Company Profile: 

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 

Products: 

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 which have few products. 

Subsidiaries: 

The Company has only one subsidiary named as Veeral  Organics Pvt Ltd. 

Share Holding Pattern:

Financial Performance:

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 .

Outlook:

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 .

Valuation:

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 

Conclusion:

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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