Vinati organics

09 Mar

Container unavailability is a serious challenge going forward- Vinati Organics

 

Update on the Indian Equity Market:

On Wednesday, NIFTY50 ended in green at 16,345 (+2%). Among the sectoral indices, MEDIA(+4%), REALTY(+2.9%), and AUTO (+2.8%) were the top gainers, whereas METAL (-0.4%), was the only loser. Among the stocks, ASIANPAINT (+6%), RELIANCE (+5.5%), and BAJFINANCE (+5%) were the top gainers while SHREECEM (-2.6%), ONGC (-2.5%), and POWERGRID (-2%) led the losers.

Excerpts of an interview with Ms. Vinati Saraf Mutreja, MD, Vinati Organics (VINATIORGA) with CNBCTV18 on 8th March 2022:

  • Raw materials come from refineries and are crude dependent. As crude prices increase, VINATIORGA’s raw material prices will also increase. It has a pass-through clause for most of its products as they have formula-based pricing and can pass on these raw material price hikes to its customers to a certain extent.
  • Exporters like VINATIORGA are facing logistical issues like the unavailability of containers and this is expected to be a serious challenge going forward.
  • On a positive note, VINATIORGA is witnessing good demand. Its main product Acrylamide Tertiary-butyl Sulfonic acid (ATBS) which is used in oil and gas and oil drilling is witnessing positive demand from North America and Europe.
  • Ibuprofen which was very slow last year has started picking up. Butyl Phenol is also experiencing a breakthrough in the market.
  • Ms. Mutreja expects the EBITDA margins to be maintained between 28-30%. EBITDA per kilogram remains more or less constant because of the formula pricing. It sometimes does not necessarily capture some of the fixed expenses like utility costs, fuel costs, overheads, and general inflation. These expenses get hedged as capacities get expanded and utilization levels improve owing to better demand.
  • VINATIORGA saw very high logistics costs in CY21 which eventually started tapering down by Dec-21-Jan 22. After the Russia-Ukraine war started in February, the costs have gone up again. Obtaining bookings and container availability has become a challenge for the entire industry, especially in North America, Europe, and Southeast Asia.
  • Costs have gone up 20-30% for US and Europe bookings in Jan-Feb 22.
  • VINATIORGA is foraying into the production of niche chemicals through Veeral Organics (a subsidiary) at a total capex of Rs 2,500 mn. It involves different products one of which has application in the fragrance industry, one is used as a polymer additive, one is used in the pharmaceutical industry. This is a greenfield project and is expected to be completed in 15 months. Total revenue of Rs 3,000 mn is expected from this project.
  • Veeral Additives is another project which is a merger with VINATIORGA. It is subject to NCLT approval which is causing some delay. This anti-oxidants plant which is used in resins and plastics is expected to come on stream later in March-22.

Asset Multiplier Comments

  • Earlier, customers had stocked Ibuprofen due to Covid-19 related concerns. Due to the lower-than-expected consumption and higher inventory, demand for IBB has also reduced. The demand for IBB may pick up again from March 2022.
  • The new capex for Veeral Organics involves the manufacturing of five new products. The company may target 10% of the total market size of Rs 25 bn.
  • The headwinds of high raw material costs and higher logistic costs may keep the company’s margins under pressure for the next 2 quarters. We expect the EBITDA margins to normalize back to around 30% level by September 2022. 

Consensus Estimate: (Source: Marketscreener and Investing.com websites)

  • The closing price of Vinati Organics was ₹ 1,858/- as of 08-March-2022. It traded at 58x/42x/33x the consensus earnings estimate of ₹ 32/44/56 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 2,052/- implies a P/E multiple of 36x on FY24E EPS estimate of ₹ 56/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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15 Nov

Capex of Rs 2,500 mn expected to be on stream by Dec-22 –  Vinati Organics

Update on the Indian Equity Market:

On Monday, NIFTY ended flat amid volatility at 18,109 (+0.04%). HEALTHCARE (+2.13%), PHARMA (+1.45%) and FMCG (+0.94%) were the top gaining sectors. METAL (-1.82%), PSU BANK (-1.43%) and FINANCIAL SERVICES (-0.34%) were top losers.

Top gainers in NIFTY50 were POWERGRID (+3.13%), ONGC (+2.46%) and ITC (+2.25%). The top losers were COALINDIA (-4.34%), TATASTEEL (-3.32%), and HINDALCO (-2.68%).

 

Capex of Rs 2,500 mn expected to be on stream by Dec-22 –  Vinati Organics

Edited Excerpts of an interview with Vinati Saraf Mutreja, Managing Director, Vinati Organics with ETNOW on 11th Nov, 2021:

  • The revenue for 2QFY22 was flat sequentially and grew by 70% YoY. The margins for 1HFY22 are at the levels of 26-27%, lower than earlier guidance of 30% for FY22E.
  • The revenue growth guidance for FY22E remains unchanged. Company expects to cross Rs 15,000 mn in FY22E which will result in 50% YoY revenue growth. EBITDA Margins are expected to be at 30% level for FY22E.
  • The margins of 2QFY22 were impacted due to heavy floods in Mahad Factory in the month of Jun-21. It resulted in loss of profits which is insured and claimed for.
  • The revenue growth guidance of ~ 50% for FY22E is a result of price hike due to raw material cost going up.
  • Management is confident of delivering EBITDA margin of 30% as absolute EBITDA per tonne is intact.
  • Raw material prices are still high, freight costs have softened a bit. Most of the Freight cost is absorbed by customers and are able to pass it through.
  • Acrylamide Tertiary Butyl Sulphonic (ATBS) (high margin product) has been a star product for Vinati Organics. FY21 was a slow year for ATBS but comparing current volumes to pre-COVID levels it has grown by ~50-60% on volume basis.
  • Butyl Phenol has seen good offtake in the market, sales have increased by 70% YoY. However, the margins are under pressure as company is a new entrant, it is cutting price to gain market share. Raw materials are exceptionally high over the last 6 months which the company is not able to pass through completely. However, the demand outlook for Butyl Phenol is strong.
  • The niche and specialty products are performing well.
  • Iso Butyl Benzene (IBB) is performing a bit slow. It accounts for less than 10% of the total revenue. A lot of IBB Customers are seeing high inventory levels of IB and IBB as they had stocked up the product in FY21.
  • Vinati Organics is planning a capex of Rs 2,500 mn. It will account for 4-5 new niche and specialty products. It will cater to various segments like agro chem, fragrance chemicals and plastic additives. The products are expected to be on stream by 3QFY23E.
  • The power crunch in China doesn’t impact the company’s supply chain as none of the important raw material is imported from China. China is competitor of Vinati Organics as far as ATBS is concerned. This could be one of the reasons of customers shifting their focus from China to Vinati for ATBS products. China is also market for IBB and ATBS products. Vinati is able to export the products to China.

Asset Multiplier Comments

  • Demand for ATBS continues to remain strong with increased demand from the oil and gas industry, which forms 25-30% of its global demand.
  • We think new product launches, strong demand for products like ATBS which are high margin products and backward and forward integration will help company to achieve its target of ~50% revenue growth and EBITDAM at the level of 30% in FY22.
  • Vinati’s proposed merger with Veeral Additives Private Limited (VAPL) aligns well with their growth strategy through synergy. The global market demand for Antioxidants (AOs) is robust and the total capacity (post-merger) positions Vinati to drive growth.

 

Consensus Estimate (Source: market screener and investing.com websites)

 The closing price of Vinati Organics was ₹ 1,998/- as of 15-Nov-21. It traded at 64x/44x/35x the consensus EPS estimate of ₹ 31.6/45.5/57.8 for FY22E/ FY23E/FY24E respectively.

  • The consensus target price of ₹ 1,893/- implies a PE multiple of 33x on FY24E EPS of ₹ 57.8/-.

 

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

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01 Jan

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

Update on the Indian Equity Market:

On Tuesday, Sensex fell over 307 pts and Nifty ends below 12,200. Markets witnessed profit booking ahead of the press conference from the FM.

Among the sectors, NIFTY AUTO was down by 0.9%, NIFTY IT by 0.8% and NIFTY Bank by 0.6%. Among stocks, NTPC, Sun Pharma and ONGC were the major gainers in the Sensex pack, while Tech Mahindra, Bajaj Auto and Reliance Industries were the major laggards in the trade today.

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/-.
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