Meghmani Organics Ltd Q4FY16 Update Research Report By IndiaNivesh

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.

Meghmani-IndiaNivesh-Q4FY16-Update