Meghmani Organics came into the limelight when Daljeet Kohli conferred upon it the title of “Classic Turnaround Stock”.
We saw in an earlier piece that Meghmani Organics has delivered on Daljeet’s promise of 130% gains.
The stock effortlessly breached Daljeet’s target price of 34 and surged to an all-time high of Rs. 46.75 on 20th May 2016. The stock is presently taking a breather at Rs. 37.55.
| MEGHMANI ORGANICS LTD – KEY FUNDAMENTALS | |||
| PARAMETER | VALUES | ||
| MARKET CAP | (Rs CR) | 956 | |
| EPS – TTM | (Rs) | [*C] | 2.95 |
| P/E RATIO | (X) | [*C] | 12.75 |
| FACE VALUE | (Rs) | 1 | |
| LATEST DIVIDEND | (%) | 30.00 | |
| LATEST DIVIDEND DATE | 17 MAR 2016 | ||
| DIVIDEND YIELD | (%) | 0.01 | |
| BOOK VALUE / SHARE | (Rs) | [*C] | 21.69 |
| P/B RATIO | (Rs) | [*C] | 1.73 |
[*C] Consolidated [*S] Standalone
| MEGHMANI ORGANICS LTD – FINANCIAL RESULTS | |||
| PARTICULARS (Rs CR) | MAR 2016 | MAR 2015 | % CHG |
| NET SALES | 360.78 | 294.98 | 22.31 |
| OTHER INCOME | 1.67 | 3.02 | -44.7 |
| TOTAL INCOME | 362.44 | 298 | 21.62 |
| TOTAL EXPENSES | 288.51 | 239.52 | 20.45 |
| OPERATING PROFIT | 73.93 | 58.48 | 26.42 |
| NET PROFIT | 34.9 | 22.61 | 54.36 |
| EQUITY CAPITAL | 25.43 | 25.43 | – |
(Source: Business Standard)
Daljeet has now increased his target price to Rs. 50. As expected, his logic is sound:
“We like the company’s overall performance on revenue growth front. However, despite margin expansion, we remain concern on the company’s EBITDA trajectory, which is largely driven by the single segment (Basic Chemical). Whereas other two key segment (Agro + Pigment) continue to post decelerating EBITDA margin show. In our view, the next level to re‐rating will happen on two counts: (1) debt reduction, and (2) margin expansion in Agro and Pigments business on sustainable basis. As a result, we ascribe below industry EV/EBITDA multiple to FY17E EBITDA and arrive at TP of Rs.50 (Previous TP Rs.34) and maintain rating BUY on the stock.
Valuations
At CMP of Rs.38, the stock is trading at EV/EBITDA multiple of 4.1x FY17E and 3.3x FY18E estimates. The current valuations are well below 7.5x peer/industry average. As a result, we maintain BUY with TP of Rs.50 (6.0x FY17E). In our view, the available triggers for re‐rating are following: (1) debt reduction, (2) margin expansion, and (3) higher plant utilization. Our earlier TP of Rs.34 is already achieved on the stock.”
If Daljeet’s target price is met, it means that Dolly Khanna and the other lucky shareholders of Meghmani will bask in gains of 35%.
It is worth noting that Daljeet has also put the spotlight on Apcotex Industries, a specialty chemical stock which is the favourite of Vijay Kedia. Daljeet claims that Apcotex is on a “game changer” path and that it has a “technological moat” around it which will cause it to deliver bumper gains to its shareholders.
We need to keep a close eye on both stocks to see whether Daljeet’s lofty expectations are met!
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Meghmani Organics is undervalued stock at current levels. The stock is trailing at PE of around 8.21x which is decent considering the pesticide and chemical industry. The revenue growth of the company is not upto the expectation. Revenues are growing at cagr of 6.8 per cent since 2011. Earnings have been doubled during the same period. Debt has reduced significantly over the years which is a good sign for the company. Profit margins are increasing. Company is all over supported by fundamentals as well as technicals. The compnay can find some space in the portfolio with long term vision.
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Dolly Khanna does not appear in list of shareholders not in the past bulk deals , I doubt if rajiv still holds share in the company.
Financials are not growing at the level which it should be then how is it still advisable to remain invested in the stock is a big question
in my opinion not a right script to enter considering other opportunities available in the market.