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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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16 Mar

Will incur Rs 10000 mn Capex per year over next 3-4 years – Aarti Industries

 Update on the Indian Equity Market:

On Tuesday, Nifty closed in the red at 14,910 (-0.1%). Among the sectoral indices, IT (+1.3%), FMCG (+0.9%), and AUTO (+0.2%) closed higher. PSU Bank (-1.3%), PVT Bank (-1.0%), and Financial Services (-0.8%) closed in the red. Asian Paints (+4.7%), Dr. Reddy’s Laboratories (+2.6%), and HUL (+1.59%) closed on a positive note. CIPLA (-1.6%), Tata Steel (-1.6%), and ICICI Bank (-1.5%) were among the top losers.

Excerpts from an interview of Mr. Rajendra V Gogri, Chairman and MD, Aarti Industries with CNBC-TV18 dated 15th March 2021:

  • Gogri said the demand is higher. The discretionary sector demand has picked up.
  • Considering China plus one factor, demand is diverted to India. India comes ahead of other countries like Vietnam, Bangladesh, and Malaysia when it comes to specialty chemicals.
  • The company is expecting pre-Covid demand in Q4FY21E.
  • Speaking on capacity, he said the company will incur a Capex of Rs 10,000 mn each year for the next 3-4 years.
  • This Capex will be utilized to introduce new products as well as the expansion of existing products.
  • The company will not directly participate in the Pharma PLI scheme, however, the Pharma PLI Scheme is expected to benefit the general chemical sector indirectly.
  • The company has posted single-digit revenue growth in 9MFY21 and a flat bottom line YoY is expected in FY21E. However, Mr. Gogri guided for a 20% growth in top-line as well as in bottom line in FY22E.
  • Exports are usually 40-45% of total revenues and the rest is domestic sales. The major growth is expected on the discretionary side which was badly affected in 1FY21.
  • Speaking on capacity utilization, he said some plants are running at 80-90% utilization levels and new capacities are running at 20-30% utilization levels.
  • Speaking on the demerger of the Pharmaceutical business, he said a committee has been set up to look at the available option. The decision of the committee is yet to come on board.

 

Asset Multiplier comments:

  • As per a study conducted by McKinsey & Company, the Indian specialty market is expected to grow to $40bn over the next 4 years from $28bn in 2018.
  • Within the specialty chemical segments in India, surfactants, specialty polymers, and textile chemicals and dyes are among the top segments expected to further grow in line with market demand.
  • Indian specialty companies need to ramp up capacities and infrastructure to get maximum advantage from specialty chemical sector growth prospects.

 

Consensus Estimate: (Source: Market screener website)

  • The closing price of Aarti Industries was ₹ 1,286 as of 16-March-2021.  It traded at 41x/29x/25x the consensus Earnings per share estimate of ₹ 31.0/44.0/52.1 for FY21E/FY22E/FY23E respectively.
  • The consensus average target price is ₹ 1,241/- which implies a PE multiple of 24x on FY23E EPS of 52.1/-.

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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09 Feb

Double-digit volume growth to continue – Galaxy Surfactants

Update on the Indian Equity Market:

On Tuesday, the Indian equities snapped the six-day winning streak and Nifty 50 ended at 15,109 (-0.5%). Among the sectoral indices, FINANCIAL SERVICES 25/50 (+0.3%), FINANCIAL SERVICES (+0.3%), and BANK (+0.2%) ended the day with gains. MEDIA (-1.9%), AUTO (-1.4%), and PHARMA (-1.2%) led the losers. Among the stocks, SBILIFE (+4.0%), ASIANPAINT (+3.8%), and HDFCLIFE (+3.6%) led the gainers while M&M (-3.0%), TATAMOTORS (-3.0%), and JSWSTEEL (-2.2%) dragged the index lower.

Excerpts of an interview with Mr. U Shekhar, Founder Promoter and Managing Director, Galaxy Surfactants (GALAXY) with CNBC TV18 on 9th February 2021:

  • GALAXY saw good 3QFY21 earnings. The reported double-digit volume growth on a YoY basis is expected to continue, especially in the specialty chemicals segment.
  • Money received from Egypt which was accounted in 3Q was export benefits accumulated over the last 2-3 years. GALAXY accounts for the export benefits availed only when received.
  • Consumer focus on personal hygiene has increased significantly this year. This is expected to sustain going forward and the new products which have been introduced are seeing slow evolution which is certainly giving Galaxy better numbers.
  • The company has implemented expansion projects at Jhagadia, which was expected to be completed by April-21. This project has been delayed a little due to difficulties faced due to the outbreak of Covid-19.
  • The disruption due to shipping and containers is continuing which is certainly putting pressure on the supply chain.
  • The price hikes have been passed on to customers or absorbed the freight hikes in case of long-term contracts.
  • As far as the margin is concerned, there will be a gradual progression when new products keep on getting better.

Consensus Estimate: (Source: market screener website)

  • The closing price of GALAXY was ₹ 2,222/- as of 09-February-2021. It traded at 31x/ 27x/ 23x the consensus earnings estimate of ₹ 71.6/ 83.8/ 95.7 per share for FY21E/FY22E/FY23E respectively.
  • The consensus target price of ₹ 2,160 implies a PE multiple of 23x on FY23E EPS of ₹ 95.7/-.

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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