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IndiaNivesh
Meghmani
Organics (Exit)
CMP: ₹ 39.25
Meghmani Finechem Ltd (a subsidiary of Meghmani Organics Ltd (MOL)) is
planning to set up a Chloromethane plant with a capacity of 40,000 mt a year, at GIDC Dahej. Company is planning to invest ₹140 crore for setting up the chloromethane plant.
Our take: While the rationale given by management on better utilisation of available input (Chlorine) may have some sense but we believe this expansion will delay the debt reduction process (that was the basic rationale of our investment in the company) as the expansion is not going to be earnings accretive for many years.
Given the backdrop of Meghmani persistently being in investment mode with earlier investment in Caustic Potash (KOH) facility and now in MDC, the consolidated debt would not see a substantive decline in near future. Gearing ratio still rules at above 1 and the 9MFY17 finance cost at ₹40.4 crore is 52 per cent of the PBT. During our recent
interaction with the management the company’s plans do not marry with our initial
thesis of meaningful decline in debt levels in the near term and is incrementally getting pushed back further, hence our view has turned negative on the stock. We recommend complete exit from the stock. Further we are discontinuing our
coverage on the stock with immediate effect.
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