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<h2>Newer businesses to drive growth ahead…</h2>Promoted by first generation entrepreneur Vinod Saraf, Vinati Organics is a leading manufacturer of specialty chemical and organic intermediaries with global market leadership in its two key products- in 2- Acrylamido 2 Methylpropane Sulfonic Acid (ATBS) and Isobutyl Benzene (IBB).<div class="content-highlight">Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.</div>

Newer businesses to drive growth ahead…Promoted by first generation entrepreneur Vinod Saraf, Vinati Organics is a leading manufacturer of specialty chemical and organic intermediaries with global market leadership in its two key products- in 2- Acrylamido 2 Methylpropane Sulfonic Acid (ATBS) and Isobutyl Benzene (IBB).Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Vinati Organics: Newer Businesses to Drive Growth Ahead

India Equity Value investor, Trivikram Consultants

Prashant Vaishampayan

India Equity Value investor

Picking Long Term Multi-bagger stocks

Trivikram Consultants

Trivikram Consultants is an equity research service founded by Prashant Vaishampayan, a registered Research Analyst with SEBI in India. Prashant has done equity research since 1992.  He worked with Jardine Fleming, SG Securities, UBS and Kotak Securities. Since 2010, he is managing his portfolio and doing outsourced equity research for institutional clients. A team of six professionals helps him in equity research. We focus on pharma, agro-chemicals, auto and auto components, banks and financial services, specialty chemicals and niche manufacturing sectors.   

<ul>
<li>
<a href="https://www.smartkarma.com/entities/4621" target="_blank" data-smartkarma-citation="entities:4621:1">Vinati Organics (VO IN)</a> reported 2QFY19 revenues better than our estimates at Rs 2,528 mn against our estimates of Rs 1,951 mn. This revenue growth was driven by price hike in Acrylamido 2 Methylpropane Sulfonic Acid (ATBS).
</li>
<li>
EBITDA was Rs 953 mn, higher than our estimates of Rs 673 mn and reported EBITDA margins were at 37.7%, 320 bps higher than our estimates and the highest in last 8 quarters.
</li>
<li>
Over FY18-21E, we expect revenues to grow at CAGR 33%. We expect this growth to largely come from ATBS as it has pricing benefit with reduced competition. VO is expanding ATBS capacity to 40,000 TPA from 26,000TPA. This capacity expansion will be completed by April 19 and revenues will start from FY20E. VO has created capacity for Butylphenol, which will start generating revenues from FY20E.
</li>
<li>
We expect this revenue growth to reflect in EBITDA margins and PAT. Over FY18-21E, we expect EBITDA margins and PAT to grow at CAGR 46% and 44% respectively.
</li>
<li>
We have maintained a PE multiple of 25x on the EPS estimate of Rs 74 per share for the year ending September-20E to arrive at the fair value estimate of Rs 1,850 over the next 12 months. At the market price of Rs 1,486 (as on 22/11/2018), the stock represents the upside of 24%
</li>
</ul>
<table class="table table-striped">
<tbody>
<tr>
<td>
Particulars (Rs mn)
</td>
<td style="text-align: right;">
Net sales
</td>
<td style="text-align: right;">
EBITDA
</td>
<td style="text-align: right;">
PAT
</td>
<td style="text-align: right;">
EPS
</td>
<td style="text-align: right;">
ROE
</td>
<td style="text-align: right;">
ROCE
</td>
<td style="text-align: right;">
PE(x)
</td>
</tr>
<tr>
<td>
FY18
</td>
<td style="text-align: right;">
7,433
</td>
<td style="text-align: right;">
2,110
</td>
<td style="text-align: right;">
1,439
</td>
<td style="text-align: right;">
      27.9
</td>
<td style="text-align: right;">
19.5%
</td>
<td style="text-align: right;">
31.1%
</td>
<td style="text-align: right;">
53
</td>
</tr>
<tr>
<td>
FY19E
</td>
<td style="text-align: right;">
10,153
</td>
<td style="text-align: right;">
3,637
</td>
<td style="text-align: right;">
2,453
</td>
<td style="text-align: right;">
      47.6
</td>
<td style="text-align: right;">
26.7%
</td>
<td style="text-align: right;">
26.0%
</td>
<td style="text-align: right;">
31
</td>
</tr>
<tr>
<td>
FY20E
</td>
<td style="text-align: right;">
14,078
</td>
<td style="text-align: right;">
5,139
</td>
<td style="text-align: right;">
3,365
</td>
<td style="text-align: right;">
      65.3
</td>
<td style="text-align: right;">
27.8%
</td>
<td style="text-align: right;">
37.3%
</td>
<td style="text-align: right;">
23
</td>
</tr>
<tr>
<td>
FY21E
</td>
<td style="text-align: right;">
17,430
</td>
<td style="text-align: right;">
6,536
</td>
<td style="text-align: right;">
4,271
</td>
<td style="text-align: right;">
      83.1
</td>
<td style="text-align: right;">
26.8%
</td>
<td style="text-align: right;">
36.2%
</td>
<td style="text-align: right;">
18
</td>
</tr>
</tbody>
</table>
<div class="content-caption"> Source- VO Annual Report FY18, Trivikram Consultants Research as on 22/11/2018</div>



Vinati Organics (VO IN) reported 2QFY19 revenues better than our estimates at Rs 2,528 mn against our estimates of Rs 1,951 mn. This revenue growth was driven by price hike in Acrylamido 2 Methylpropane Sulfonic Acid (ATBS).


EBITDA was Rs 953 mn, higher than our estimates of Rs 673 mn and reported EBITDA margins were at 37.7%, 320 bps higher than our estimates and the highest in last 8 quarters.


Over FY18-21E, we expect revenues to grow at CAGR 33%. We expect this growth to largely come from ATBS as it has pricing benefit with reduced competition. VO is expanding ATBS capacity to 40,000 TPA from 26,000TPA. This capacity expansion will be completed by April 19 and revenues will start from FY20E. VO has created capacity for Butylphenol, which will start generating revenues from FY20E.


We expect this revenue growth to reflect in EBITDA margins and PAT. Over FY18-21E, we expect EBITDA margins and PAT to grow at CAGR 46% and 44% respectively.


We have maintained a PE multiple of 25x on the EPS estimate of Rs 74 per share for the year ending September-20E to arrive at the fair value estimate of Rs 1,850 over the next 12 months. At the market price of Rs 1,486 (as on 22/11/2018), the stock represents the upside of 24%






Particulars (Rs mn)


Net sales


EBITDA


PAT


EPS


ROE


ROCE


PE(x)




FY18


7,433


2,110


1,439


      27.9


19.5%


31.1%


53




FY19E


10,153


3,637


2,453


      47.6


26.7%


26.0%


31




FY20E


14,078


5,139


3,365


      65.3


27.8%


37.3%


23




FY21E


17,430


6,536


4,271


      83.1


26.8%


36.2%


18




 Source- VO Annual Report FY18, Trivikram Consultants Research as on 22/11/2018

Vinati Organics - 2QFY19 - Raising FY19E Estimates, Growth to Continue in FY20E

<a href="https://www.smartkarma.com/entities/4621" target="_blank" data-smartkarma-citation="entities:4621:1">Vinati Organics (VO IN)</a> is among the largest specialty chemical companies in India, with global market leadership in key products. Producing aromatics, monomers, polymers and other specialty products, VO delivers high quality products to clients on India and around the world. VO is present in 31 countries worldwide, and exports products to customers across the US, Europe, and Asia. VO works with the vision to be a global leader in manufacturing niche specialty products adopting eco-friendly technologies. Its aim is to emerge as a globally competitive organization for all its products in terms of cost and quality.
VO could be a part of the long-term portfolio because:
<ul class="">
<li>VO enjoys global leadership in Isobutyl Benzene (IBB) and Acrylamido 2 Methylpropane Sulfonic Acid (ATBS) and domestic leadership in Isobutylene (IB) and High Purity- Methyl Tertiary Butyl Ether (HPMTBE). VO has a 55% market share of ATBS, 65% market share of IBB and 70% domestic market share of IB. (Source- VO Annual Report FY18).</li>
<li>We are expecting CAGR growth over FY18-20E of 37%/52%/49% for revenues/EBITDA/PAT respectively. We expect EBITDA margins to expand ~ 660 bps to 35.0% in FY20E from 28.4% in FY18 and PAT margins to expand ~ 370 bps to 23.1% in FY20E from 19.4% in FY18.</li>
<li>VO generated a free cash flow of Rs. 3.6 Bn in FY16-18. However, owing to capEx of Rs. 3.2 Bn in FY19E to ramp up production volumes it will likely report negative FCF. From FY20E, we expect to see positive results from this capital expenditure and we estimate VO will report FCF of Rs. 3.1 Bn in FY20E rising to Rs. 4.6 Bn in FY21E.   </li>
<li>We expect RoE to expand ~780 bps to 27.3% in FY20E from 19.5% in FY18 and RoCE to expand ~1040 bps to 36.4% in FY20E from 26.0% in FY18.</li>
</ul>
We initiate coverage on VO with the fair value of Rs. 1,765/- representing a potential return of 42% in the next 12 months. We arrived at the fair value by applying 25x multiple to September 20E EPS of Rs 70.6. As on Current price of Rs 1,240 (as on 22/10/2018), the stock trades at 29x and 20x its earnings estimates for FY19E and FY20E respectively.
<table class="table table-striped">
<tbody>
<tr>
<td style="width: 172px;">Rs in mn</td>
<td style="text-align: right; width: 164px;">FY17</td>
<td style="text-align: right; width: 165px;">FY18</td>
<td style="text-align: right; width: 173px;">FY19E</td>
<td style="text-align: right; width: 173.97px;">FY20E</td>
</tr>
<tr>
<td style="width: 172px;">Revenue</td>
<td style="text-align: right; width: 164px;">     6,663</td>
<td style="text-align: right; width: 165px;">     7,433</td>
<td style="text-align: right; width: 173px;">      9,337</td>
<td style="text-align: right; width: 173.97px;">    13,890</td>
</tr>
<tr>
<td style="width: 172px;">PAT</td>
<td style="text-align: right; width: 164px;">     1,392</td>
<td style="text-align: right; width: 165px;">     1,439</td>
<td style="text-align: right; width: 173px;">      2,168</td>
<td style="text-align: right; width: 173.97px;">      3,210</td>
</tr>
<tr>
<td style="width: 172px;">EPS (Rs.)</td>
<td style="text-align: right; width: 164px;">       27.0</td>
<td style="text-align: right; width: 165px;">       27.9</td>
<td style="text-align: right; width: 173px;">        42.1</td>
<td style="text-align: right; width: 173.97px;">        62.3</td>
</tr>
<tr>
<td style="width: 172px;">PE (x)</td>
<td style="text-align: right; width: 164px;">46</td>
<td style="text-align: right; width: 165px;">44</td>
<td style="text-align: right; width: 173px;">29</td>
<td style="text-align: right; width: 173.97px;">20</td>
</tr>
</tbody>
</table>
<div class="content-caption">Source- VO Annual Report FY18, Trivikram Consultants Research as on 22/10/2018</div>

Vinati Organics (VO IN) is among the largest specialty chemical companies in India, with global market leadership in key products. Producing aromatics, monomers, polymers and other specialty products, VO delivers high quality products to clients on India and around the world. VO is present in 31 countries worldwide, and exports products to customers across the US, Europe, and Asia. VO works with the vision to be a global leader in manufacturing niche specialty products adopting eco-friendly technologies. Its aim is to emerge as a globally competitive organization for all its products in terms of cost and quality.
VO could be a part of the long-term portfolio because:

VO enjoys global leadership in Isobutyl Benzene (IBB) and Acrylamido 2 Methylpropane Sulfonic Acid (ATBS) and domestic leadership in Isobutylene (IB) and High Purity- Methyl Tertiary Butyl Ether (HPMTBE). VO has a 55% market share of ATBS, 65% market share of IBB and 70% domestic market share of IB. (Source- VO Annual Report FY18).
We are expecting CAGR growth over FY18-20E of 37%/52%/49% for revenues/EBITDA/PAT respectively. We expect EBITDA margins to expand ~ 660 bps to 35.0% in FY20E from 28.4% in FY18 and PAT margins to expand ~ 370 bps to 23.1% in FY20E from 19.4% in FY18.
VO generated a free cash flow of Rs. 3.6 Bn in FY16-18. However, owing to capEx of Rs. 3.2 Bn in FY19E to ramp up production volumes it will likely report negative FCF. From FY20E, we expect to see positive results from this capital expenditure and we estimate VO will report FCF of Rs. 3.1 Bn in FY20E rising to Rs. 4.6 Bn in FY21E.   
We expect RoE to expand ~780 bps to 27.3% in FY20E from 19.5% in FY18 and RoCE to expand ~1040 bps to 36.4% in FY20E from 26.0% in FY18.

We initiate coverage on VO with the fair value of Rs. 1,765/- representing a potential return of 42% in the next 12 months. We arrived at the fair value by applying 25x multiple to September 20E EPS of Rs 70.6. As on Current price of Rs 1,240 (as on 22/10/2018), the stock trades at 29x and 20x its earnings estimates for FY19E and FY20E respectively.



Rs in mn
FY17
FY18
FY19E
FY20E


Revenue
     6,663
     7,433
      9,337
    13,890


PAT
     1,392
     1,439
      2,168
      3,210


EPS (Rs.)
       27.0
       27.9
        42.1
        62.3


PE (x)
46
44
29
20



Source- VO Annual Report FY18, Trivikram Consultants Research as on 22/10/2018

Vinati Organics - Increasingly Profitable Global Leader in Niche Chemicals

India

Vinati Organics Limited produces organic intermediates and monomers.

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Vinati Organics (VO IN)

Vinati Organics: Newer Businesses to Drive Growth Ahead

Vinati Organics is a leading manufacturer of specialty chemical and organic intermediaries with global market leadership in its two key products

ICICI Securities Limited

Vinati Organics - 2QFY19 - Raising FY19E Estimates, Growth to Continue in FY20E

Vinati Organics (VO IN) reported 2QFY19 revenues better than our estimates at Rs 2,528 mn against our estimates of Rs 1,951 mn. This revenue...

Trivikram Consultants

Vinati Organics - Increasingly Profitable Global Leader in Niche Chemicals

Vinati Organics (VO IN) is among the largest specialty chemical companies in India, with global market leadership in key products. Producing...

Trivikram Consultants

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