Vinati Organics

(Chandragupta) #190

Thanks for sharing this.

The Zauba data is taken from shipping documents such as Bill of Lading and therefore does not include Import Duty or CVD.

(Abhinav Mehrotra) #191

A recent query by a fellow ValuePickr towards the timeline of PAP lead me to search for evidence of how the project is progressing. I think I have found something but do not know what it means. If anyone knows what this means please do share, for now I am only going to speculate to its meaning.

I found an entry for VOL’s application for the manufacture of PAP with DIPP in their daily list of IEMs filed.

Here is the link:

Now I can only speculate that this is an application for the license to manufacture PAP. Filing would mean that VOL is ready to commercialize PAP.

In the past VOL has applied for IEMs for various products: - For DI IsoButylene - For HP-MTBE - For P-Tert Butyl Toluene - For ATBS

Here is the link to a sample IEM form:

I am not 100% sure about this, I am hoping that someone with more knowledge of the DIPP IEM application will share their views here for the benefit of all.

(Ketan) #192

“Here is the link to a sample IEM form” - this link is not working. Can you please upload it again?

(Chandragupta) #193

IEM seems to be an intimation to the Government about the intent to produce. Wherever licensing is not there, IEM is to be filed. Please see this link:

Part B of the IEM should be watched as it indicates start of commercial production.

The company’s ED gave an interview to Moneycontrol recently:

(Amit) #194

(Ravi Srikant) #195


Anybody has any reason for the steep run up in price. The stock seems to be discounting the profits from the launch of the new products.

(Vivek Mashrani, CFA) #196

Excellent result from Vinati, topline and bottom-line grew by ~25% qoq…company becomes fully debt free (only short term debt of 2 Cr.)

Discl: Invested

(tankerooooo) #197

The yoy % growth for the quarter and the financial year is not too great. Quarterly net profit grew from 3927 to 4059 lacs. Annual net profit grew from 13157 to 13930 lacs.

(Abhinav Mehrotra) #198

Vinati Saraf’s interview on CNBC. FY16 numbers adjusted for one time export benefits (30 cr in top line and 20 cr in bottomline) reflects good growth in volumes this year. Will have to wait for actual volume growth numbers in AR.

(Abhinav Mehrotra) #199

First detailed interview from Vinati Saraf. Good volume pickup in Q1. Butyl Phenol plant Capex on track. PAP under pilot plant trials. CAPEX may start by end of this year. Will take 18-24 months to complete. Expect revenue from PAP in FY20. Current capacity utilization for IBB is at 80% and for ATBS at 75%.

(Amit) #200

I have sold 15% of my holding in Vinati last month…looks like it has run too far ahead in relation to fundamentals and valuations. It shud enter consolidation phase from here.

Disc: Invested

(Abhinav Mehrotra) #201

Yesterday’s interview details.

(Vivek Mashrani, CFA) #202

In the latest annual report also they have mentioned the same.

On Page-9 >> "Our Company has three major products – ATBS, IBB and IB which have been highly successful. But during FY2016-17 we broke a silence of almost 4 years and announced three of the largest capex investments in our history, for the development of products like IB derivatives PTBBA and butylated phenols (an import substitution used in fragrances, resins and antioxidants. among others), PAP (used in paracetamol manufacturing) and forward integration to IBAP. With all these facilities expected to become operational over FY2017-18 to late FY2019-20, our Company is not just expected to widen portfolio but to double revenues by FY2020-21 and at the same time ensure a sustainable future growth."

Also on same page >> "Interestingly, majority of our capex has been funded from internal accruals only, thus enabling our Company to maintain its zero-debt status. Moving forward I expect the free cash-flow to strengthen from FY2019-20 as the capex cycle subsides."

Disclosure: Invested

(GSApte) #203

I tend to agree with your observations.
Even after considering the new capex and product launches, Mr. Market seems to be in hurry to factor in most of the upside in July 2017 itself. The uptick in revenue and bottom line may take some more time to be visible in results.
It has been always a dilemma in such long term stories, whether one should continue holding at PE of 40 or not.
Most of the time, when risk reward is not favorable, I tend to move ahead and book profits, as is the case with Vinati.
Disc: Recently closed the position.

(Ravi Srikant) #204

Agree with the above posts.

As per management guidance, revenue should double by FY20 or FY21. Even if we assume revenue will will double by FY20, this gives a revenue CAGR of 26% . Given the newer products will have a lower margin profile than the current products, profit is expected to grow at lower than 26% CAGR. As FY17 profit was around Rs 140 cr, FY20 profit would most likely be around Rs 250 cr and the stock is currently trading at more than 20x FY20 earnings. It looks pretty steep even though the company is excellent.

Disc: Exited completely recently.

(Abhinav Mehrotra) #205

Apparently Lubrizol is exiting ATBS. Vinati says a competitor in USA announced an exit in June, 15% market share up for grabs. Lubrizol was producing AMPS for captive consumption the last I checked. She says all the demand and clients are coming to them from July, because they are the most cost competitive in this product. Cannot find anything online to confirm this development.

Explains a bit about why margins decrease as realizations go up. Their formula based pricing ensure fixed $ per KG, not %.

(Akshay Kumar) #206

They have projected 3x revenue in 3-4 years. Company has announced buyback of shares. With the rare correction in the stock price , does Vinati become attractive?

(jirohit) #207

dont think co projected 3x topline in 3-4 yr. mgmt indicated 15% growth for next 4-5 years. so, 2x topline in 5 years would be my assumption. current valuation would be around 38 PE as per screener. so you may take view accordingly on stock.

(Chandragupta) #208

Management had predicted a sales growth of Rs.100 crores for the year 2016-17 in the Annual Report of FY16. Against that, sales increased 12% to Rs. 648 crore in FY17 (from Rs.578 crore in FY16). PBT grew 10% but FY16 had export benefits of Rs.30 crore. If these are excluded, PBT growth was 31%. Margins remained steady, but cash flows were lower at Rs.100 crore (against PAT of Rs.139 crore) mainly due to debtors increasing from Rs.115 crore to Rs.141 crores. Rise in debtors has adversely impacted all return ratios based on cash flows or working capital. For example, average working capital increased 29% during the year against 5% increase in sales or DSO increased from 66 days to 77. The company meanwhile has become debt free, and management is predicting cash generation of around Rs.200 crore per year going ahead.

The FY17 Annual Report however is disappointing on some aspects. The product wise break-up of sales & raw materials is not shared, which was being disclosed every year till now. At the AGM, the management said that customers & competitors can misuse this information, and it was actually a mistake this information was shared in the past! This is disappointing for shareholders. The Annual Report also does not mention the scheme names where current investments of Rs.62 crores are parked, preferring to give out the only the name of the Mutual Fund instead. This too is a reversal from earlier years. Though there may be no reason to believe these would be anything other than Liquid Funds, going ahead one shouldn’t expect anything more than what is legally mandatory to be disclosed in the Annual Report. There was a time when it was compulsory to mention even the production capacity and quantity produced in Annual Reports. Over the years, transparency has only decreased rather than increasing.

Looking ahead, the buyback announcement of Rs.24 crores for 2 lac shares comes as a surprise. Several projects such as IBAP, Isobutyl based derivatives and the much-talked about PAP are underway, all adding up to an outgo of more than Rs.800 crores in the next three years. This will necessitate taking up a small amount of debt. The pilot for PAP is currently underway and once it is successfully completed, actual work on the project will begin. Once these projects are complete, the revenues will double, but the newer products may be of lower margin than the existing ones, as they are more of commodities. So profit growth could be slower. Rumors of profits tripling or quadrupling have no basis. Butyl phenols are commodities, PAP too is similar. Rupee will remain strong assuming current political stability continues post 2019. A strong Rupee will dent export realizations and intensify domestic competition for Vinati’s import substitution products. Customized products launched recently for some customers give high margin but their scale is much lower.

During the AGM, the management seemed quite comfortable about the PAP project execution and said that the potential customers have already started queuing up (!), so marketing the product will not be a problem at all. This was very reassuring. The management was asked what – if any – would the impact on the company be if there is a serious escalation of conflict with China. Mr. Saraf said currently company imports one particular raw material from China. However, this RM is available elsewhere too so it can be procured from other places. In the long run, a serious supply disruption from China would actually benefit the company as China is the main competitor in products like PAP.

On the whole, outlook looks rosy going ahead, though the stock has already gone up significantly in anticipation. I am not sure what the miniscule buyback is intended to achieve, other than perhaps signaling exactly this.

(Disc: Invested)

(Abhinav Mehrotra) #209

Buybacks are being used by promoters to avoid additional 10% tax on dividends above 10 lacs. Explains increased frequency of buybacks this year.