Here is our detailed research report on VINATI ORGANICS LTD.
Vinati Organics Limited (VOL) was established in 1989 to manufacture specialty organic chemicals. It has since grown to become the world’s largest manufacturer of IBB (ISO Butyl Benzene) & ATBS (2-acrylamido 2- methylpropane sulphonic acid) and India’s largest manufacturer of IB & HP MTBE (METHYL t-BUTYL ETHER). The company’s products are exported to customers in countries across Europe, America, and Asia. Competitive edge in niche specialty chemicals – Cost leadership & scale economies in IBB and technological entry barrier in ATBS. The company started with a small capacity of 1,000 TPA and gradually expanded to 26,000 TPA today for its ATBS production, capturing 65% of the market share. The company also commands more than 65% market share in the world for IBB. With consistent investments in technology and capacities, the company is the largest producer of IBB in the world with a capacity of 16,000 TPA
The company has products under various segments.
Specialty aromatics – ISO Butyl Benzene (IBB), Normal Butyl Benzene, Secondary Butyl Benzene, Hexene, etc.
Specialty monomers – ATBS (2-acrylamido 2-methylpropane sulphonic acid), N-tertiary Butyl acrylamide, etc.
Butyl Phenols – Ortho and Para tertiary Butyl phenols, etc. Other specialty products and Miscellaneous polymers are the other two segments that have few products.
VINATI ORGANICS LTD has only one subsidiary named as Veeral Organics Pvt Ltd.
Share Holding Pattern:
The Company has generated a profit CAGR of 18% for the past 10 years. EBITDA margin was maintained in a stable range of 37-40% for the past 3 years. The EBITDA growth posted a CAGR of 16% for the past 10 years. The company also maintained an average ROCE of 34% over the past 5 years. The company has a strong balance sheet with zero debt and a cash and cash equivalent of Rs.296crs .
The company started its operations by manufacturing IBB, followed by stimulating its value chain by foraying into IB, ATBS, Butyl phenols and now moving towards Antioxidant. With key focus on achieving leadership in each of the segment, the company maintains market share of 65-70% in both ATBS and IBB globally. This was achieved with superior quality of products, led to newer customer acquisition and thereby strategic capacity expansion. Going ahead, despite Vinati’ market share in butyl phenols and antioxidant remaining in single digit currently, the company is expected to be able to capture potential market by venturing into different product value chain and thereby can become one shop solution, translating into market share expansion in medium to long run. Since RM for antioxidants are butyl phenols, expanding capacity of butyl phenol and backward integrating antioxidant operations should expand financial performance considerably. Further, entry into PAP can improve revenue visibility further .
The Management is confident of being among the top five global players for Butyl Phenol and AOs over the next 4-5 years. We expect a ~30-35% revenue CAGR over FY21–24E. In light of new capacity additions, with lower margin products, we expect the EBITDA Margin to normalize to ~34% (from ~37% in FY21). The amalgamation of Veeral Additives (VAL) with VO would result in further forward integration. Hence, we recommend a BUY rating for the stock with the target price (TP) of Rs.2330, 73x FY22E EPS
We expect a ~30-35% revenue CAGR over FY21–24E. In light of new capacity additions, with lower margin products, we expect the EBITDA Margin to normalize to ~34% (from ~37% in FY21), resulting in a 34% EBITDA CAGR. The amalgamation of Veeral Additives (VAL) with VO would result in further forward integration. Hence, we recommend a BUY rating in the stock with the target price (TP) of Rs.2330, 73x FY22E EPS.
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