COMPANY REPORT

January 02, 2019

Mangalam Organics Limited is a Mumbai based company and is a pioneer in the field of Rosin and Terpene Chemicals. The company was founded by Mr. Ramgopal M Dujodwala and has a strong foothold in the pine chemicals Industry through its management who has been in the field for over 50 years. Earlier the company was known as Dujodwala Products Ltd.

Currently, the business of the company involves manufacturing and selling Camphor, Sodium Acetate and allied products, Terpene Chemicals and Synthetics Resins at its units located at Kumbhivali Village, Khopoli, District Raigad, in Maharashtra. Mr. Kamal kumar Dujodwala is the Chairman of the company and his brother, Mr. Pannkaj Dujodwala is the Managing Director of the company. Mangalam Organics Limited is a government recognized export house with customers in Europe, USA, Africa and the Middle East. Mangalam Organics has been certified by DNV for ISO 9001/14001/OHSAS 18001 Certified Company.

CMP – 460, TARGET - 770

INDUSTRY PIONEER Company has strong foothold

in pine chemical industry

CAPABLE MANAGEMENT Management has Strong vision & 50

years of experience of the Industry

NEW SYNERGIES Alliance with DRT to expand its global

reach and to adopt new technologies

FUNDAMENTALLY SOUND Return on Equity and Capital

Employed have doubled in 3 years

ROBUST FINANCIALS Over the years, company has

multiplied its Profits & Revenue

Research Analyst: CA Tanvi Jain

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Final Dividend of Rs. 1 per share

6,10,000 shares at Rs. 230 per share

Description Sept-18 June-18

Promoters 49.58 49.58

Corporate Bodies 1.43 0.79

Public & Others 48.99 49.63

Stock Insights Stock Statistics BSE Code 514418 EPS 43.69 Industry Chemicals Book Value 91.60 Market Cap. (in cr.) 394.35 P/E ratio 10.54 O/s Shares (No.) 85.64 lakhs Industry P/E 22.98 Face Value 10 Debt/Equity 0.65 52 week High/Low 156.10/564.00 Return on Equity 26.74

DIVIDEND

BUYBACK OF SHARES

Company’s gifts for Shareholders during FY 2017-18

Non Institutions,

50.42%

Promoters, 49.48%

Share Holding Pattern (%)

Non Institutions Promoters

•M/s Allied Colloids1981

•M/s Dujodwala Products Limited1993

•M/s Mangalam Organics Limited2013

GOING THROUGH THE PAGES

OF HISTORY

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Company’s product range is divided into two categories namely Terpene & Synthetic resins,of which approximately 90% of the revenue comes from Terpene Chemicals.

TERPENES

Company manufacturers a wide range of products under the Terpenes Segment of which Camphor, Dipentene and Sodium Acetate are the primary products.

I. Camphor is their primary product contributing 80% of Terpene sales. Initially camphor was sold by the company as a commodity but recently company has ventured in to marketting and distribution of camphor as room freshner and puja ingredient. Camphor is a naturally derived product that completely burns off with no residue and is manufactured from Pinene, which is a natural product extracted from the Pine Tree. The product comes in three grades as per their application namely:

Technical Grade –It is burnt as offering in Hindu Prayers

A Grade- Pharmaceutical formulations

Fluffy Grade- It is used to make Camphor Slabs

Company has three registered brands for retail purposes:

“Mangalam” – Camphor tablets for pious purposes

“CamPure” – Home care products such as Camphor Cone, Camphor Sticks, Camphor Air Purifier

“Cam+” – Healthcare products such as Pain Relief Spray, Pain Balm, Nasal Inhaler

II. Dipentene is a by-product in the manufacturing and is used as a solvent in the paint industry. Demand for Dipentene grows in line with the demand for paint. Dipentene is also gaining interest in the export market as a substitute for “Limonene” as supply shortages of Limonene are acute. Company is also in the process of providing various grades of this material

Products

Terpenses

Camphor

Technical Grade

A Grade Fluffy Grade

DipenteneSodium Acetate

Synthetic Resins

Alkyl Phenolic resins

Alkyl Phenolic resins 1

Alkyl Phenolic resins 2

Sodium acetate

Resin Esters

Penta Ester Gum

Glycerol Ester Gum

PRODUCT PROFILE

Contributes for

80% of total

revenue

90%

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III. Sodium Acetate is a by-product and is used as a dye intermediate by textile and dye manufacturers. It has wide range of application in the leather tanning industries and is exported to Europe.

IV. Camphene is used in Flavours & Fragrances, Pharmaceuticals and Coatings

V. Isobrnyl Acetate

VI. Camphor oil

VII. Pine oil 870 & 880

VIII. Pine Tar

SYNTHETIC RESINS

Company manufactures three types of synthetic resins:

I. Terpene Phenolic Resin is made from turpentine and phenol. It features a high softening point , light color, close distribution of molecular weight, superior tackifying ability , heat-resistance and extensive solvency. It is widely used in all kinds of solvent adhesive, dismodule type of CR adhesive, adhesive tape and sole adhesive of high grade shoes.

II. Alkyl Phenolic Resin comes in two types:

Alkyl Phenolic Resin 1 - It is used in manufacturing of Neoprene Rubber Based Adhesives

Alkyl Phenolic Resin 2 -It is used as a vulcanizing agent during the manufacturing of tyres, conveyor belts,

cone belts, industrial tubing, cable etc.

III. Rosin Esters – This resin comes in two categories :

Penta Ester Gum–It is used in the manufacturing of Hot Melt Adhesives, Pressure Sensitive Adhesives and

Solvent Based Adhesives.

Glycerol Ester Gum–It is used in the manufacturing of Copal varnish, road marking and interior paint. When

modified with a suitable drying oil, it may be used as in anticorrosive aluminum paints. Food Grade Ester

Gum is also used in Chewing Gum.

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Mangalam Organics has Terpenes and Synthetic Resins as its two primary segments. Both segments of the Company have performed well in F.Y. 2017-18. Company has achieved Net Sales Turnover of Rs. 244.24 Cr. with a Profit after Tax of Rs. 14.32 Cr. The company has recorded a growth of 200% in its PAT from previous year 2016-17. Growth in PAT is totally driven by improvement in operations and improvement in margins.In addition to this, the Company has repaid a major chunk of its its term loans and is turning to be a debt free company in the near future.Consequently, the interest coverage ratio of the company has multiplied 4 times ,from 1.66 times in FY 2017 to 8.18 times in FY 2018.Short receivable cycle of the debtors speaks volumes about the company’s efficiency in receiving timely payment from its debtors.The company has maintained a debtor receivable cycle of approx 30 days from past three years.The company has also reduced its creditor repayment cycle from 40 days to 28 days,enhancing supplier’s confidence for timely payment. (Key Financial statements and Highlights given in the appendix)

QUARTERLY FINANCIAL RESULTS Mangalam organics Ltd. has reported robust set of numbers for the last quarter ended Sept-2018.Net Sales rose 53.32% to Rs 109.09 crore in the quarter ended September 2018 as against Rs 71.15 crore during the previous quarter ended September 2017. Net profit of Mangalam Organics rose 262.70% to Rs 18.57 crore in the quarter as against Rs 5.12 crore for the same period last year.On a Q-o-Q basis the Adjusted EPS increased from Rs. 14.10 per share in June-18 quarter to Rs. 21.69 per share for the quarter under review.Moreover,the Profit margins of the company has doubled over the year depicting strength in company’s operating efficiency.In addition to this the net profit of the company for the Half year ended Sept-2018 is Rs. 34.16 cr, which is almost twice the profits for the financial year ended 2017-18.

Particulars Sep-18 Jun-18 Q on Q Var% Sept-17 Y on Y Var%

Net Sales 109.09 87.71 24.37 71.15 53.32

Total Exp. 89.01 70.99 25.38 64.56 37.87

PAT 18.57 12.07 53.85 5.12 262.68

PBIDTM% 19.57 19.37 1.03 9.66 102.59

PATM% 17.03 13.76 23.76 7.20 136.53

(in Rs. Crore)

FINANCIAL PERFORMANCE

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Adj. EPS(Rs) 21.69 14.10 53.83 5.66 283.22

DEEP INSIGHT OF THE COMPANY

Company’s Cash Flow from Operations and Free Cash Flows have been increasing ever since 2016 implying that the company is very strong with its operating margins and is internally generating cash for its future capital expenditure.

The Debt Equity ratio of the company has decreased from 1.51 times in FY 2015-16 to 0.65 in FY 2017-18 indicating that the company is striving to become debt-free in coming times. The company has repaid its long term borrowings during the year. Earnings per share of the Company is highest in past 5 quarters at Rs. 21.69 per share. Company has delivered high earnings over the years.

It has received an amount of approx. Rs. Four Crore Sixty Six Lakhs on 25th October, 2018 towards settlement of claim for fire occurred in Companies Resin plant in June-2015. This claim amount will be added in profits of the Company and to that extent profit will be more in Q3 of FY 2019.

11.74 cr 21.11 cr 24.71 cr

-9.02 cr 15.96 cr 16.06 cr

The TTM PE of the company is trailing much below the industrial PE of 23.62 times.The PE of the company is 11.19 times. The attractive PE multiple of the company is a green flag to its investors.

Industrial PE - 23.62

TTM PE - 11.19

2017

2018

2016

Operating Cash Flows

Free Cash Flows

5.664.22 3.27

14.1

21.69

0

5

10

15

20

25

Sep-17 Dec-17 Mar-18 Jun-18 Sep-18

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Return on Assets and Return on Equity have shifted from negative to positive territory over the years depicting a strong turn-around in its working. Return on equity for the FY 2016, 2017 and 2018 was -21.87 cr, 10.86 cr and 26.74 cr respectively.

Return on capital Employed is highest at 21.13% in the last five half yearly periods. The company has displayed increase in efficiency by generating higher profit on overall capital (debt and equity).

Robust growth over the years in its profit margins speaks volume about the company’s efficient working and operations. The Profit after tax margins have increased from -5.48% to +5.92% from FY 2016 to FY 2018 and the same goes with its Cash Profit Margins and EBIT margins.

26.74 cr

-21.87 cr

11.36 cr

-6.64 cr

15.74 cr 11.08 cr -0.76 cr 7.32 cr 21.13 cr

1.6

-5.4

8

2.4

6 5.9

2

4.8

1

-0.4

6

3.7

8

8.5

8

3.9

4

-2.6

7

5.1

5 8.1

7

2 0 1 5 2 0 1 6 2 0 1 7 2 0 1 8

PAT Margins EBIT Margins Cash Profit Margins

It is able to sell its inventory faster over the years as the Inventory Turnover Ratio of the company is highest at 8.93 times in the last four half year periods starting from March-2017 to September 2018.

•5.24 timesMarch-17 :

•5.15 timesSept-17 :

•7.20 timesMarch-18 :

•8.93 timesSept-18 :

2014 2015 2016 2017 2018

2018

2018

RETURN ON EQUITY RETURN ON ASSETS

2016 2016

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Camphor prices and production in near future

China the leading producer of Camphor has reduced its camphor production due to shortage in raw material and expensive labour as less people are ready to work in forest. Consequently, China which was net exporter of terpene and resin has now become net importer. As a result the industry has now become a level playing field for the companies across the globe.

Camphor in India

Camphor as an industry in India is at a very early stage of growth. As in India 98% of camphor is used for Pooja and religious purpose whereas in China 98% of camphor is used for hygiene and medical purpose .Therefore, there is a huge Delta for the company to grow and expand in home care and medical care.

Capacity Expansion Plans

Company is at around 75% utilisation and no major spending on capex is likely to incur in near future. However, capex would be made in de-bottlenecking plant which will further increase the company’s production capacity by 10% to 15%.

Upcoming Financial Performance

Current performance of the company is sustainable. Infact third quarter have been historically strong quarters for the company and this time it won’t be different too, as demand for camphor is very strong in festive season in India.

Future Performance of retail business

Earlier company didn’t sell camphor less than one truck load i.e. below 16 tons.However, now company delivers 100 grams of camphor in form of value added products at door step which has resulted in quite higher margins.

Alliance with DRT

Company has tied up with French major DRT in February, 18 to supply its products to global markets. DRT has been in the industry since 1932 with a market capitalisation of 2 billion Euro. The alliance will only open doors for company in global markets as DRT supplies to major consumers like Michelin, Pirelli, alike and it exports to more than 50 countries and has big client base across the globe. It will also provide technical support to the company to manufacture the products as per global standards.

FUTURE

PROSPECTS

OF

THE

COMPANY

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THE ROAD AHEAD Over the years, Mangalam Organics has successfully increased its production, augmented its sales reach and maintained its superior quality.

Going forward the company will continue to expand and innovate to meet the growing requirements of its valued customers.

It is headed by right set of people who have very good vision and experience of industry. Further, the hike in stake by the promoters represents their positive outlook towards the company.

Company has employed highly qualified and trained personnel to monitor, maintain and grow its manufacturing and sales activities.

Company’s focus on value added products and tie up with DRT will be a game changer and will take the company to next league in retail business as well.

Moreover, the company is expected to capture big space in next 2 to 3 years for camphor based products .

At present, Mangalam organics is in a very sweet spot where company will not only see earnings growth but will also see expansion in its PE multiple.

FINANCIAL SNAPSHOT OF THE COMPANY

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BALANCE SHEET FINANCIAL HIGHLIGHTS & KEY RATIOS

(in Rs. Crore) BALANCE SHEET Mar-18 Mar-17 Mar-16 Mar-15 Mar-14

EQUITY AND LIABILITIES

Shareholder's Funds 61.21 46.89 42.12 52.46 51.00

Loans(Short + Long) 39.94 50.27 63.76 70.34 54.75

Other Liabilities 28.04 28.21 37.26 45.52 52.23

129.20 125.37 143.13 168.31 157.98

ASSETS

Fixed Assets 33.92 32.31 34.77 47.75 49.81

Loans &Advances(Short +Long ) 14.26 17.26 16.31 22.66 10.40

Current Assets 81.01 75.80 92.05 97.90 97.77

129.20 125.37 143.13 168.31 157.98

KEY FINANCIAL RATIOS

Debt/Equity(x) 0.65 1.07 1.51 1.34 1.07

Current Ratio(x) 1.41 1.39 1.58 1.2 1.11

Return on Assets (%) 11.36 3.6 -6.64 2.58 3.21

Return on Equity (%) 26.74 10.86 -21.87 8.12 9.84

Return on Capital Employed (%) 21.13 7.32 -0.76 11.08 15.74

Book Value 67.62 51.80 46.52 57.95 56.43

CASH FLOW STATEMENT HIGHLIGHTS (in Rs. Crore)

DESCRIPTION Mar-18 Mar-17 Mar-16 Mar-15 Mar-14

Cash From Operating Activities 24.71 21.11 11.74 -0.05 -4.94

Cash Flow from Investing Activities -6.71 -2.47 -1.63 -8.05 -2.54

Cash from Financing Activities -12.90 -17.96 -12.17 8.62 7.83

Net Cash Inflow / Outflow 5.10 0.69 -2.06 0.52 0.35

Opening Cash & Cash Equivalents 1.08 0.40 5.17 4.65 4.29

Closing Cash & Cash Equivalent 6.18 1.08 3.10 5.17 4.65

APPENDIX: FINANCIAL HIGHLIGHTS& KEY RATIOS

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PROFIT & LOSS FINANCIAL HIGHLIGHTS & KEY RATIOS (in Rs. Crore)

DESCRIPTION Mar-18 Mar-17 Mar-16 Mar-15 Mar-14

Net Sales 240.83 176.51 169.63 239.1 231.66

Less: Expenditure 215.62 164.46 196.44 223.84 213.1

Operating Profit (Net sales-Exp.) 25.21 12.05 -26.81 15.26 18.56

Other Income 1.25 0.68 31.24 3.57 1.17

Profit before Interest Depreciation and Tax 26.46 12.73 4.43 18.83 19.73

Interest 2.56 4.46 6.44 5.81 7.9

Depreciation 5.5 5.3 5.3 6.17 4.68

Exceptional Income / Expenses 0.00 0.00 0.00 0.00 0.00

Tax Expense 3.93 -1.87 3.03 2.64 2.37

Profit After Tax/Net Profit 14.47 4.84 -10.34 4.21 4.78

Earnings Per Share 15.97 5.34 -11.42 4.64 5.29

GROWTH YoY %

Sales Growth % 36.44 4.05 -29.05 3.21 10.56

PAT Growth % 199.06 146.74 -346.15 -12.18 37.64

KEY FINANCIAL RATIOS

Operating Profit % 10.83 6.47 2.35 7.16 7.81

Net Profit Margin % 5.92 2.46 -5.48 1.6 1.89

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HEM SECURITIES LIMITED

MEMBER-BSE,CDSL, SEBI REGISTERED CATEGORY I MERCHANT BANKER Sebi Registration No For Research Analyst: INH100002250

MUMBAI OFFICE: 904, A WING, 9 FLOOR, NAMAN MIDTOWN, SENAPATI BAPAT MARG, PRABHADEVI STATION, LOWER PAREL, MUMBAI-400 013 PHONE- +912249060000

JAIPUR OFFICE:: 203-204, JAIPUR TOWERS, M I ROAD, JAIPUR-302001

PHONE- 0091 1414051000

GROUP COMPANIES

HEM FINLEASE PRIVATE LIMITED MEMBER-NSE

HEM MULTI COMMODITIES PRIVATE LIMITED MEMBER-NCDEX, MCX

HEM FINANCIAL SERVICES LIMITED NBFC REGISTERED WITH RBI

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Disclosure of Interest Statement:

1. Analyst Ownership of the stock No

2. Hem & its group companies ownership of stock Yes

3. Hem & its group companies direct ownership of stock Yes

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