Stock Review: Meghmani Organics

 

Profit has been on a rollercoaster ride with every alternate quarter for Meghmani Organics, the pigments and agrochemicals manufacturer. The scrip still trades below its 2007 IPO price

 

MEGHMANI Organics has been an underperformer since its listing in mid-2007. The stock trades 24% below its public offer price. A recent accident at its pigment plant in Panoli is likely to hit its earnings in January-March quarter.

BUSINESS:

Meghmani Organics is a Gujarat-based pigments and agrochemicals manufacturer with two pigments plants and four agrochemicals plants. Agrochemicals business forms nearly two-thirds of the company's total revenue and the rest comes from pigments. More than 80% of its pigments and over half of agrochemicals are exported to markets such as the US, Europe and Asia. The company also sells in retail market and has a portfolio of 39 brands.

RECENT DEVELOPMENTS:

On February 1, the company's new pigment plant in Panoli caught fire, resulting in an estimated damage of 40 crore. The company is ramping up the facilities built in Gujarat last year. The Dahej facility with 9,600-mt capacity was built at a cost of 85 crore.

   The company also set up a formulations plant at Panoli to strengthen its retail presence. Both plants generate around 200 crore of turnover every year. The company has shifted focus towards increasing number of product registrations in the US, Australia, Brazil, Bangladesh, China, Mexico, Malaysia, Turkey, and Taiwan.

FINANCIALS:

The company has been reporting a steady double-digit sales growth over the past five quarters. This can be attributed to increased demand for pigments and agrochemicals. However, it has been facing challenges on the operational cost front. Cost of raw material has remained in the range of 62-72% in relation to net sales over the last few quarters. Operating profit margin has been hovering in the range of 15-17%.

   The company's profit has been fluctuating with every alternate quarter recording a dip over the year-ago period. This can be attributed to uneven rains across the globe and high raw material prices, which the company is unable to pass on to the end consumers.

VALUATIONS:

At the current market price of 14.3, the stock trades at nearly 10 times its earnings for the trailing 12 months.

   The valuation seems to be in line with its industry peers such as Dhanuka Agritech, Sudarshan Chemicals, and Insecticides India, which are trading at a price-to-earnings ratio of 8.5-13.