MEGHMANI ORGANICS LTD- Q2 FY18

Meghmani Organics Ltd reported strong growth in September quarter FY18. Revenue or Income From Operations rose 11% YOY and stood at Rs. 4607 Mn compared to Rs. 4150 Mn in the current September quarter. Revenue growth has been on the back of 25% growth in exports & 13% growth in domestic business. Profit After Tax galloped at 69% and was reported at Rs. 551 Mn against Rs. 325 Mn corresponding quarter previous year and rose 27% sequentially. EBDITA grew 40% YOY at Rs.1134 Mn compared to Rs. 809 Mn same period previous year. Sequential growth was also robust at 18% in Q2 FY18. Operating costs of the company jumped 7% YOY from Rs. 3355 Mn in Q2 FY17 to Rs. 3579 Mn in the current September quarter. On quarterly basis, there was a decline of 3% in the current quarter.  EBDITA & PAT Margin stood at 24.61% & 11.96% expanding 512 & 412 BP respectively in the current quarter FY18. On sequential basis, EBDITA & Net Profit Margin grew 256 & 385 basis points respectively in Q2 FY18. Higher margins have been reported as raw material, interest costs & depreciation expenditure have declined buttressing the company’s quarterly bottom-line. Raw material costs as a percentage of Net Sales declined from 59.30% to 54.30% in the current September quarter. Interest/finance costs fell 24% YOY from Rs. 133 Mn to Rs. 101 Mn in Q2 FY18. The company has also increased its utilization rate to 78% and production has jumped 43% YOY in the current quarter. Other Income jumped more than 7 times at Rs. 106 Mn compared to Rs. Rs. 14 Mn same period previous year.

Meghmani Organics is a leading manufacturer of pigment & pesticide products in specialty chemicals industry. The company has three main segments, agrochemicals, pigments & basis chemicals contributing 41%, 30% & 26% respectively in the current quarter. Agrochemicals revenues grew 25% YOY and stood at Rs. 1950 Mn whereas Pigment & Chemicals jumped 7% & 13% at Rs. 1459 Mn & Rs. 1271 Mn respectively in current September quarter FY18. Exports have contributed around 50% of total revenues growing 25% YOY in the current quarter. Export growth was fueled by pigments up 39% & agrichemicals rising 26% YOY. Domestic business was supported by strong growth in agrochemicals & basic chemicals but was marginally offset by lower revenues from pigments. We recommend BUY for the stock for medium & long term investment with target price of Rs. 225.

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