INSTITUTIONAL EQUITY RESEARCH Meghmani Organics Ltdbackoffice.phillipcapital.in/Backoffice/Researchfiles/PC_-_Meghmani_Organics...MEGH entered caustic soda manufacturing through a

INSTITUTIONAL EQUITY RESEARCH

Meghmani Organics Ltd (MEGH IN)

Ignored so far, but not for long

Page | 1 | PHILLIPCAPITAL INDIA RESEARCH

INDIA | SPECIALTY CHEMICALS | Initiating Coverage

29 March 2016

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 2009 with an investment of Rs 5.5bn, for a capacity of 119,000 MTPA at Dahej. In FY15, it expanded capacity by 40% to 167,000 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 (21,000 tonnes) with a minimal investment of Rs 650mn (internal accruals). The new project is ready to commission in April 2016. With this, we estimate FY15‐18 sale/profits CAGR for its caustic operations (30% 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 70% 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 2,370 stockists and distributors YTD FY16 from 1,000 in FY15). Therefore, we build in 14% revenue CAGR over FY16‐18 to Rs 5.30bn. With lower crude prices, MEGH’s vertically integrated operation and improving asset utilisation will lead to profitable growth in agrochemicals. No incremental capex; 30% 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 30% earnings CAGR over FY15‐18 to Rs 1.01bn in FY18. Initiate coverage with a BUY and TP of Rs 40, implying upside of 100% Considering its diverse business profile, we value the company on SOTP. Taking into account its strategic positioning, expansion, and superior margin profile of over 30%, we value its caustic operation at 5x FY18 EV/EBITDA and the other two segments at 4x – arriving at a valuation of Rs 40.

BUY (Maintain) CMP RS 20 TARGET RS 40 (+100%) COMPANY DATA O/S SHARES (MN) : 254MARKET CAP (RSBN) : 5MARKET CAP (USDBN) : 0.152 ‐ WK HI/LO (RS) : 28 / 14LIQUIDITY 3M (USDMN) : 0.4PAR VALUE (RS) : 1 SHARE HOLDING PATTERN, % Dec 15 Sep 15 Jun 14PROMOTERS : 59.6 50.9 50.4FII / NRI : 1.0 0.9 0.9FI / MF : 0.2 0.1 0.1NON PRO : 12.1 6.4 4.8PUBLIC & OTHERS : 27.1 26.7 28.0 PRICE PERFORMANCE, %

1MTH 3MTH 1YRABS 6.3 ‐12.9 33.2REL TO BSE ‐2.0 ‐10.9 43.4 PRICE VS. SENSEX

050100150200250300350400

Apr/14 Oct/14 Apr/15 Oct/15

Meghmani BSE Sensex

Source: Phillip Capital India Research KEY FINANCIALS Rs mn FY16E FY17E FY18ENet Sales 12,605 14,363 15,725EBIDTA 2,710 2,944 3,145Net Profit 733 850 1,013EPS, Rs 2.9 3.3 4.0PER, x 6.9 6.0 5.0EV/EBIDTA, x 4.0 3.5 3.1P/BV, x 0.8 0.8 0.7ROE, % 12.2 13.0 14.0Debt/Equity (%) 99.6 87.2 68.8

Source: PhillipCapital India Research Est. Surya Patra (+ 9122 6667 9968) [email protected] Mehul Sheth (+ 9122 6667 9996) [email protected]

MEGHMANI ORGANICS LTD INITIATING COVERAGE

About Meghmani • Almost 30 years old. MEGH began operations in 1986. • 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 +100 years collective experience in

pigments and pesticides. • More than 80% of its pigment products and +50% of pesticides are exported. • Four multifunctional production facilities in Gujarat (India) – of which three are

ISO 9001‐2000. Meghmani’s evolution

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Net Sales (Rs mn) PriceConverted into a Public Ltd. Co. in 1995

First Agro plant setup in 1995

Private Equity investment in MOL in 1997

Started Blue Pigment production at Panoli plant in 1996

Acquired Agro assets from Rallis in 2004

Got listed in Singapore in 2004

Got listed in India in 2007

Established MFL with IFC participation in 2007

Started production in MFL in 2009

Two new sites for Agrochem at Panoli and Dahej in 2009

New Pigment plant at Dahej SEZ in 2013

Expansion of CausticChlorine facility in 2014

Diversification into Caustic Potash in 2015

MEGH started operations in 1986

New Pigment plant setup at Panoli in 1996

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 (30% of sales)Caustic soda, chlorine and caustic

potash

• Expanded caustic‐chlorine capacity to 476 TPD from 340 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

• Global client base with ~70% business from exports• Well known brands such as Megastar, Megacyper, Megaban, Synergy, Courage• Muted 1% sales CAGR over the last five years

• Market Leadership in blue pigment with ~7% global market share• Global presence with ~80% of pigment revenue from exports• Long‐term client relationships with 90% business from repeat clients • Muted 9% sales CAGR over the last five years

Source: Company, PhillipCapital India Research



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 2009 with an investment of Rs 5.5bn for a capacity of 119,000 MTPA at Dahej. It expanded capacity by 40% in FY15 to 167,000 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; 10% 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

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Source: Company, PhillipCapital India Research Estimates 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 end‐user 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.



India contributes 4% of world capacity Indian caustic soda capacity is optimally utilised already

India (mn TPA), 4

China (mn TPA), 28

Others (mn TPA), 49

Global Caustic soda production (mn TPA)

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Import dependancy of caustic soda is increaseing Domestic/global prices of causitc soda are comfortably stable

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Domestic Caustic Soda Price (Rs/kg)

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Casustic soda application in different end‐user industries

Pulp & Papers16%

Alumina 17%

Organics (Incl. Pharma,

Polycarbonate)17%

Inorganics (Sodium silicate,

STPP)10%

Soaps & Detergents

7%

Textile9%

Water Treatment3%

Others21%

Caustic soda consumption in India

Source: chemicals.nic.in, PhillipCapital India Research



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 21,000 tonnes capacity with a minimal investment of Rs 650mn (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 30% and would drive value growth for MEGH.



Enhanced capacity will reach optimum level on strong demand of caustic soda

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Sees capex led sales growth Causitc soda enjoys operating profit margin >30%

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Source: Company, PhillipCapital India Research Estimates



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$ 1‐1.25bn –20% 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 Beta and CPC are MEGH’s leading products

US 32%

India 18%Asia 17%

South America 14%

Europe 11%

Others 8%

Pigment Net sales by country mix (%) as FY15

Beta 39%

CPC 28%

Pigment Green 7 20%

Alpha 11%

Others 2%

Pigment Net sales by product mix (%) as FY15

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 90% 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 ~80% 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 90% business from repeat clients. It has a global network with ~70 distributors. Its direct presence (with subsidiaries in the US, Europe, Indonesia, Dubai and representative office in China) helps it to have a front‐end 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 311,000 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.



MEGH’s leading product phthalocyanine maintained its prices despite crude fall

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Source: PhillipCapital India Research Pigment capacity utiliation to see gradual ramp‐up Pigment sales growth to remain stable over FY15‐18

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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 technical‐grade 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 2,370 stockists, agents, distributors, and dealers (major expansion from 1,000 in 17 states in India in FY15). India still the largest market for MEGH Branded portfolio will drive growth ahead

Source: Company, PhillipCapital India Research It has a strong global clientele base with exports contributing to about 70% 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 2,370 stockiest and distributors YTDFY16 from 1,000 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.

India 30%

Europe 7%Africa 6%

South America 6%

Others 51%

Agrochemicals Net sales by country mix (%) as FY15

Branded 27%

Cypermethrin Tech‐Z 20%

2,4‐D 8%Bulk 8%

Others 37%

Agrochemicals Net sales by product mix (%) as 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


Focus on branded portfolio will drive value growth EBITDA margin to remain at 18‐19%

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No major capex over FY16‐18; 30% 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 30% earning CAGR over FY15‐18 to Rs 1.01bn in FY18. Visible sweating of assets Financial deleveraging to improve earnings performance

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Financial performance Basic chemicals (Caustic Soda) see relatively faster growth Amt in Rs mn FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18EPigment 3149 2657 2609 3333 3657 3995 4564 5214% yoy growth 32 ‐16 ‐2 28 10 9 14 14% to sales 31 25 25 28 28 32 32 33Agro Chemicals 4373 3974 3398 3967 4354 4046 4588 5301% yoy growth 7 ‐9 ‐14 17 10 ‐7 13 16% to sales 43 37 32 34 34 32 32 34Basic Chemicals 1572 2339 2885 2624 3308 4018 4898 5099% yoy growth 109 49 23 ‐9 26 21 22 4% to sales 15 22 27 22 26 32 34 32Others 1154 1480 1511 1646 1359 1223 1101 991% yoy growth 21 28 2 9 ‐17 ‐10 ‐10 ‐10% to sales 11 14 14 14 11 10 8 6Total sales 10247 10622 10585 11783 12942 12605 14363 15725% yoy growth 26 4 0 11 10 ‐3 14 9 Steady revenue growth 30% earning CAGR over FY15‐18

3.15 2.66 2.61 3.33 3.66 4.00 4.56 5.21

4.37 3.97 3.403.97 4.35 4.05

4.595.301.57 2.34 2.89

2.623.31 4.02

4.905.10

1.15 1.48 1.511.65

1.36 1.221.10

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Source: PhillipCapital India Research No major capex in the near future; improves asset efficiency Strong Cash generation over FY15‐18


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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 30% to touch Rs 1.13bn. Margins should see an expansion of over 400bps to around 20%. 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 30%, 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 40 and initiate coverage with a BUY rating. Particulars (Rs mn) FY18 EBITDA Target Multiple (x) ValuePigment EBITDA 834 4 3337Agrochemicals EBITDA 795 4 3181Basic chemicals EBITDA 1581 5 7904Enterprise Value (RS mn) 14421Net debt (Rs mn) 4695Mcap (Rs mn) 9727No of shares (mn) 254Target Price (Rs) 40CMP (Rs) 20Upside 100%

Source: Company, PhillipCapital India Research Estimates One‐year forward PE band One‐year forward EV/EBITDA band

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Source: Bloomberg, PhillipCapital India Research Estimates



Operating leverage to strengthen ROCE Financial deleveraging powers earnings

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Source: Company, PhillipCapital India Research Estimates 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




Financials

Income Statement Y/E Mar, Rs mn FY15 FY16e FY17e FY18eNet sales 12,942 12,605 14,363 15,725Growth, % 10 ‐3 14 9Other income 0 0 0 0Total income 12,942 12,605 14,363 15,725Raw material expenses ‐7,640 ‐6,680 ‐7,756 ‐8,570Employee expenses ‐725 ‐756 ‐862 ‐943Other Operating expenses ‐2,545 ‐2,458 ‐2,801 ‐3,066EBITDA (Core) 2,031 2,710 2,944 3,145Growth, % 3.7 33.4 8.6 6.8Margin, % 15.7 21.5 20.5 20.0Depreciation ‐747 ‐811 ‐869 ‐897EBIT 1,284 1,899 2,076 2,248Growth, % 11.0 47.9 9.3 8.3Margin, % 9.9 15.1 14.5 14.3Interest paid ‐746 ‐638 ‐627 ‐548Other Non‐Operating Income 64 63 72 79Non‐recurring Items ‐11 0 0 0Pre‐tax profit 591 1,324 1,521 1,778Tax provided ‐131 ‐344 ‐395 ‐462Profit after tax 460 980 1,125 1,316Others (Minorities, Associates) ‐21 ‐247 ‐275 ‐303Net Profit 439 733 850 1,013Growth, % 93.0 62.9 16.1 19.2Net Profit (adjusted) 450 733 850 1,013Unadj. shares (m) 254 254 254 254Wtd avg shares (m) 254 254 254 254 Balance Sheet Y/E Mar, Rs mn FY15 FY16e FY17e FY18eCash & bank 156 305 398 286Debtors 3,167 3,108 3,542 3,877Inventory 2,158 2,107 2,400 2,628Loans & advances 1,379 1,489 1,608 1,737Other current assets 363 400 440 484Total current assets 7,223 7,408 8,387 9,012Investments 179 179 181 256Gross fixed assets 13,035 13,815 14,275 14,685Less: Depreciation ‐5,221 ‐6,032 ‐6,900 ‐7,798Add: Capital WIP 229 150 120 125Net fixed assets 8,043 7,933 7,494 7,012Total assets 15,444 15,520 16,062 16,279Current liabilities 1,774 1,818 2,050 2,238Provisions 305 335 369 406Total current liabilities 2,079 2,153 2,418 2,644Non‐current liabilities 6,907 6,436 6,167 5,451Total liabilities 8,985 8,589 8,586 8,095Paid‐up capital 254 254 254 254Reserves & surplus 5,261 5,734 6,278 6,986Shareholders’ equity 6,459 6,932 7,476 8,183Total equity & liabilities 15,444 15,520 16,062 16,279 Source: Company, PhillipCapital India Research Estimates

Cash Flow Y/E Mar, Rs mn FY15 FY16e FY17e FY18ePAT 439 733 850 1,013Depreciation 747 811 869 897Change in WC 498 38 ‐621 ‐511Cash flow from operating activities 1,684 1,582 1,098 1,400Capital expenditure ‐490 ‐702 ‐431 ‐416Misc Exp 124 0 0 0Cash flow from investing activities ‐366 ‐702 ‐431 ‐416Equity 0 0 0 0Dividends ‐254 ‐259 ‐305 ‐305Debt ‐1,108 ‐471 ‐268 ‐716Investments ‐173 0 ‐2 ‐75Cash flow from financing activities ‐1,535 ‐731 ‐575 ‐1,096Net chg in cash ‐217 149 93 ‐112Opening cash balance 373 156 305 398Closing cash balance 156 305 398 286 Valuation Ratios

FY15 FY16e FY17e FY18ePer Share data EPS (INR) 1.8 2.9 3.3 4.0Growth, % 93.0 62.9 16.1 19.2Book NAV/share (INR) 21.7 23.5 25.7 28.5FDEPS (INR) 1.8 2.9 3.3 4.0CEPS (INR) 4.8 6.1 6.8 7.5CFPS (INR) 6.9 6.9 5.1 6.4DPS (INR) 0.8 0.9 1.0 1.0Return ratios Return on assets (%) 5.8 9.0 9.6 10.2Return on equity (%) 8.2 12.2 13.0 14.0Return on capital employed (%) 6.7 10.1 11.0 11.8Turnover ratios Asset turnover (x) 0.9 0.9 1.1 1.2Sales/Total assets (x) 0.8 0.8 0.9 1.0Sales/Net FA (x) 1.6 1.6 1.9 2.2Working capital/Sales (x) 0.4 0.4 0.4 0.4Fixed capital/Sales (x) ‐ ‐ ‐ ‐Receivable days 89.3 90.0 90.0 90.0Inventory days 60.9 61.0 61.0 61.0Payable days 48.0 53.5 52.8 52.5Working capital days 149.3 153.0 151.0 150.6Liquidity ratios Current ratio (x) 4.1 4.1 4.1 4.0Quick ratio (x) 2.9 2.9 2.9 2.9Interest cover (x) 1.7 3.0 3.3 4.1Dividend cover (x) 2.1 3.4 3.3 4.0Total debt/Equity (%) 116.7 99.6 87.2 68.8Net debt/Equity (%) 113.9 94.5 81.1 64.8Valuation PER (x) 11.3 6.9 6.0 5.0PEG (x) ‐ y‐o‐y growth 0.1 0.1 0.4 0.3Price/Book (x) 0.9 0.8 0.8 0.7Yield (%) 4.1 4.3 5.0 5.0EV/Net sales (x) 0.9 0.9 0.7 0.6EV/EBITDA (x) 5.6 4.0 3.5 3.1EV/EBIT (x) 8.9 5.7 5.0 4.4

INITIATING COVERAGE MEGHMANI ORGANICS LTD


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%.

Contact Information (Regional Member Companies)

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Management(91 22) 2483 1919

Kinshuk Bharti Tiwari (Head – Institutional Equity) (91 22) 6667 9946(91 22) 6667 9735

Research Infrastructure & IT Services Strategy

Dhawal Doshi (9122) 6667 9769 Vibhor Singhal (9122) 6667 9949 Naveen Kulkarni, CFA, FRM (9122) 6667 9947Nitesh Sharma, CFA (9122) 6667 9965 Logistics, Transportation & Midcap Anindya Bhowmik (9122) 6667 9764Agri Inputs Vikram Suryavanshi (9122) 6667 9951 TelecomGauri Anand (9122) 6667 9943 Media Naveen Kulkarni, CFA, FRM (9122) 6667 9947Banking, NBFCs Manoj Behera (9122) 6667 9973 Manoj Behera (9122) 6667 9973Manish Agarwalla (9122) 6667 9962 Metals TechnicalsPradeep Agrawal (9122) 6667 9953 Dhawal Doshi (9122) 6667 9769 Subodh Gupta, CMT (9122) 6667 9762Paresh Jain (9122) 6667 9948 Yash Doshi (9122) 6667 9987 Production ManagerConsumer Midcap Ganesh Deorukhkar (9122) 6667 9966Naveen Kulkarni, CFA, FRM (9122) 6667 9947 Amol Rao (9122) 6667 9952 EditorJubil Jain (9122) 6667 9766 Oil & Gas Roshan Sony 98199 72726Cement Sabri Hazarika (9122) 6667 9756 Sr. Manager – Equities SupportVaibhav Agarwal (9122) 6667 9967 Pharma & Speciality Chem Rosie Ferns (9122) 6667 9971Economics Surya Patra (9122) 6667 9768Anjali Verma (9122) 6667 9969 Mehul Sheth (9122) 6667 9996Engineering, Capital Goods Mid‐Caps & Database ManagerJonas Bhutta (9122) 6667 9759 Deepak Agarwal (9122) 6667 9944Hrishikesh Bhagat (9122) 6667 9986Sales & Distribution Ashvin Patil (9122) 6667 9991 Sales Trader Zarine Damania (9122) 6667 9976Shubhangi Agrawal (9122) 6667 9964 Dilesh Doshi (9122) 6667 9747 Kishor Binwal (9122) 6667 9989 Suniil Pandit (9122) 6667 9745Bhavin Shah (9122) 6667 9974 ExecutionAshka Mehta Gulati (9122) 6667 9934 Mayur Shah (9122) 6667 9945

Corporate Communications

Vineet Bhatnagar (Managing Director)

Jignesh Shah (Head – Equity Derivatives)

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