Meghmani Organics, promoted by Jayanti Patel, Ashish Soparkar and others, is a Gujarat-based pigments and agrochemical manufacturer with a strong focus on research and development. The company’s plants at Vatva and Panoli in Gujarat together have a capacity to manufacture 1,200 tonnes per annum of green pigment and 10,200 tonnes per annum of CPC blue crude. It also produces Alpha blue and Beta blue pigments on a smaller scale. The Charodi and Ankleshwar plants, again in Gujarat, churn out agrochemical formulations, intermediates and technicals.
CPC blue crude pigment is the major raw material for manufacturing other pigments like pigment blue and pigment green. These pigments have varied end-use application ranging from printing inks, plastics, rubber, paints, textiles, leather and paper.
The agrochemicals segment contributes slightly over 50% to the total sales, with the rest contributed by pigments. A large chunk of business comes through exports: 66% of the agrochemicals produced and 85% of pigments are exported. The pigments go to around 58 countries. The USA and the European Union together contribute around 45% of the revenue.
Meghmani Organics enjoys several cost advantage over its competitors because of its integrated multi-functional plants and its proximity to raw material sources. The major customers for pigment products include the Flint Group Frankfurt GMBH, Paramount Colors, and Sudarshan Chemicals. The major customers for agrochemicals products include Micro Flo LLC, Valent USA, and Hindustan Insecticides.
The Singapore Depository Shares (SDS) issued in August 2004, representing 38.17% of the existing equity share capital, are traded on the Singapore Stock Exchange (SGX).
Meghmani Organics plans to raise Rs 102 crore through its IPO in the Indian markets to fund its expansion. The company wants to set up a high-performance pigment facility (to be commissioned by October 2007) at Vatva in Ahmedabad and a multi-purpose agro-chemicals plant at its Panoli facility (to be commissioned by August 2008).
Strengths
* Has already commercialised two high performance pigments green 36 and blue 60, which can improve profitability once the new plant is in place to manufacture them. Development of yellow, red and orange pigments will augment the pigment product portfolio.
* Holds around 90 registrations worldwide for its agrochemical business and has 415 registrations pending in 56 countries worldwide.
* Rightly placed to benefit from the global outsourcing drive. A number of players in the US/EU prefer to source chemical products from countries such as India due to cost cutting and pollution problems.
* An established track record of stable growth with experienced management. Has also won Investor’s Choice Award for the Most Transparent Company from the Securities Investors’ Association of Singapore for two consecutive years since its listing on SGX in August 2004.
Weaknesses
* The agrochemicals industry is a highly crowded, with a low rate of growth
* A number of key raw materials are derivatives of crude oil, which may witness strong fluctuations, putting pressure on margin.
* The tax benefits available to the 100% EOU Panoli – 1 plant, which manufactures blue crude, alpha blue and beta blue pigments expired in the year ending March 2007. Other such tax benefits are likely to elapse by end March 2009.
Valuation
Currently, Meghmani Organics’ SDS is trading at SG$ 0.365, translatings into Rs 19.3 per equity share( 2 SDS= one equity share).
The price band is Rs 17-Rs 19 per equity share of Rs 1 face value. At the lower band of Rs 17 per share, the P/E would be 10.4 times the annualised EPS for the nine-month ended December 2006 on post-issue equity of Rs 26.06 crore.
At the upper price band of Rs 19 per share, the P/E would be 11.3 times the annualised EPS for the nine-month ended December 2006 on post- issue equity of Rs 25.43 crore.
In the dyes and pigments industry, comparable companies such as Atul and Sudarshan Chemicals are trading at P/E of around 9, while comparable agrochemical companies such as Excel Cropcare and Nagarjuna Agrochemicals are trading in the P/E range of 7 to 9.