Thread by @ValueEducator

Key highlights from #MeghmaniOrganics Q4FY23 concall

CMP - ₹81.4

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•The prices of TiO2 had gone to as low as ₹160/kg. The prices have started improving right now and are currently greater than ₹190/kg. Ilmenite ore prices have also come down to a reasonable price from ₹45/kg to ₹28/kg.

•The company plans to make TiO2 by the sulfate process where they will be reacting ilmenite ore with sulfuric acid to produce TiO2 . At present, almost 2 lakh tonnes of TiO2 is imported in India. The company is planning an import substitution for TiO2 going forward.

•The company is right now undergoing the customer approvals for their TiO2 samples with different customers, as of now they don’t have any big order or contract. TiO2 has major applications in the paint segment and the overall margins for the TiO2 business will be >20%

in the normal scenario and 15-18% due to the current scenario in the pigment industry.

•MRF, Grasim Industries, JSW Group, JK Group and Pidilite Industries are planning to enter the paints business and could be potential customers of the company going forward.

The company is not targeting medical grade TiO2 initially.

•The company won’t be doing any major capex in the conventional pigments like phthalocyanine blue and green, azo pigments and others as the major market for these is dominated by the unorganized sector.

•The conventional pigments have applications in printing inks and the printing ink industry is going through a downturn. The company chose to enter TiO2 as it requires high capex and specialized technical capabilities which will form a major entry barrier for players

in the unorganized sector.

•TiO2 is majorly used as one of the paint additives all over the world and won’t be replaced any time soon by products such as barium sulfate.

•The company had commercialized Phase-I of their agrochemical expansion at Dahej. The plant is an MPP which has begun commercial production. This plant is for new products such as flubendiamide, beta cyfluthrin, cyfluthrin and spiromesifen which are new products for the company

for which right now there is no domestic competition. The company is stabilizing this plant and expects to get a meaningful contribution from this plant going forward. The products in this plant will cater to both the domestic and export markets. The company has got

registration for some of their new products in the MPP plant in different markets.

•The company has reduced the production of agrochemicals due to the sluggish demand and they are focusing right now on clearing their high-cost inventory. The company expects to clear their

high cost inventory by the mid of Q2FY24 post which they expect a capacity utilization of 70% each for both of their divisions.

•The company is planning a gradual ramp-up of the MPP plant with 50% capacity utilization for the 1st year, 65% in the 2nd year and 75-80% in

the 3rd year. The company expects to get ₹650 - 700 crore from the MPP at peak utilization. The company would be able to generate a high incremental revenue with minimal capex going forward.

•The company has signed a CDMO contract worth ₹800 crore with a global company for 5 years which can be extended further. The molecule under this contract will be manufactured partly by the new MPP and partly by the existing facilities.

•The company has begun commercial production of the molecule under this contract. The revenues from this contract will be evenly distributed during the period of the contract. The company has all the required registrations to operate at full capacity for this contract.

•The company is entering into nano urea with a capex of ₹150 crore which will be done through its subsidiary Meghmani Crop Nutrition Ltd. The company plans to manufacture 5 crore bottles per year of nano urea and this capacity is expected to come online in Q4FY24 with a revenue

potential of ₹1000 crore. The product is currently under patent with IFFCO and the company has signed a licensing agreement with IFFCO under which they can manufacture nano urea using their technology. In India, urea dosage per acre is equal to 1 bag which is 45 kg to achieve

the desired functionality. On the other hand, a similar performance can be achieved with almost a 500ml bottle of nano urea.

•The Government of India(GoI) has to give a subsidy of almost ₹2,50,000 crore which is a significant cost to the GoI. Conventional urea is

imported to the tune of 9 million tonnes of urea. The GoI is promoting nano urea aggressively to reduce their subsidy cost on conventional urea and going forward they will stop importing conventional urea.

•Conventional urea is priced at around ₹267/kg while Nano urea is priced at ₹225/kg. Though there is almost a 15% price differential between these 2 products, it will be difficult to market nano urea to the farmers as they have been using conventional urea for a very long time

•As a part of the marketing initiative for nano urea, there have been significant trials and demonstrations which have been going on at the field level to show the benefits of nano urea over conventional urea and how it will help in cost reduction for farmers. The shift to nano

urea will mostly take 2-3 years or more going forward.

•Conventional urea contains around 46% nitrogen while a nano urea bottle will contain around 4% nitrogen for the same functionality. When the farmer uses conventional urea, part of the nitrogen goes into the soil and the

remaining goes into the air. Out of the portion which goes into the soil, only a part of it is absorbed into the roots and the remaining is sent back into the air. The nano urea bottle will be sprayed directly on the leaves of the plant which will result in the required

absorption of nitrogen by the leaves which is not the case with conventional urea. Though nano urea has a lot of benefits over conventional urea it won’t replace conventional urea completely. Going forward, nano urea and conventional urea will be used in the ratio 1:1 where

nano-urea will be used after crop plantation.

•The company is conducting compatibility trials where it is combining nano urea with its current products so that farmers would be able to spray 2 products at one time without much increase in the spraying cost.

•Mr Amit Shah has recently inaugurated the nano DAP project at the IFFCO campus. The plan of the company would be to enter into nano DAP and other fertilizers along with nano urea. This business is under their subsidiary Meghmani Crop Nutrition Ltd and the company plans to

make it a significant business going forward.

•There have been few fire incidences in the past in both the agrochemicals and pigments division. The company has taken these concerns into account and since the major hazard occurs at the process level, the company has automated

the majority of its processes to avoid human error. The company is working on improving safety measures across both the divisions.

•The company has settled all its insurance claims, none of the past insurance claims of the company has been rejected. The company is currently

trying to assess the loss due to fire which has recently occurred at their pigments plant. The loss right now as guided by the management could be around ₹7-8 crore.

•The promoter shareholding right now is below 50% and the company right now has no plan to take it above 50%.

•The company may plan a demerger of their business going forward.

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