Daljeet first put a buy on Meghmani Organics on 6th August 2014 when the stock was at Rs. 15. He recommended the stock on the basis that it is a “classic turnaround story” and promised a target price of Rs. 34.
Meghmani lived up to expectations. On 5th November, on the back of blockbuster Q2FY15 results, Meghmani surged to Rs. 28.75, giving an incredible gain of 86% in the 3 months since Daljeet’s buy call. On 12th November 2014, the stock touched Rs. 30.70, fulfilling Daljeet’s promise of a 100% return in just 3 months.
However, today, most of those gains evaporated into thin air because Meghmani reported pathetic Q3FY15 results. While the total income from operations increased to Rs. 303.87 crore from Rs. 293.10 crore in the same quarter of last year, the net profit of Rs. 14.49 crore earned in last year’s quarter turned into a net loss of Rs 4.56 crore for the quarter ended Dec 14.
|Dec ’14||Sep ’14||Dec ’13|
|Net Sales/Income from operations||295.81||376.75||287.83|
|Other Operating Income||8.06||5.90||5.27|
|Total Income From Operations||303.87||382.65||293.10|
|Net Profit/(Loss) For the Period||-8.15||17.55||19.49|
|Net P/L After Minority Interest||-4.56||25.10||14.49|
|Equity Share Capital||25.43||25.43||25.43|
Not surprisingly, investors did not take kindly to the poor results and sent Meghmani plunging to the lower circuit of 20%.
However, Daljeet does not appear to be unduly perturbed if you go by his latest report. While he called the results “Below expectation performance”, he has retained his target price of Rs. 34. Let’s note the core reasoning:
“At CMP of Rs.23, the stock is trading at EV/EBITDA multiple of 6.1x FY15E, 5.1x FY16E, and 4.1x FY17E estimates. In our view, the current valuations are significantly below 7.5x global peer average. On back of various available triggers (1) debt reduction, (2) margin expansion, (3) higher plant utilization, and (4) favourable business dynamics the stock is poised for re-rating. With revival in business cycle, we have assigned 5.7x EV/EBITDA multiple to arrive at FY17E based price target of Rs.34/share. Given the huge upside, we maintain BUY on the stock.”
We need to keep a close watch on Meghmani to see which way it will turn.