1 P a g e. Report By: Arnab Dasgupta Page 1

Transcription

1 1 P a g e Report By: Arnab Dasgupta arnab@dynamiclevels.com Page 1

2 Entry: 42 Target: 50 FY16 P/E: Meghmani Organics Ltd- Market Leader in Color pigment Meghmani Organics Ltd Company Overview and Stock Price...3 Products of Meghmani.4 Company Financials..5 Shareholding Pattern...9 Peer Comparison 10 Opportunities in Pigments segment 11 Outlook for Agrochemicals..12 Competitive Strength of Meghmani Organics..13 Investment Rationale.14 Page 2

3 Company Overview and Stock Price Meghmani Organics Limited, a 6000 million Rupees company is one of the largest producers of color pigment in the world. Sound fundamentals, outstanding export performance, strong presence in the domestic market and a focused management team has seen Megmani Organics grow at a compounded annual growth rate of 17% and profits 10% over the past 3 years. Meghmani is also one of the largest producers of pesticides in India. More than 80% of the company s pigment products and over 50% of the pesticides products are exported over the world. The Company has 4 multifunctional production facilities in Gujarat (India). The company has an extensive network of 20 overseas distributors worldwide. It has over 1000 stockists, agents, distributors and dealers covering India market for its products. Meghmani Organics Share Price Performance EXCHANGE SYMBOL MEGH Current Price * (Rs.) Face Value (Rs.) Week High (Rs.) (26-Jul-16) 52 Week Low (Rs.) (08-Sep-15) Life Time high (Rs.) (07-Jan-08) Life Time low (Rs.) 3.80 (03-Jul-13) Average Daily Movement 2.34 Average Volume Month Return (%) P/E Ratio (x) Book Value Market Cap (Cr) % of Promoter holding NIL pledged COMPANY PROFILE OF MEGH Chart Hypothesis: The above chart shows that Meghmani has come at a correction of 20% and is available at a support of 40 levels Date of Incorporation Date of Listing Name Jayanti M Patel Ramesh M Patel Anand I Patel Chander Sabharwal Chinubhai R Shah Balkrishna T Thakkar Management Kumar Jayaraman Vishwanathan Kantibhai H Patel Urvashi Dhirubhai Shah Natwarlal M Patel Ashish N Soparkar Designation 02-Jan Jun-2007 Executive Chairman Executive Director Executive Director Independent Director Independent Director Independent Director Independent Director Independent Director Independent Director Managing Director Registered Office Address Managing Director & CEO Pigment Green Division:Plot No. 184,Phase II,G.I.D.C. Vatva,382445,Ahmedabad,Gujarat,India Website Page 3

4 Products of Meghmani Organics Meghmani Organics has a diversification in product portfolio servicing 400+ marquee clients in 75 countries. Pigment Segment 7% global market share, among top 3 global blue pigment players. 72% revenue of the segment comes from exports, mainly from North America. The company has long term client relationships with 90% business from repeat clients. The pigment segment contributed 33% to net sales in FY16. Agrochemical Segment Wide range of bulk and branded products Megastar, Megacyper, Megaban, Synergy. Competitive advantage via 183 exports registrations, 400 registrations in pipeline. Pan India presence with sales network doubling to 2370 distributors in FY16. 69% revenue of the segment comes from exports. This segment contributed 31% to net sales in FY16. Basic Chemicals Segment 4 th largest Caustic Chlorine capacity in India. Latest 4 th generation membrane cell technology imported from Asahi Kasei, Japan. Strategically located facility at Dahej proximity to raw materials and customers. 5-year CAGR of 18%, contributing 28% to net sales in FY16. Page 4

5 Company Financials Income Statement (Cr) Jun 16 Quarterly Mar 16 Quarterly Dec 15 Quarterly Sep-15 Quarterly Jun 15 Quarterly Mar-16 Annual Net Sales/Income from operations , Other Operating Income Total Income From Operations , Increase/Decrease in Stocks Consumption of Raw Materials Purchase of Traded Goods Power And Fuel Employees Cost Depreciation Other Expenses Total Expenditure , Operating Profit Other Income P/L Before Int., Excpt. Items & Tax Interest P/L Before Exceptional Items & Tax Exceptional Item P/L Before Tax Tax P/L After Tax from Ordinary Activities Extra Ordinary Items PAT Minority Interest Net Profit/(Loss) For the Period Equity Share Capital Reserves Equity Dividend Rate (%) EPS (Rs.) [Before Extraordinary items] EPS (Rs.) [After Extraordinary items] Revenue of the company up by 6.5% YoY. Steady operating profit is significant. The net profit of the company has increased by 26% YoY. Page 5

6 Segmental Breakdown (Cr) Q1 FY 17 Q1 FY 16 EXPORT DOMESTIC EXPORT DOMESTIC PIGMENTS AGROCHEMICALS BASIC CHEMICALS OTHERS Total Segment wise revenue Percentage FY 2015 FY % 11% 26% Others Basic Chemicals Agrochemicals 33% 8% 28% Others Basic Chemicals Agrochemicals 32% Pigments 31% Pigments Page 6

7 Balance Sheet (Cr) Mar-16 Mar-15 Mar-14 Mar-13 Mar-12 EQUITIES AND LIABILITIES Equity Share Capital Total Share Capital Reserves and Surplus Total Reserves and Surplus Total Shareholder s Funds Minority Interest NON-CURRENT LIABILITIES Long Term Borrowings Deferred Tax Liabilities [Net] Long Term Provisions Total Non-Current Liabilities CURRENT LIABILITIES Short Term Borrowings Trade Payables Other Current Liabilities Short Term Provisions Total Current Liabilities Total Capital And Liabilities 1, , , , , ASSETS NON-CURRENT ASSETS Tangible Assets Intangible Assets Capital Work-In-Progress Intangible Assets Under Development Fixed Assets Non-Current Investments Deferred Tax Assets [Net] Long Term Loans And Advances Other Non-Current Assets Total Non-Current Assets CURRENT ASSETS Current Investments Inventories Trade Receivables Cash And Cash Equivalents Short Term Loans And Advances Other Current Assets Total Current Assets Total Assets 1, , , , , The company is continuously decreasing its long term debt. From last financial year, it had reduced near about 100 crores. The asset value is increasing at a steady pace. Page 7

8 Ratios Valuation Ratios Mar-16 Mar-15 Mar-14 Mar-13 P/E EV/EBIT EV/EBITDA P/S P/B Div Yield 132.2% 269.4% 116.3% 181.8% As on Mar 16, the stock was trading at a P/E ratio of 7 which is below the industry P/E. Profitability Ratios % Mar-16 Mar-15 Mar-14 Mar-13 Gross Margin EBITDA Margin Operating Margin Profit Margin Return on Assets Return on Equity The EBITDA margin of Meghmani Organics is increasing in every financial year, with increase in profit margin and ROA and ROE. Leverage and Coverage Ratios % Mar-16 Mar-15 Mar-14 Mar-13 Current Ratio Quick Ratio EBIT/Interest Tot Debt/Capital Tot Debt/Equity Effective Tax Rate The company is putting effort to reduce its long term debt. Page 8

9 Share Holding Pattern Shareholding Pattern Jun-16 Mar-16 Dec-15 Sep-15 Jun-15 Promoter and Promoter Group (%) Indian Foreign NIL NIL NIL NIL NIL Institutions (%) FII NIL DII Non Institutions (%) Bodies Corporate 6.8 NIL NIL Others Custodians Total no. of shares (cr.) Jun 2015 Jun 2016 Promoter Promoter 48.63% 50.40% Institutions Non Institutions 44.90% 50.30% Institutions Non Institutions 0.97% 4.80% Institutional holdings, especially FIIs are increasing position in Meghmani Page 9

10 Peer Comparison Company Name: MEGHMANI ORGANICS ATUL LTD PI INDUSTRIES EXCEL RALLIS INDUSTRIES INDIA Latest Fiscal Year: 16-Mar 16-Mar 16-Mar 16-Mar 16-Mar Latest Available Period Date: 3/16/2016 3/31/2016 3/31/2016 3/31/2016 3/31/ Week High , Week High Date 26th July 16 22nd Jul 16 9th Aug 16 20th Aug 15 22nd Sep Week Low , Week Low Date 8th Sep 15 25th Aug 15 26th Feb 16 12th Feb 16 20th Jan 16 Daily Volume 9,01, , , Current Price: Week High % Change Week Low % Change P/E Ratio Net Profit Margin Market Capitalization (Cr) , Page 10

11 Opportunities in Pigments segment According to Transparency Market Research, the global pigments market is anticipated to reach $32 bn by 2023, expanding at a CAGR of Production 3.8% between 2015 and Paints & Coatings is the largest end user Units segment of the pigments market, driving demand for the industry. The architectural Paints & Coatings market has grown considerably, owing to rising infrastructural development and construction activities in emerging economies. Asia Pacific dominated the global pigments market with 40% market share. Rapid industrial development, rising infrastructural activity, and economic progress in developing countries played a key role in driving the automotive and construction industries, which fuelled the demand for pigments. China dominates the pigments market in Asia Pacific. The mature paints & coatings and plastics markets have driven demand for pigments in developed regions, such as North America and Europe. North America was the second-largest consumer of pigments, followed by Europe. In terms of volume, U.S. dominated the pigments market in North America. In terms of demand, Germany held the largest share of the pigments market in Europe. Middle East & Africa has been projected as a lucrative market for pigments during the forecast period. The Paints & Coatings segment is estimated to dominate the pigments market in Middle East & Africa in the next few years. Brazil is likely to be the key market for pigments in Latin America (LatAm) by Global demand for dyes and organic pigments is expected to grow 6% per year to $19.5 bn in The organic pigments market is expected to witness growth on account of its use in various end-use industries, including printing inks, paints and coatings, plastics, rubber and textiles. Urbanization, coupled with rise in infrastructure spending, is likely to boost the paints market which, in turn, is anticipated to fuel the organic pigments market over the forecast period. Furthermore, use of organic pigments as colorants in textile and plastic industries is expected to contribute to growth. Moreover, rising demand for valueadded, high-quality organic pigments in the cosmetic industry is likely to drive growth over the next few years. The Indian Dyestuffs and Pigments industry has transformed from being import dependent to one driven by exports. Developed countries are now focusing on sourcing dyestuffs and pigments from cost effective Asian markets, thanks to stringent environmental constraints back home. Exports have grown in double-digits over the last few years. Going forward, availability of skilled professionals and low cost of manufacturing coupled with Research and Development (R & D) capabilities are seen as strong demand drivers for the dyestuffs and pigments industry in India. 3/1/2015 (mn) Domestic Sales 3/1/2016 (mn) Vatva Panoli Dahej SEZ Total Export Sales Vatva Panoli Dahej SEZ Total Yearly growth in Pigments segment Page 11

12 Outlook for Agrochemicals According to research by Markets and Markets, value of the agrochemicals market is estimated to reach $ bn by 2020, from $ bn in 2015; a CAGR of 3.2%. Asia Pacific dominates the global market with a share of around 36.7%. The European region is expected to be the fastest growing market in the near future, with a rising number of farmers moving towards technology driven agricultural practices. The market is primarily driven by the increasing demand for food, in tandem with the growing global population, rising standards in agricultural farming and extensive use of technology in agrochemicals development. Intensive R&D efforts are expected to lead to delivery of enhanced yields and superior produce. Given the current economic growth projections, India is likely to become the third largest economy in the world by 2030, accompanied by a rise in urbanization levels, which will lead to changes in dietary needs. To sustain the growing population s food and nutrition needs, India will have to adopt to the most modern techniques in the agriculture sector. According to a FICCI report on the Indian Agrochemical Industry, the Indian crop protection industry is expected to grow at a CAGR of 12% to reach ` 470 bn by FY19. The domestic market, on the other hand, would grow at a CAGR of 8%, as it is predominantly dependent on monsoons. Insecticides are the largest sub-segment of agrochemicals with 60% market share, while herbicides, with 16% market share, form the fastest growing segment in India. Although yield per hectare has doubled in the past years due to increased use of hybrid seeds, fertilizers, and crop protection chemicals, among others, it is still low in comparison to global standards. There is now a need for the agriculture sector to undergo technological transformation and adopt modern methods which reduce dependency on monsoons, ensure more productive use of available resources and thereby serve the nation more efficiently. These factors therefore, highlight the importance of the use of agrochemicals for enhancing food and nutrition security of the nation. This would require ushering in the Second Green Revolution in India. Production Units 3/1/2015 (mn) 3/1/2016 (mn) Domestic Sales Ankleshwar Panoli Dahej Total Export Sales Ankleshwar Panoli Dahej Total Yearly growth in Agrochemical segment Page 12

13 Competitive Strength of Meghmani Organics Financial year 2016 was a year of strong performance for Meghmani Organics Limited as they continued to reap the benefits of 5.57bn mega capacity expansion made over the past 5 years. Today, they have emerged as a well diversified chemicals player operating in three segments, i.e. Pigments, Agrochemicals and Basic Chemicals. The company has developed a growing basket of higher value added and high-margin products, along with an extensive pan-india and global presence. Meghmani is now present in 75 countries with over 400 clients. Due to their well planned expansion strategy, they were able to deliver strong performance despite a challenging environment during the year, which saw a bad monsoon, tough global markets, falling raw material prices and volatile foreign exchange rates. The company reported consolidated revenue of ` 13,370 mn for FY16 compared to ` 12,678 mn in FY15, on account of 13%, 10% and 2% growth in Basic Chemicals, Pigments and Agrochemicals, respectively. In terms of geography, domestic business increased by 14%, driven by robust growth in the Pigments business, followed by Agrochemicals and Basic Chemicals businesses. Going forward, with higher volumes, increased share of higher-valueadded products, better capacity utilization, strengthening position in the basic chemicals (high margin) business and de-leveraging of the balance sheet, the company is expected to deliver increasing returns. At Meghmani, all the businesses are on a strong growth path. They had adopted a conscious strategy of focusing on value added offerings, i.e. in Pigments (Beta Blue) and Agrochemicals (branded Agro products), besides monetizing the CRAMS (Contract Research and Manufacturing Services) opportunity in Agrochemicals and Pigments and recently diversifying into Caustic Potash. The improved performance and higher utilization of capacities bode well for the company. Page 13

14 Investment Rationale: Meghmani Organics is one of the largest producers of color pigments in the world. It is also a renowned name in Agrochemical industry. Diversified in various products, the company has 400+ marquee clients in 75 countries. The total revenue in the pigment segment increased by 7% YoY, driven by strong performance in domestic markets which grew 48% YoY. EBITDA margin in this segment increases by 14% YoY. The company shows a robust growth in Agrochemicals revenue reporting a growth of 43% driven by 76% growth in domestic and 26% growth in exports markets. The revenue from basic chemicals increased by 3% YoY to reach Rs 956 mn as production starts at new Caustic Potash plant. The domestic business of the company increased by 25% YoY and Export revenue increases by 10% YoY. Meghmani Organics is trading at a P/E ratio of which is below its industry P/E. The stock has given a movement of 150% from Mar 2016 and from there it has given a correction of around 20%. CRISIL has recently revised the Long-Term Rating of Meghmani Organics to A/Positive (outlook revised from stabe and rating reaffirmed). The short term rating has been given A1 (reaffirmed). The FIIs has increased their position in the stock by 3.69% from last quarter. We initiate coverage on Meghmani Organics Ltd as a with a target of Rs 50 representing a potential upside of 20% from the buy price. Meghmani is trading at a PE of Page 14

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