This Fertilizer Smallcap Stocks Forays into Crop Nutrition Segment

The growing global population, climate change, and water scarcity problems have joined forces to put a strain on the production of agricultural products globally.

With a growing demand, the need to generate higher crop yields from the existing arable land is rising. This is where fertilizer companies enter the picture.

India stands out as one of the world's largest contributors to the fertilizer industry, with approximately 10% of the country's GDP derived from this sector.

The industry employs around 100 million individuals, a testament to its significant economic and employment impact.

The substantial increase in India's population over the past 25 years has coincided with remarkable growth in the fertilizer sector, aligning with the expansion of the agricultural domain.

Given the escalating demands within the fertilizer industry, market players are actively seeking niche opportunities to carve out their presence.

In this dynamic landscape, Meghmani Organics has strategically entered the Crop Nutrition Segment, capitalizing on a specific market niche.

About Meghmani Organics

Meghmani Organics is an India-based diversified chemicals company.

The company is engaged in manufacturing and selling pigment and agrochemical products.

In the pigment business, the company specializes in green and blue pigments, which have varied end-use applications in printing inks, paints, coatings and plastics.

It has three pigment manufacturing facilities at Vatva, Panoli and Dahej SEZ in the state of Gujarat.

The company also exports its pigments. It manufactures three categories of agrochemical products like pesticide intermediates, technical products, and formulations.

Its agrochemical products include insecticides, herbicides and fungicides.

The company's customer base includes multinational corporations (MNCs) and extends to more than 75 countries globally. It has six multifunctional production facilities located in Gujarat.

Meghmani's Crop Nutrient Leap

Meghmani Crop Nutrition Ltd. (MCNL) is a wholly owned subsidiary of Meghmani Organics, incorporated to become one of the leading manufacturers of crop nutrition products.

Underlining its commitment to innovation, MCNL has entered a licensing agreement with a leading domestic fertilizer manufacturer, leveraging their patented technology for the production of Nano urea (liquid) fertilizer.

A state-of-the-art plant located in Gujarat, has been commissioned with an annual capacity of 50 million Nano urea bottles (500 ml), poised to meet the escalating demand both domestically and internationally.

Playing a pivotal role in aligning with the Government of India's ambitious targets, MCNL is set to contribute significantly to eliminating the country's dependence on urea imports by 2025.

The widespread adoption of Nano Urea by farmers is anticipated to not only enhance crop productivity but also alleviate the Indian Government's subsidy burden on conventional urea.

Nano urea stands out as a revolutionary liquid fertilizer, recognized for its efficacy in improving nutritional quality, boosting crop productivity, and maintaining environmental sustainability.

The company has priced Nano Urea at Rs 225 per 500 ml bottle for the farmers, which is 15% cheaper than the cost of a bag of conventional urea.

Conventional urea is effective 30-40% in delivering nitrogen to plants, while the effectiveness of the nano urea liquid is over 80%

An average 8% increase in yield has been witnessed.

This foray makes Mehmagi Organics the first private player to foray into nano urea fertilizer manufacturing.

What Next?

Looking ahead, Meghmani Crop Nutrition is poised to diversify its product portfolio in the nutrition segment, responding to the increasing global demand.

To facilitate this expansion, the company has allocated a capex of Rs 1.5 billion (bn) to establish a new Nano Urea manufacturing plant.

Expected to be commissioned by Q4 FY24, this facility aims to achieve a total production capacity of 50 million bottles, reinforcing MCNL's commitment to providing innovative and sustainable agricultural solutions.

Notably, the company is venturing into international markets by establishing a subsidiary in Brazil and a representative office in China, aligning with its goal to cater to diverse markets.

In a noteworthy development, last year, Meghmani Organics Limited (MOL) entered the competitive landscape with a multi-purpose product plant, positioning itself against multinational corporations (MNCs) and securing a first-mover advantage.

As either the sole manufacturer in India following MNCs or the second in line for these specialized products, MOL has built a robust infrastructure to sustainably supply global customers.

It also commissioned Titanium Dioxide, a pigments plant last year.

Looking forward, the company remains committed to expansion plans, further enhancing its presence in the global market and solidifying its position as a key player in the agricultural solutions industry.

A Look at the Financials

For the December 2023 quarter, the company reported a 35.9% YoY decline in revenue at Rs 3.5 bn, down from Rs 5.5 bn a year back. While it reported a net loss of Rs 382.3 m, down from net profit of Rs 83.5 m a year back.

Over the years, the company has experienced steady growth in both top-line.

The company reported a revenue of Rs 25.5 bn in FY23, which increased by 2.4% from Rs 24.9 bn in FY22. Revenue has grown at a rate of 15.9% CAGR since FY21.

While revenue scaled at a decent pace, the net profit of the company has saw a degrowth in FY23, from Rs 3 bn in FY22 to Rs 2.4 bn in FY23. These earnings have scaled at the rate of 8.1% CAGR since FY21.

Meghmani Organics Financial Snapshot (2021-23)

Particulars	31-Mar-21	31-Mar-22	31-Mar-23
Revenues (Rs in bn)	16.4	24.9	25.5
Revenue Growth (%)	-	51.8	2.4
Net Profit (Rs in bn)	1.9	3	2.4
Net Profit Margin (%)	11.1	12.2	9.3

Source: Equitymaster

The company intends to broaden its presence in India and to get market share in niche market.

Conclusion

In conclusion, Titanium Dioxide (TiO2) sector in India, is anticipated to witness a robust growth trajectory at a Compound Annual Growth Rate (CAGR) of 4.2%, reaching a capacity of 3,29,000 MTPA by 2025.

The recent capex announcement in the paint sector is poised to further accelerate this expansion, especially considering that approximately 73% of India's TiO2 requirement was previously reliant on imports.

With the impending commissioning, the company will emerge as a key player, contributing significantly to India's TiO2 manufacturing landscape.

Meghmani Organics has established a formidable Pan-India presence across 19 states, fostering an extensive network with over 3,500 distributors and dealers.

With three manufacturing units and 19 warehouses strategically placed across the country, MOL has effectively reached out to approximately 10 million Indian farmers, solidifying its position in the domestic agricultural sector.

On a global scale, the chemical market is projected to achieve substantial revenue, reaching approximately US$ 250-270 bn by 2025, with a commendable CAGR of 5.5-6% from FY20 to FY25.

Notably, Top Indian Chemical Manufacturers are gaining prominence in the global market, driven by the growing preference spurred by the China+1 policy.

This strategic advantage will further bolster the company's standing in the global chemical industry.

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