Butylphenol to be Vinati Organics’ growth driver for the next 2-3 years: Vinati Saraf Mutreja MD & CEO, Vinati Organics

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Butylphenol to be Vinati Organics’ growth driver for the next 2-3 years: Vinati Saraf Mutreja MD & CEO, Vinati Organics

Excerpts from an interview with Vinati Saraf Mutreja, Managing Director & CEO, Vinati Organics; dated 30th December 2019:

• In 2006, Vinati Organics (Vinati) was a single product company. 2007-08 was a turning point for Vinati as growth of ATBS (Acrylamido tertiary-butyl sulfonic acid), star product for Vinati, suddenly picked up and Vinati started exporting IDB (Iminodibenzyl)
• In 2010, Vinati started manufacturing IB, which is a raw material for ATBS. Backward integration helped in gaining economies of scale. Presently, Vinati is one of the largest manufacturers of IB with ~60-70% market share.
• Vinati has a philosophy of generating wealth from waste or value-added products from waste which not only reduces the effluents but also reduces operating costs. These have been some of the key factors that have led to the growth of Vinati over the last decade.
• Vinati is setting up a plant for manufacturing Butylphenol. These products go into fragrances, plastics, resins and they are at present imported from Korea, Singapore, etc. That is going to be the growth driver for the next two to three years.
• ATBS, IBB are growing at 10% to 15% year on year. Similarly, talking about innovation, Vinati has about seven to eight products in the R&D pipeline and even if one or two see the light at the end of the day, they are expected to result in significant revenue. Vinati is looking at doubling revenues in the next three to four years.
• The industry segment is quite diversified and they go from pharma to water treatment, to agro, to oil and gas. Vinati does see a bit of a slowdown coming from the oil and gas industry. The only way to make up for that is to keep adding new products into a portfolio and to keep diversifying.
• In ATBS, Vinati competes with China and because of the new tariffs in the US, ATBS has become more competitive in the US but at the same time, the Chinese have started dumping the product in the rest of the world, especially Europe. So in the end, it is a zero-sum game and also because Vinati is into niche products. For other products, Vinati does not face much competition from China. In fact, it is a market for both, IBB and ATBS are exported to China and because of the environment crackdown, especially on Ibuprofen front, Vinati has seen a bit of a slowdown in the IBB segment this year from China.
• ATBS margins went up essentially over the last one and a half to two years, because Lubrizol exited the industry and suddenly there was a shortage of the product and prices shot up. But now, with the new expansions coming in place and the slowdown in oil and gas, there is no more demand-supply imbalance. Some of those prices are due for a correction. Margins are expected to come down slightly, going forward to a more sustainable level.
• IBB or ibuprofen is a consolidated market and over the last couple of years, new players have entered into the ibuprofen market because ibuprofen itself grows at 4-5% annually. Vinati will start supplying IBB to North America and expect to make up for IBB in fiscal year or calendar year 2020. Overall, one can expect IBB growth for the next two to three years to be 10-15% year-on-year.
• The butylphenol plant should be ready in January next year and the total revenue potential from butylphenol is about Rs 4,000-4,500 mn. One can expect Rs 500-600 mn of revenues just in Q4FY20 and then in FY21, one can expect around Rs 2,500 mn. The sentiment from the customers has been positive and they are keen to start the plant as soon as possible because till now, they have been importing this product. They are really looking forward to having a local supplier.
• The new brownfield ATBS plant has been slightly delayed. It is expected to start in Feb-20 and revenues out of that plant from Apr-21 onwards. Since the existing line for ATBS is running at close to full capacity, the 10-15% annual growth for ATBS will be serviced by a new line for the next three to four years.

 Consensus Estimate: (Source: market screener, investing.com website)

• The closing price of Vinati Organics was ₹ 1,983/- as of 31st December 19. It traded at 27x/ 24x/ 18x the consensus EPS estimate for FY20E/ FY21E/ FY22E of ₹ 71.3/79.7/105 respectively.
  
• Consensus target price of ₹ 2,327/- implies a PE multiple of 22x on FY22E EPS of ₹ 105/-.