Meghmani Organics Q3 2022 Concall Highlights

Despite the challenging business environment, Meghmani Organics Ltd. (MOL) revenue grew by 43.7% YoY to ₹ 640 Cr in Q3 FY22 aided by higher realisation from Pigments along with improvement in volume & higher realisation from Agrochemicals business.
As an industry wide phenomenon, MOL too faced the challenge in respect to hardening of raw material prices. Due to the sudden and sharp rise of raw material prices, MOL faced a challenge in terms of fully passing on to consumers.
EBITDA stood at ₹77.4 Cr with 12.1% EBITDA margins from 20.2% YoY
The company in its history faced lowest profitability in this quarter
The 2-4D plant performed better amongst other products. The capacities are at par with Atul ltd after the earlier capex.
Impact of 1.5% on margins due to loss of incentive benefits from government
The prices of key raw materials are highly inflated for eg: Last year, industrial grade urea was costing ₹20, this year it has reached ₹75
Increase in commodity and other cost resulted in incremental pass on and thus overall agrochemical prices are elevated. As and when the input prices correct, expansion in margins are visible.
70-75% contribution from export revenue will always continue
Guidance of 40% growth in topline for FY22 from FY21 and to cross ₹3000 Cr in FY24
As the products in agrochemicals have increased from last year, contract manufacturing contribution went down from 25% to 20%

Pigments business

The pigments contributed 32% of total revenues in Q3FY22
Volumes stood at 7281 MT with 88% capacity utilisation
EBITDA margins in the pigment business shrinked to 4.9% in Q3FY22 compared to 19.1% in Q3FY21
82% of revenues in pigments were driven from exports
Improvement of margins in the pigment business in next one or two quarters is expected.

Agrochemical business

The agrochemical business contributed 68% to the topline
Volumes stood at 9428 MT with 74% capacity utilisation
EBITDA margins in the pigment business shrinked to 17.7% in Q3FY22 compared to 24.6% in Q3FY21
For agrochemical ,last year margins were exceptionally high because the raw material prices were too low and demand was high
Pyrethroids contribute almost 50% of revenues in agrochemicals business
Organo phosphates , neonicotinoid, are relatively much higher in toxicity and getting banned in certain regions. Pyrethroid is relatively less toxic and being accepted in various markets
Competition in pyrethroid business is from UPL, Bayer, Heranba, Himani.
Majority of key products are backward integrated and two more backward integration products are underway
35-40% business in the export business comes from MNC’s(FMC corp, Sumitomo, Adama, Newfarm)

The agrochemicals ongoing capex of ₹310 Cr is progressing as per the plan and commercial production is expected to begin in Q2FY23 with revenue potential of ₹600 Cr on full year of operations
During Q3 FY22, Meghmani Organics acquired Kilburn Chemicals Ltd. for ₹132 Cr, thereby fast-tracking its foray into Titanium Dioxide (TiO2) funded by internal accruals having 16,500 MTPA capacity
MOL anticipates doubling its Titanium Dioxide (TiO2) capacity to 33,000 MTPA by Q3 FY24 by incurring total capex of ₹600 Cr funded by an appropriate mix of internal accruals and debt.
Capex for the commercialisation of existing capacity in phase 1 will be ₹275 Cr(including acquisition cost) and completion by Q3FY23
The phase 2 for capacity expansion will incur the capex of ₹325 Cr and expected to commence production in Q3FY24
Post expansion and operations on yearly basis will generate ₹700- ₹750 Cr
Planning to sell majority of titanium dioxide products in domestic market
On consolidated basis (with titanium dioxide)the net debt is not more then ₹550 Cr and Debt-Equity will not be beyond 0.5

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