Next-gen Fertilisers Drive Meghmani's Boom

IN DECEMBER 2021, Ahmedabad-based agrochemicals and pigments specialist Meghmani Organics Ltd. (MOL) acquired a small company, Kilburn Chemicals, located in the coastal industrial belt of Dahej. The acquisition was to help Meghmani foray into the manufacturing of titanium dioxide (TiO2), a key chemical used in paints, coatings, plastics, papers, inks, foods, medicines and toothpastes.

Growth prospects looked bright, with demand for the chemical projected to grow at a 4.2% compound annual growth rate (CAGR) to 3,29,000 metric tonnes per annum (MTPA) by 2025, mainly due to high demand for paints. The product would also reduce India's heavy dependence on the import (around 73%) of TiO2.

MOL commissioned the first phase of the TiO2 plant with 16,500 MTPA in January 2023. The second phase of the expansion plan, which includes captive power plants, is set to double the capacity to 33,000 MTPA by Q3FY24. Post commissioning of Phase II with ₹375 crore investment, MOL will be one of the major manufacturers of TiO2 in the country with nearly 29% capacity wise market share.

"The rationales of this acquisition were the availability of inorganic opportunity at Dahej, the chemical hub of Gujarat where MOL has been present for decades, along with the locational advantage to source the raw material from the nearby port, and the availability of land for future expansion," says Jayanti M. Patel, executive chairman, Meghmani.

It was a key step in Meghmani's journey as an agrochemical major. Recently, it also forayed into nano urea fertiliser, the first private company in India to do so. A next-generation liquid fertiliser, nano urea increases the productivity of a crop, its nutritional quality, and is an environmentally safe product. Meghmani entered into a licensing agreement with IFFCO, which has domestically developed and patented a technology to make nano urea.

The fertiliser will be manufactured through wholly owned subsidiary Meghmani Crop Nutrition Ltd. (MCNL), which will invest ₹150 crore to set up a plant in Gujarat with an annual capacity of five crore bottles (500 ml) per year. The plant will commence commercial production from Q4FY24.

India's urea demand is currently around 35 million metric tonnes per annum (MMTPA), of which nearly 29 MMTPA is produced domestically. The government has set a target to eliminate the country's dependence on urea imports by 2025. "Our foray into liquid fertilisers amplifies the growth strategy of the company in the crop nutrition space, which has a huge potential," says Patel, a chemical engineer with nearly five decades of experience.

Meghmani has grown four fold in the last three years — from ₹699 crore in net income in FY20 to ₹2,498 crore in FY22. Profit after tax (PAT) has gone up from ₹149 crore to ₹304 crore. "Over the years we maintained prudent financial risk profile with return on capital employed (ROCE) and return on equity (ROE) of 15% plus and generated healthy cash flow, translating into improved leverage ratio of less than 0.5. Our strong business model has led revenue, EBITDA and PAT grow at a CAGR of 19%, 22% and 41%, respectively, during FY18-22," says Patel.

Starting off as a pigment manufacturer under Gujarat Industries in 1986, MOL transformed into Meghmani Organics in 1995. Currently, it is among the top three global phthalocyanine-based pigment players with a 20% market share in FY22, against 7% in FY16. Phthalocyanine-based pigments are used in printing inks, paints, coatings, textiles, leather, paper and rubber. MOL has three vertically integrated manufacturing units.

In 1995, the company diversified into agrochemicals and is now among the top 10 manufacturers in the country with more than 40 brands and four backward integrated manufacturing facilities in Gujarat. Its products are sold in 80 countries, including Brazil, U.S. and Latin America, besides Asia, Europe and Africa. Overall, it has a 400-plus customer base in pigments and agrochemicals across industries. Agrochemicals constitute 75% of its overall revenue.

"MOL has been operating in multiple chemistries in pigments and agrochemicals, which are not easily replicable. The manufacturing units are vertically integrated to provide margin insulation," says Patel.

In the last three years, MOL has spent around ₹400 crore towards capacity expansion, enhancing R&D capabilities and product registrations in domestic and global markets for agrochemicals and pigments. It has an ongoing business expansion plan with capex commitment of ₹1,000 crore up to FY25, which will be largely funded through a combination of internal accruals and low-cost debt.

"Net cash accruals of ₹275-350 crore per annum over the next two fiscals will be sufficient to meet modest repayment obligations of ₹62 crore and ₹75 crore over the corresponding period, and also fund part of the capex requirement," Crisil Ratings said in a November 2022 report on Meghmani.

The company will manufacture high-value new-age agrochemicals in the newly commissioned multi-product plant at Dahej. "With this we have entered the competitive landscape with MNCs, but will have the first-mover advantage in many products. We have created infrastructure in agrochemicals in the last few years, which will help in sustainable supply to global customers and help take advantage of the China+ 1 strategy," says Patel.

The company is looking to introduce four-five new products in the next three years, besides improving processes for existing ones through R&D initiatives. It has also entered into a five-year supply contract worth ₹800 crore with a multinational company. Another plan is to set up a subsidiary in Brazil to tap the growing agrochemicals market there, especially for sugarcane and soyabean.

For now, the road ahead looks promising, and Meghmani is all set to cash in on the same.