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02 Dec

Investing Rs 3,500mn for making API, KSM and Intermediates – Aarti Industries

Update on the Indian Equity Market:

On Thursday, Indian benchmarks ended in the green amid weekly F&O expiry, weak global cues, and omicron fears. NIFTY50 ended 218points higher at 17,402 (+1.4%). IT (+2.1%), METAL (+1.6%), and MEDIA (+1.6%) were the top sectoral gainers. There were no sectoral losers for the day. Among the NIFTY50 stocks, ADANIPORTS (+4.5%), POWERGRID (+3.8%), and HDFC (+3.8%) were the top gainers while CIPLA (-0.8%), ICICIBANK (-0.6%), and AXISBANK (-0.5%) were the only losers.

Excerpts of an interview with Mr. Rashesh Gogri, Vice Chairman and MD, Aarti Industries (AARTIIND) with CNBC-TV18 on 1st December 2021:

  • AARTIIND has qualified for Pharma companies PLI scheme under Group C, which will get a PLI (Production linked incentive) of Rs 17.5bn over 6 years and a minimum investment of Rs 500mn.
  • AARTIIND has qualified under the manufacturing of API, KSM and Drug Intermediates (Category II). It will be investing Rs 3500mn in a new large complex for manufacturing these products. Capex will start in FY22.
  • The funding for the Capex will be a mix of debt and equity. Most of the funding for Capex will be through the QIP proceeds and internal accruals.
  • AARTIIND had announced plans to split the company-into pharma and specialty chemical companies.
  • It expects the pharma business to report 25% topline growth in FY22. The company expects the pharma business to maintain 20-25% topline growth going forward as well.
  • 3QFY22 has seen commodity price volatility. The commodity prices have peaked out now and going down. This volatility impacts the company’s ability to pass on the raw material price inflation.
  • High levels of commodity prices did not remain for more than 1 quarter, so there could be some margin pressure for overall industry.
  • The shutdown in China on certain products, and policy issues has benefitted AARTIIND. Some of their products are doing well.
  • On demand trends, he said that in the specialty chemical segment, agro chemicals and polymers are doing well. Pent up demand was missing in polymer sector. Now the company is witnessing good demand in both these sectors.
  • Consumer centric sectors like dyes, intermediates are not doing well.
  • As the company operates on a cost plus model, it passes on the cost increase/reduction to customers. It tries to maintain its margin on a per kg basis.

Asset Multiplier Comments

  • In speciality chemical segment, pass through of raw materials hike for domestic customers is on a monthly basis while for exports on a quarterly basis. In Pharma, the increased raw material costs will take time to be passed on to end customers which may keep margins under pressure for the next one or two quarters. This may limit the share price increase/upside in the 2HFY22.
  • Two of the company’s long term contracts are expected to be commissioned by 3QFY22, and 1QFY23 respectively. This will help in increasing the topline, and is in-line with management’s revenue guidance of Rs 90,000 mn by FY24E.
  • We expect the company to benefit from its operating leverage in the quarters to come, which will help it in sustaining its operating margins.

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

  • The closing price of Aarti Industries was ₹ 977/- as of 02-December-21. It traded at 39x/ 35x/ 29x the consensus EPS estimate of ₹ 25/ 28/ 34 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 964/- implies a PE multiple of 28x on FY24E EPS of ₹ 34/-.

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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