Buy Meghmani Organics Ltd For Target Rs.97 - Sushil Finance
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Meghmani’s Agrochemical business to grow due to increased demand of pesticides globally, setting up of new plants and addition of new molecules.
India is the fourth largest producer of pesticides followed by US, Japan and China where the industry is worth USD 5.1 Bn in 2019. The rising exports from India is primarily due to the increased demand of agrochemicals globally, environment issues in China and India being the next best destination in terms of sourcing cheaper agrochemicals compared to rest of the world. Meghmani being one of the largest producers of agrochemical products in the country in expected to benefit the most from the above mentioned factors. Additionally, efforts like backward integrating manufacturing facilities, setting up of new plants and adding new molecules is also expected to grow the business
Capex drive in the agrochemical and Chlor alkali businesses to provide additional impetus to the company’s business operations.
The company has setup a capex plan of ~Rs. 1200 Cr to be completed by FY2023 in the agrochemical and the Chlor alkali business. In the agrochemical business the company has a capex target of Rs. 462 Cr and in the Chlor alkali business the capex target is ~Rs. 700 Cr. The expected revenue from agrochemical business and Chlor alkali segment is Rs. 950 Cr and Rs. 1,025 Cr after the plants are operating at full capacity.
Outlook and Valuation
Owing to the growth in the agrochemical sector and the capex cycle of the company, we expect the company to show above par growth in the next 2-3 years. Hence, we have forecasted the revenue of the company to increase by 9.8% in FY22E and 8.5% in FY23E. The EBITDA margins of the company at the end of FY22E and FY23E is 22.2% & 23.8% respectively. We expect the company to earn a NET PROFIT of Rs. 264.2 Cr in FY22E and Rs. 311.1 Cr in FY23E. Additionally, we expect the EPS of the company in FY22E and FY23E to be Rs. 9.29 and Rs. 10.87 respectively. We have assigned a PE ratio of ~9.0 to arrive at a target price of ~Rs. 97 which provides us with an upside of ~23% from yesterday’s closing price of Rs. 79 with an investment horizon of 18-24 months. Hence, we recommend you to BUY the stock at current levels.
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