of interest and no part of the research analyst s compensation was, is, or will be, directly or indirectly, related to the specific views or recommendations contained in this research report. Additional Disclosures of Interest: Unless specifically mentioned in Point No. 9 below: 1. The Research Analyst(s), PCIL, or its associates or relatives of the Research Analyst does not have any financial interest in the company(ies) covered in this report. 2. The Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively do not hold more than 1% of the securities of the company (ies)covered in this report as of the end of the month immediately preceding the distribution of the research report. 3. The Research Analyst, his/her associate, his/her relative, and PCIL, do not have any other material conflict of interest at the time of publication of this research report. 4. The Research Analyst, PCIL, and its associates have not received compensation for investment banking or merchant banking or brokerage services or for any other products or services from the company(ies) covered in this report, in the past twelve months. 5. The Research Analyst, PCIL or its associates have not managed or co managed in the previous twelve months, a private or public offering of securities for the company (ies) covered in this report. 6. PCIL or its associates have not received compensation or other benefits from the company(ies) covered in this report or from any third party, in connection with the research report. 7. The Research Analyst has not served as an Officer, Director, or employee of the company (ies) covered in the Research report. 8. The Research Analyst and PCIL has not been engaged in market making activity for the company(ies) covered in the Research report. 9. Details of PCIL, Research Analyst and its associates pertaining to the companies covered in the Research report: Sr. no. Particulars Yes/No 1 Whether compensation has been received from the company(ies) covered in the Research report in the past 12 months for No investment banking transaction by PCIL 2 Whether Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively hold more than 1% of the No company(ies) covered in the Research report 3 Whether compensation has been received by PCIL or its associates from the company(ies) covered in the Research report No 4 PCIL or its affiliates have managed or co managed in the previous twelve months a private or public offering of securities for the No company(ies) covered in the Research report 5 Research Analyst, his associate, PCIL or its associates have received compensation for investment banking or merchant banking or brokerage services or for any other products or services from the company(ies) covered in the Research report, in the last twelve months No Independence: PhillipCapital (India) Pvt. Ltd. has not had an investment banking relationship with, and has not received any compensation for investment banking services from, the subject issuers in the past twelve (12) months, and PhillipCapital (India) Pvt. Ltd does not anticipate receiving or intend to seek compensation for investment banking services from the subject issuers in the next three (3) months. PhillipCapital (India) Pvt. Ltd is not a market maker in the securities mentioned in this research report, although it, or its affiliates/employees, may have positions in, purchase or sell, or be materially interested in any of the securities covered in the report. Suitability and Risks: This research report is for informational purposes only and is not tailored to the specific investment objectives, financial situation or particular requirements of any individual recipient hereof. Certain securities may give rise to substantial risks and may not be suitable for certain investors. Each investor must make its own determination as to the appropriateness of any securities referred to in this research report based upon the legal, tax and accounting considerations applicable to such investor and its own investment objectives or strategy, its financial situation and its investing experience. The value of any security may be positively or adversely affected by changes in foreign exchange or interest rates, as well as by other financial, economic, or political factors. Past performance is not necessarily indicative of future performance or results. Page 16 PHILLIPCAPITAL INDIA RESEARCH

17 MEGHMANI ORGANICS LTD INITIATING COVERAGE Sources, Completeness and Accuracy: The material herein is based upon information obtained from sources that PCIPL and the research analyst believe to be reliable, but neither PCIPL nor the research analyst represents or guarantees that the information contained herein is accurate or complete and it should not be relied upon as such. Opinions expressed herein are current opinions as of the date appearing on this material, and are subject to change without notice. Furthermore, PCIPL is under no obligation to update or keep the information current. Without limiting any of the foregoing, in no event shall PCIL, any of its affiliates/employees or any third party involved in, or related to computing or compiling the information have any liability for any damages of any kind including but not limited to any direct or consequential loss or damage, however arising, from the use of this document. Copyright: The copyright in this research report belongs exclusively to PCIPL. All rights are reserved. Any unauthorised use or disclosure is prohibited. No reprinting or reproduction, in whole or in part, is permitted without the PCIPL s prior consent, except that a recipient may reprint it for internal circulation only and only if it is reprinted in its entirety. Caution: Risk of loss in trading/investment can be substantial and even more than the amount / margin given by you. The recipient should carefully consider whether trading/investment is appropriate for the recipient in light of the recipient s experience, objectives, financial resources and other relevant circumstances. PCIPL and any of its employees, directors, associates, group entities, or affiliates shall not be liable for losses, if any, incurred by the recipient. The recipient is further cautioned that trading/investments in financial markets are subject to market risks and are advised to seek trading/investment advice before investing. There is no guarantee/assurance as to returns or profits or capital protection or appreciation. PCIPL and any of its employees, directors, associates, group entities, affiliates are not inducing the recipient for trading/investing in the financial market(s). Trading/Investment decision is the sole responsibility of the recipient. For U.S. persons only: This research report is a product of PhillipCapital (India) Pvt Ltd., which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances, and trading securities held by a research analyst account. This report is intended for distribution by PhillipCapital (India) Pvt Ltd. only to "Major Institutional Investors" as defined by Rule 15a 6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by the U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated, and/or transmitted onward to any U.S. person, which is not a Major Institutional Investor. In reliance on the exemption from registration provided by Rule 15a 6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, PhillipCapital (India) Pvt Ltd. has entered into an agreement with a U.S. registered broker dealer, Decker & Co, LLC. Transactions in securities discussed in this research report should be effected through Decker & Co, LLC or another U.S. registered broker dealer PhillipCapital (India) Pvt. Ltd. Registered office: No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 413 Page 17 PHILLIPCAPITAL INDIA RESEARCH