Meghmani Organics Ltd

Meghmani Organics Q3FY23 earnings call notes.

• On the balance sheet front, the Company’s cash and cash equivalents stood at INR 77 crore, as on 31st December. The debt to equity ratio stood at 0.43 as on 31st December

• Pigment business contributes nearly 25% of the revenue. Currently, the pigment business is witnessing slow export demand and contraction in the prices due to the challenging global macro environment. During the quarter, pigment performance has been adversely impacted due to liquidation of high cost inventory and exceptional loss due to the fire in the finished good warehouse. The Company has adequate insurance cover. We expect to recover in demand in pigment division in the next few quarters.

• Not just for the 2,4D overall in the agrochemical division also, there has been reduction in most of the products and this is across globally all the chemical industry has been facing. If we talk particularly in the case of 2,4D then the average price is around nearly ₹225. As of now, it’s holding on what we believe that this the global condition has occurred because one of the factor was that China was facing the COVID situation. They were under kind of a lockdown. Now, the China has opened up and their consumption will also start rapidly at the same time, some of the global factors of Ukraine-Russia war has also impacted demand. Also, partly in Europe and US has a recession point of view. However, the things are going back to the normal. As for the global condition, that is what we feel. So, in the next few quarters, we believe that price should not go further below. In fact, it should start improving.

• Nano Urea

  • India per acre, urea usage approximately one bag of 45 KG. Now, this nano urea is a patented technology developed by IFFCO, so only half a litre bottle is equivalent to 45 KG of bag.

  • So you can say it is just 1% volume will be equivalent to giving the same kind or rather better result in the one acre land. And the cost point of view to the farmer, it is cheaper to the farmer now this patented technology by IFFCO it is so efficient that it gives better result.

  • Nano urea does not has a single rupee subsidy. So, we are not talking about the conventional urea or we are not entering into any subsidy based fertilizer.

  • We are coming with Nano Urea and later on we’ll be adding some other crop nutrition products which is helpful to the farmer’s i.e., which uses less volume and it is more efficient.

  • At the same time, it is making a synergy with our agrochemical division. The customer base, the dealer distributor remains the same and there is always a demand for the better product. So it is a right moment for us.

  • At the same time, we have signed the agreement with IFFCO. So we are going to manufacture under the license of IFFCO patented technology. So it’s a proven technology.

  • the CapEx would be nearly INR 150 crore for this project and working capital requirement on the full year of operation basis would be about INR 200 crore.

  • The conventional urea bag costs around ₹265 to the farmer. Where on the same bag that is 45 KG bag on the same bag government gives the subsidy of close to ₹2,000. So, the farmer gets that product at hardly 10% cost, so there is a heavy subsidy cost on government at the same time this Nano Urea bottle which is only 500ML bottle that costs around ₹240 to the farmer. So it is even cheaper, 10% cheaper than the conventional Urea bag at the same time there is no subsidy on this product, so government is banking heavily on this product. There is a huge pressure from the government side to convert conventional urea into Nano Urea so that they reduce the subsidy loan. Which is INR 2,50,000 crore.

  • as far as the effectiveness at the farm level is concerned it gives better result than the conventional area, because conventional urea is hand broadcasted and it goes into the soil and gets absorbed by the plant through the root, whereas Nano Urea is a foliar spray application where the product is sprayed on the plant. So the plant absorbs directly by the leaves, so it gives much better result.

• This quarter, the other income is INR 19 crore from forex, while MTM loss in interest is INR 38 crore. So during the quarter, there is INR 18 crore loss on the Foreign currency borrowings. But majority of the MTM is unrealized as we have long term borrowing, which are restated at the closing rate on last day of the quarter.

• As on 31st December, we have around INR 260 crore of short term debt and while INR 430 crore is our long term debt. In KCL, we have spent so far INR 275 crore and we have taken debt of around INR 100 crore. MOL is foreign currency almost 90% plus, Kilburn is domestic INR terms.

• In case of KCL, we have opted for 25% tax rate, while in MOL tax rate is 25% while in the new subsidiary this Meghmani Crop Nutrition, we will get the benefit of the lower tax rate of 15%.

• titanium dioxide. Also with this kind of price, what is prevailing today. On the first phase, it should generate nearly INR 300 crore top line which is lower as per our expectation.

• As far as the Agro is concerned, so we have already consumed the high cost inventory which was in Q2 FY23 and slightly it will be used in this Q4 FY23. So despite that so we are confident of maintaining the EBITDA margin in line with the current 18% to 19% in Agro division. In case of pigment division, which we had inventory of high cost and due to contraction in demand, there was some softening of the prices finished products also. So which has led to, you can say reduction into the EBITDA margin pigment division. We expect in the coming quarter this demand should start picking up and then there should be improvement in the EBITDA margins of pigment also.

• going forward things should improve and we should be able to achieve this 14% EBITDA margin.

• we hope that the thing should go back to the normal by the end of March and things should start improving from April onwards. So still one quarter will be little difficult from the pigment point of view particularly. But as far as the inventory loss is concerned, we don’t see much loss coming because of the prices going low and high price inventory.

• due to fire. There is a loss of around INR 43 crore out of which INR 39 crore has been recognized as a claim receivable and only INR 4 crore as per the policy provisions where some deductibles are there. So to that extent of INR 4 crore has been accounted for as a loss.

• So for the current plant, if we don’t consider the new plant, then in the case of agrochemical division, the utilization is about more than 75%, nearly 80%. In the case of pigment, it is little low, about 55% to 60%. And because we have added the new capacity in the agrochemical division. So which will take some time to again reach at 80%.

• the 2,4D price is in the range of nearly ₹225 when it comes to the Cypermethrin, the prices is in the range of somewhere about ₹600 to ₹650. the 2,4D point of view, the prices is more or less in this line. In last three months when it comes to the Cypermethrin, yes there has been some pressure there. There is some reduction. From ₹650 to ₹700, it has come to ₹600 to ₹650. There has been reduction by ₹50.

• the Agro chemical point of view, the first plant we have mentioned on the full year of operation basis it should generate revenue of nearly INR 650 crore. So we feel that in the next financial year the plant should generate about INR 300 to 350 crore kind of revenue from the new plant. In the case of titanium dioxide again. The full year of operation for the first phase would be the next year, where we feel that we should be able to generate nearly INR 200 crore plus kind of a revenue

• Titanium Dioxide: we are going to ultimately produce rutile grade only. So as per our plan, first phase is. Going to be the Anatase and after one year the full capacity will be converted into rutile because we are doing the Capex for the Rutile grade in the second phase.