Vinati Organics (VINORG)

CMP: | 1937 Target: | 2300 (19%) Target Period: 12 months BUY

August 2, 2021

Newer businesses to drive growth ahead…

About the stock: Vinati Organics is a leading manufacturer of specialty chemical
and organic intermediaries with global market leadership in its two key products- 2-
Acrylamido 2 Methylpropane Sulphonic Acid (ATBS) and Isobutyl Benzene (IBB).

Result Update
Starting with IBB and subsequent forays into IB, ATBS, Butyl phenols, the company Particulars
is now moving towards antioxidants.
Particular Amount
 The company has two manufacturing facilities at Mahad and Lote Market cap (₹ Crore) 19,908
FY21 Total Debt (₹ Crore) 2
 In terms of revenue contribution, ATBS constitutes ~40-50% of overall
FY21 Cash & Inv (₹ Crore) 188
revenue followed by IBB of 20-30% while the rest is from others segments
such as IB, Butyl phenols and derivatives EV (₹ Crore) 19,723
52 Week H/L 2132/963
Equity Capital (₹ Crore) 10.3
Q1FY22 Results: Revenue was above our estimates while PAT came in lower than
Face Value (₹) 1
expected owing to higher RMAT cost.
Shareholding pattern
 Reported revenue growth of 67% YoY to | 386.4 crore, led by strong growth
in % Sept-20 Dec-20 Mar-21 Jun-21
from ATBS segment
Promoter 74.1 74.1 74.1 74.1

 Gross margins declined 1880 bps YoY to ~44.6% while EBITDA margin DII 6.6 6.7 7.3 6.8

contracted 1570 bps YoY to 26.3%, due to higher RMAT (up 152% YoY) and FII 3.9 3.7 3.5 4.4

other operating cost (+61% YoY) Others 15.4 15.6 15.2 14.7

 EBITDA was up 4% YoY to | 101.5 crore Price Chart

60,000 2500

ICICI Securities – Retail Equity Research

2000
 PAT increased 12% YoY to | 80.9 crore owing to lower-than-expected 40,000
1500
operational performance 1000
20,000
500
What should investors do? The stock appreciated at 33% CAGR in last three years 0 0

Jul-19
Jul-18

Jul-20

Jul-21
Nov-18

Nov-19

Nov-20
Mar-21
Mar-19

Mar-20
 We retain BUY rating on the back of better growth outlook from ATBS and
newer products such as Butyl phenols and antioxidant BSE Sensex (LHS)
Vinati Organics (RHS)
Target Price and Valuation: We value Vinati Organics at 50x P/E FY23E EPS to
arrive at a revised target price of | 2300/share (earlier | 2220/share). Recent event & key risks
 Working on the newer molecules
to expand business portfolio
Key triggers for future price performance:
 Upcoming butyl phenol capex to aid revenue growth further  Key Risk: (i) Lower oil prices to
affect ATBS segment revenue
 Vertical integration into antioxidant expands revenue visibility growth, (ii) Delay in
commercialisation of newer
 Strong demand from ATBS likely to support group operating margins project to curtail growth
Research Analyst
Mitesh Shah
Alternate Stock Idea: Apart from Vinati Organics, in our chemical coverage we also
[email protected]
like Neogen Chemical
Dhavan Shah
 Trigger for Neogen Chemical’s future revenue growth would be increasing [email protected]
CRAMS opportunity Siddhant Khandekar
 BUY with a target price of | 1085 [email protected]

Key Financial Summary

5 year CAGR 2 year CAGR
(₹ Crore) FY19 FY20 FY21 FY22E FY23E
(FY16-21) (FY21-23E)
Net Revenue 1,127.9 1,028.9 954.3 8.6% 1,458.4 1,730.5 34.7%
EBITDA 423.4 413.9 352.5 11.2% 522.1 614.3 32.0%
EBITDA Margins (%) 37.5% 40.2% 36.9% 35.8% 35.5%
Adj.PAT 282.5 333.8 269.3 15.4% 402.4 472.6 32.5%
Adj. EPS (₹) 27.5 32.5 26.2 39.2 46.0
EV/EBITDA 46.8x 47.4x 55.9x 37.9x 31.7x
P/E 70.5x 59.6x 73.9x 49.5x 42.1x
ROE (%) 26.9 26.1 17.4 21.6 21.1
ROCE (%) 40.4 33.3 21.7 28.8 28.1
Source: Company, ICICI Direct Research
 Result Update | Vinati Organics ICICI Direct Research

Key takeaways of recent quarter & conference call highlight

Q1FY22 Results: Strong growth from ATBS led topline performance
 Strong growth from ATBS continues: The revenue share from ATBS
remains 50% for the quarter followed by 15% from IBB and rest from others
such as IB and Butyl phenols. The volume growth for ATBS was up ~25%
YoY for the quarter, which lifted overall topline performance. Further, higher
utilisation for butyl phenol also led to better revenue growth for the quarter

 Higher RMAT impacted OPM: Increase in the phenol and acrylonitrile prices
affected gross margins for the quarter. Further, higher freight cost also
dragged operational performance. OPM for the quarter contracted 1570 bps
YoY to 26.3% (lowest in 13 quarters)

Q1FY22 Earnings Conference Call highlights

ATBS:
 The volume growth remained strong during the quarter. It is expecting to
do sales volumes of around 30,000-32,000 MT for the year

 ATBS capacity is likely to be optimum utilised over the next two-three years

 Acrylonitrile prices have been down by 20-25% over the last quarter. This
can improve the margin profile of the segment given that global ATBS
market is short of supply at present
IBB:
 There has been a drop in the demand for IBB owing to poor growth from
Ibuprofen

 Due to flood in Mahad, IBB plant is likely to be shut for around 25 days

 The revenue share from IBB remained at 15% for this quarter

Butyl phenols:
 Expecting to generate revenues of ~| 200 crore against earlier guidance of
| 250 crore for this year

 Capex of | 210 crore has been delayed by around one quarter owing to
Covid-19 related challenges. It is expected to get commissioned by the end
of this fiscal

Other updates:
 Veeral Additives acquisition is likely to get completed by the end of this
fiscal

 The R&D team is working on 10 molecules, which should expand revenue

visibility further

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 Result Update | Vinati Organics ICICI Direct Research

Financial story in charts….

Exhibit 1: Better growth visibility from ongoing capex to aid topline (| crore)

1,730
1,458
1,128
1,029 954
641 730

FY17 FY18 FY19 FY20 FY21 FY22E FY23E

Source: Company, ICICI Direct Research

Exhibit 2: EBITDA (| crore) and OPM (%) trend

700 45.0%
40.2%
37.5% 36.9% 35.5%
35.8% 40.0%
600 33.9%
35.0%
500
27.1% 30.0%
400 25.0%

300 20.0%
15.0%
200
10.0%
100
5.0%
217 198 423 414 353 522 614
0 0.0%
FY17 FY18 FY19 FY20 FY21 FY22E FY23E
EBITDA OPM%

Source: Company, ICICI Direct Research

Exhibit 3: PAT growth trend (| crore)

500 32.4% 27.3% 35.0%
450 28.2% 27.6% 30.0%
400 25.0%
350 21.9% 25.0%
19.8%
300 20.0%
250
200 15.0%

150 10.0%
100
5.0%
50
140 144 282 334 269 402 473
0 0.0%
FY17 FY18 FY19 FY20 FY21 FY22E FY23E
Adjusted PAT ANPM%

Source: Company, ICICI Direct Research

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 Result Update | Vinati Organics ICICI Direct Research

Financial summary

Exhibit 4: Profit and loss statement | crore Exhibit 5: Cash flow statement | crore
Year end March FY19 FY20 FY21 FY22E FY23E Year end March FY19 FY20 FY21 FY22E FY23E
Total Operating Income 1,127.9 1,028.9 954.3 1,458.4 1,730.5 PBT & Extraordinary 425.2 424.7 335.2 536.6 630.2
Growth (%) 54.6 -8.8 -7.3 52.8 18.7 Add: Depreciation 27.4 33.2 42.9 48.8 59.7
Raw Material Expenses 525.1 428.7 387.7 659.2 778.7 After other adjustments
Employee Cost 54.2 64.3 72.6 87.5 103.8 (Inc) / Dec in Working Capital -113.8 81.1 -87.4 -173.1 -103.5
Other Expenses 125.2 122.0 141.4 189.6 233.6 Taxes -126.2 -100.5 -60.7 -134.1 -157.5
Total Operating Expenditure 704.5 615.0 601.7 936.3 1,116.2 Others -12.3 -22.5 -11.0 0.0 0.0
EBITDA 423.4 413.9 352.5 522.1 614.3 CF from operating activities 200.4 415.9 219.0 278.2 428.8
Growth (%) 114.3 -2.2 -14.8 48.1 17.7 Purchase of Fixed Assets -206.1 -137.9 -83.3 -260.0 -50.0
Other Income 30.2 45.0 25.8 63.3 75.6 Others -36.7 -59.5 -115.0 80.9 0.0
Depreciation 27.4 33.2 42.9 48.8 59.7 CF from investing activities -242.7 -197.5 -198.3 -179.1 -50.0
Net Interest Exp. 0.9 1.1 0.2 0.0 0.0 Issue/(Buy back) of Equity 0.0 0.0 0.0 0.0 0.0
Other exceptional items 0.0 0.0 0.0 0.0 0.0 Inc/(dec) in loan funds 0.0 0.0 1.7 -2.0 0.0
PBT 425.2 424.7 335.2 536.6 630.2 Dividned paid & dividend tax -27.8 -104.6 -5.5 -80.5 -94.5
Total Tax 142.8 90.8 65.9 134.1 157.5 Others -12.5 -4.4 0.8 0.0 0.0
PAT 282.5 333.8 269.3 402.4 472.6 CF from financing activities -40.3 -109.1 -3.1 -82.5 -94.5
Adjusted PAT 282.5 333.8 269.3 402.4 472.6 Net cash flow -82.6 109.4 17.6 16.6 284.3
Growth (%) 95.9 18.2 -19.3 49.4 17.4 Opening cash 5.2 3.8 53.7 6.9 23.4
Adjusted EPS (₹) 27.5 32.5 26.2 39.2 46.0 Closing cash 3.8 53.7 6.9 23.4 307.7
Source: Company, ICICI Direct Research Source: Company, ICICI Direct Research

Exhibit 6: Balance sheet | crore Exhibit 7: Key ratios

Year end March FY19 FY20 FY21 FY22E FY23E Year end March FY19 FY20 FY21 FY22E FY23E
Liabilities Per share data (₹)
Equity Capital 10.3 10.3 10.3 10.3 10.3 Adj. EPS 27.5 32.5 26.2 39.2 46.0
Reserves & Surplus 1,041.0 1,269.1 1,533.1 1,855.1 2,233.2 Adj. Cash EPS 30.1 35.7 30.4 43.9 51.8
Total Shareholders Funds 1,051.3 1,279.4 1,543.4 1,865.4 2,243.5 BV 102.3 124.5 150.2 181.5 218.3
Minority Interest 0.0 0.0 0.0 0.0 0.0 DPS 7.0 5.5 6.0 7.8 9.2
Long Term Borrowings 0.0 0.0 0.0 0.0 0.0 Operating Ratios (%)
Net Deferred Tax liability 84.6 70.5 77.9 77.9 77.9 Gross Margin (%) 53.4 58.3 59.4 54.8 55.0
Other long term liabilities 2.9 4.1 6.0 9.2 10.9 EBITDA Margin (%) 37.5 40.2 36.9 35.8 35.5
Long term provisions 0.0 0.0 0.0 0.0 0.0 PAT Margin (%) 25.0 32.4 28.2 27.6 27.3
Current Liabilities and Provisions Debtor Days 80 73 106 95 95
Short term borrowings 3.7 0.4 2.0 0.0 0.0 Inventory Days 30 34 47 50 50
Trade Payables 53.1 55.7 66.6 99.9 118.5
Creditor Days 18 20 25 25 25
Other Current Liabilities 28.8 28.6 33.1 50.6 60.0
Cash Conversion Cycle 93 86 127 120 120
Short Term Provisions 3.2 4.4 4.7 7.2 8.5
Return Ratios (%)
Total Current Liabilities 88.8 89.0 106.4 157.7 187.1
Return on Assets (%) 23.0 23.1 15.5 19.1 18.8
Total Liabilities 1,227.6 1,443.0 1,733.8 2,110.2 2,519.4
RoCE (%) 40.4 33.3 21.7 28.8 28.1
Assets
RoE (%) 26.9 26.1 17.4 21.6 21.1
Net Block 474.5 750.8 756.8 1,023.8 1,014.1
Solvency
Capital Work in Progress 191.2 31.0 55.8 0.0 0.0
Total Debt / Equity 0.0 0.0 0.0 0.0 0.0
Intangible assets under devl. 0.0 0.0 0.0 0.0 0.0
Interest Coverage 453.4 390.6 ### NM NM
Goodwill on Consolidation 0.0 0.0 0.0 0.0 0.0
Current Ratio 6.0 7.2 6.2 5.1 6.5
Non-current investments 0.0 0.0 107.8 107.8 107.8
Quick Ratio 4.9 6.2 5.0 3.9 5.2
Deferred tax assets 0.0 0.0 0.0 0.0 0.0
Long term loans and advances 3.2 3.1 133.1 133.1 133.1
Valuation Ratios (x)
Other Non Current Assets 27.7 15.6 25.2 38.5 45.7 EV/EBITDA 46.8 47.4 55.9 37.9 31.7
Current Assets, Loans & Advances P/E 70.5 59.6 73.9 49.5 42.1
Current Investments 96.5 227.4 180.9 100.0 100.0 P/B 18.9 15.6 12.9 10.7 8.9
Inventories 92.4 93.2 121.9 199.8 237.1 EV/Sales 17.6 19.1 20.7 13.6 11.3
Source: Company, ICICI Direct Research
Sundry Debtors 244.0 201.8 277.2 379.6 450.4
Cash and Bank 3.8 53.7 6.9 23.4 307.7
Loans and Advances 0.1 0.3 0.1 0.1 0.1
Other Current assets 94.4 66.2 68.1 104.1 123.5
Current Assets 531.1 642.6 655.1 807.0 1,218.8
Total Assets 1,227.6 1,443.0 1,733.8 2,110.2 2,519.4
Source: Company, ICICI Direct Research

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 Result Update | Vinati Organics ICICI Direct Research

RATING RATIONALE
ICICI Direct endeavors to provide objective opinions and recommendations. ICICI Direct assigns ratings to its
stocks according to their notional target price vs. current market price and then categorizes them as Buy, Hold,
Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined
as the analysts' valuation for a stock
Buy: >15%
Hold: -5% to 15%;
Reduce: -15% to -5%;
Sell: <-15%

Pankaj Pandey Head – Research [email protected]

ICICI Direct Research Desk,

ICICI Securities Limited,
1st Floor, Akruti Trade Centre,
Road No 7, MIDC,
Andheri (East)
Mumbai – 400 093
[email protected]

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 Result Update | Vinati Organics ICICI Direct Research

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research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in
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ICICI Securities | Retail Research 6