Vinati Organics - Increasingly Profitable Global Leader in Niche Chemicals

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.   

Equity Bottom-Up

<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.
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<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%
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</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