Meghmani Organics Limited Q3 FY22 Earnings Conference Call Insights

Key highlights from Meghmani Organics Limited (MOL) Q3 FY22 Earnings Concall

Management Update:

• MOL stated that the agrochemicals ongoing capex of INR310 crore is progressing as per plan and the commencement for the commercial production is expected to begin from 2Q23. This would additionally contribute about INR600 crore revenue on topline on a full year of operation basis.

Q&A Highlights:

• Manan Shah from Moneybee Group clarifited that what has led to the titanium dioxide foray capex getting revised from INR400 crore to INR600 crore for the 33,000 metric tonne capacity. Ankit Patel CEO said the company’s team has taken the possession and started evaluating the plant, machinery and bottlenecks. For this, MOL is making some changes in existing utilities that is incurring major cost. The company said it is also adding the capacity to upgrade the grade and capex for byproduct handling also a sizable amount.

• Manan Shah from Moneybee Group also asked about the upgrade of grade from Anatase to Rutile Grade and if it will result in a higher realization. Ankit Patel CEO answered that apart from the realization the market is majority for the Rutile grade. Therefore, when the company is expanding the capacity, there should be enough market available.

• Ayush Mittal with Mittal Analytics asked about the pigment division and the reason for the drag compared to other competitors. Ankit Patel CEO said that the key raw material like Phthalic anhydride, cupric chloride, and urea, the prices of raw material have increased. As an example industrial grade urea used to be INR20 last year and this year it has reached INR75. Certain unorganized players use the agriculture urea at a much cheaper rate.

• Ayush Mittal with Mittal Analytics also asked how the company is planning to come back on a normal profitability in the pigment division going forward. Ankit Patel CEO answered that now everyone in the market is able to pass on the price increase gradually. MOL expects that in the coming quarters, the margin profile should come back to the normal level, which is in the range of about 12-14%.

• Rahul Veera of Abakkus asked about the pricing of raw material for the pigment segment. Ankit Patel CEO said that for 4Q, the company is seeing better price realization. The company added that in the coming quarter, it is hopeful of going back to the normal numbers.

• Rahul Veera of Abakkus also enquired about the estimated revenue from pigments for FY24. Ankit Patel CEO said that it’s already informed that by FY24, MOL should be crossing INR1,000 crore for pigment and in the agrochemical division also the company should be able to cross INR2,000 crore topline easily.

• Subrata Sarkar from Mount Intra asked about normalized margins for the company and how many quarters will it take to reach that number.  Ankit Patel CEO answered that for pigment division on an average, industry average margin varies between 12-14%. MOL expects that in the next 1-2 quarters it should be in that range. Additionally, the average EBITDA margin for agrochemical division varies in the range of 16-18% and it’s already in that range.

• Subrata Sarkar from Mount Intra also asked about the progress on the loan given to Meghmani Finechem. Ankit Patel CEO replied that Meghmani Finechem is having its own high capex cycle. Therefore, MOL believes it will not happen immediately in the near future, but will have a discussion with management and will make proper roadmap to reverse it in the coming years.

• Amit Vora with The Homoeopathic Clinic enquired about any foreseeable risk in the titanium dioxide project. Ankit Patel CEO commented that as far as raw material is concerned there is no issues. On sales also there are no issues, as there is good demand. Therefore, MOL has to make sure that the product is on time with better quality, which is the key area of focus.

• Amit Vora with The Homoeopathic Clinic asked if there is any plan to get into contract, research and manufacturing. Ankit Patel CEO answered that the company has been doing certain contract manufacturing but don’t disclose it due to confidentiality with the customer base.  MOL added that it’s hopeful that the company will be getting certain opportunity in contract manufacturing going forward.

• Analyst Krishna Agrawal asked about the branded product revenue share. Ankit Patel CEO said that for the company the branded sales business is very small and is nearly INR100 crore on the full year operation basis, export is a major business. However, MOL is growing in the branded business and coming with certain new products in the next financial year and it will be first of its kind being manufactured in India.

• Ayush Mittal with Mittal Analytics asked about the contribution of top 3 products in the agrochemical division in the turnover. Ankit Patel CEO said that top 5 products will give about 80% plus revenue and top 3 would be about 60%.

• Amit Vora with The Homoeopathic Clinic enquired if the company is planning do some buybacks. Ankit Patel CEO said the company is doing a lot of capex in various projects and the company is not sure if it’s possible at this point of time.