I couldn’t have agreed more with duranvskp…I too raise this in one of my post a few days back.
Here is my two cents on the company
Meghmani plans to achieve 3000 cr revenue (currently 1800 cr) target by next couple of years and has line up 250-300 crore capex, which is likely to be funded through internal accruals. The caustic soda is helping them to generate incremental cash flow at least in near term.
Average EBITDA margin
- Peak Margin (2018): 25%
- Trough Margin (2008): 11%
- Average Margin: 16%-17%
In commodities two aspects are very important one is scale of operations to achieve economies of scale and secondly the vertical integration to mitigate the volatility of input costs.
Meghmani has done some good work on both the above parameters in the recent past and plans to do in next couple of years.
This led to third aspects, the quality of management in managing the business, especially if its a commodity…some benefit can be given there as well
Now coming to projected average margin, I can conservatively assume 15% (the trough margin of 11% in 2008 + increased scale of operations+ vertical integration)
Hence assuming 3000 cr revenue and average EBITDA margin of 15% leading to EBITDA of 450 crores.
Assuming average debt of about 400 crores, Mcap of 2000 crore, the EV comes out to be 2400
As an analyst i have covered broad set of commodities chemical and from that experience i can approximate an 8x-9x EBITDA multiple to commodities companies like MOL.
Hence, the fair value of the company could be - 450*8.5 = 3825 EV
Withe current EV of 2400, there is significant upside from here on.