Vinati Organics

(Vivek Mashrani, CFA) #230

Based on latest update from management and information from various broker reports:

  • Recently Lubrizol has exited the ATBS business. Lubrizol had ~15% market share and good pricing power due to its brand. Vinati has now opportunity to get this market share and can further gain pricing power due to this. Interesting thing is that they can command slightly higher price with existing customers as well due to lesser competitive intensity.

  • The new planned capex of IBB would take overall capacity to 25,000 TPA and this can be another contributor to incremental revenue. This should ideally show in numbers by FY19 if capex goes as planned.

  • They have already announced capex plans for mega capex for PAP. This is majorly imported from China currently and the patented process of Vinati is much efficient. The cost of PAP is already rising due to structural issues in China. This capacity of 30,000 TPA is expected to come by 2020.

  • Also, new project of Butyl Phenol is expected to start production by end of FY19.

Overall, multiple boosters and earnings visibility for next few years. Although currently valuation looks bit stretched but if all of the above goes well on track then earnings can surprise us.

Disclosure: Invested; No transaction during last 30 days

(Chandragupta) #231

Thanks for the update. But as per Ms. Vinati’s Q3 FY18 results interview, Butyl Phenols are to come on stream in FY20 and PAP post FY21. The timelines you have cited look different. What’s the correct position? Can you please check….Thanks.

(Vivek Mashrani, CFA) #232

The project is expected to be completed by FY19 and FY20 respectively, the earnings will come as per timelines you mentioned.

You can also double check this with few broker reports released recently.

Here is the video link for your reference which has same reference to completion timeline.

(Chandragupta) #233

Thanks. Had missed this latest interview somehow.

(Vivek Mashrani, CFA) #234

Vinati Organics came out with its latest result. Overall good set of numbers QoQ in my view.

Quarterly EPS touched 10.07 for the first time due to effect of (1) Decrease in number of shares due to buyback (2) Combination of revenue growth and margin expansion. Point (2) clearly gives indication of increase in volume due to shutting down of ATBS plant by competitor.

CWIP has increased on balance sheet indicating capex is on track.

Disclosure: Invested

(Abhinav Mehrotra) #235

Update on VOL: This quarter, the new CEO, Ms Vinati shares some more insight into how their financials react to changes in crude price. Overall, it is a positive. She expects 35-40% growth in PAT in FY19 due to increasing off take of both ATBS and IBB. Market share in ATBS has increased from 45% to 65% in FY18.

A few interviews on TV:

Notes on the same:


In the 9m of FY18 we had low off-take of both ATBS and IBB, in Q4 our biggest competitor has exited the ATBS business. With oil prices going up the demand for ATBS has increased. We did 50 cr of PAT in Q4 and we expect to continue at the same run rate.

When crude price increases our RM price increases and EBITDA margins come down but revenue goes up.

For Fy19 we are expecting 25-30% growth in revenue mainly due to ATBS demand increase. We are debottlenecking our capacity from 26000 to 30000.

IBB we have 60-65% global market share, ATBS is similar, IB is a gas it cannot be imported or exported, we cater to 80% of domestic demand.

BP plant will be ready by April 2019, it should add revenues of about 350 cr. Minimum ROI expected is 20%. The investment will be about 240 cr.

Have no debt, cash is at 100+ cr, we are generating 250+ cr cash every year, investment for next 3 years will be 250 cr.

1500 cr revenue in FY21 is still on the cards. One revision is that for FY19 we will do 35-40% growth in PAT.

Bloomberg Quint

30 - 35% PAT growth in FY19. Our margins are fixed in $ per KG as per our pricing formula. The % margin of EBITDA, or as a % of volume comes down but oil price going up is good for us because demand for ATBS goes up. That is why you will see a strong growth in ATBS volume. Demand for ATBS is very strong. It gives us some pricing power for our spot customers. So net-net it is beneficial for us.

At the beginning of FY18 we were at 40-45% market share and now we are at 60-65%.

FY19 we expect 30% volume growth in IBB.

We expect to touch 1500 cr in revenues in 3 years, IBB and ATBS are increasing, BP will add 350-400 cr in revenues.

20-25% growth in the bottom line from FY19 onwards is a fair assumption.

ATBS debottlenecking will cost 35-40 cr. Have invested 50-60 cr this year for BPs.

A few reports I found which detail the CAPEX of BPs project. It has information on CAPEX schedule, manufacturing process and the market study for these chemicals.

4C6CBF808145413BA75906E8EA2BEDC3.pdf (961.6 KB)

([email protected]) #236

From the latest BQ interview, if Vinati manages to makes a topline of 1500cr by FY21 (double from the current 750cr revenue) in a 3 year time frame, with a margin of 20-25% on the bottom line it would roughly come upto 300 to 375cr PAT

The current P/E is around 34 but if one considers the run way ahead for the next 3 years the EPS would be around 58 (have taken 300cr as the profit and without any equity dilution) the P/E comes around 16

is it fair to say that keeping the above points, Vinati is a good business available at a fair price today.

Thoughts of fellow members would be greatly appreciated.

(Chandragupta) #237

Price of today divided by EPS of 3 years in future is conceptually flawed. You should discount Rs.58 to today using appropriate discount rate and then calculate the PE.

([email protected]) #238

Thanks @Chandragupta for highlighting this

(Abhinav Mehrotra) #239

Research report from HDFC Sec. Overall, an average quality report as on one hand they do do well in highlighting the optionality that the PAP opportunity presents. The development of this new manufacturing technology has gone on for long and just like ATBS took 4 years to commercialize from pilot plant due to quality issues, PAP could suffer from similar failures.

On the other hand on page 16 they highlight a CAPEX of 800 cr needed for BPs and PAP, and then on page 18 in the CFS they forecast CAPEX outgo of 370 cr. Hope, they at the least do not believe in their own horseshit.

(Chemist) #240

(Chandragupta) #241

Vinati AR is in line with expectations.

  1. Company claims global market share of 65% in IBB and 55 % ATBS. It says ATBS is expected to grow significantly during the year with exit of Lubrizol. IBB was flattish during the year but will grow in FY19. Both domestic and export markets have shown 11% growth. Volume growth is not disclosed.
Rs. Crores 2017-18 2016-17
India 215.83 192.98
Outside India 525.40 473.40
741.23 666.37

70 % of the revenue is from exports. Last year the company discontinued giving product-wise sales break up, and the AR only reveals 82 % of the total revenue is from Speciality Chemicals, the rest supposedly are commodities.

Rs. Crores 2017-18 2016-17
Speciality Chemicals 606.58 550.78
Others 134.65 115.60
741.23 666.37
  1. I like that the company has no subsidiaries, joint ventures, associate companies or anything. There is only one Balance Sheet, no Standalone Vs Consolidated business. There are no ESOPs, though the AR says an ESOP scheme was approved in 2008 and “the same is being reconsidered”. I think there was a similar statement last year as well, and hopefully company is not serious about this. I hate ESOPs.

  2. Capex underway of Rs.300 crores is mentioned for Butyl Phenols & debottlenecking of ATBS capacity from 26,000 TPA to 30,000 TPA. Butyl Phenols will be completed by 1-Sep-2018. All capex is funded through internal accruals. However, there is no mention of PAP project which is a bit surprising since it was mentioned last year.

  3. I like that the three Promoter Directors put together are taking home just Rs.2.76 crore. There is no variable component either. Percentage increase in promoter’s remuneration is 10% which is reasonable. Mr. Mohit Muthreja is exiting the directorship after this AGM, reason is not mentioned.

  4. Long Term Debt is now Zero.

  5. Out of liquid cash of Rs.137 crores, Rs.14 crores are invested in the stock market! This is a huge disappointment, even though the scale is small. There is a loss of Rs.1.87 crore on this already. In the past, I have exited companies solely because of this factor. Rs.118 crores are parked in mutual funds, of which the major chunk is in Equity Arbitrage Funds.

  6. Sales and profits are in line with previous declarations. CFO is consistent with profits, but increase in RM cost (crude linked) is showing up in all ratios as the Balance Sheet gets bloated. Working capital deployed has gone up significantly in the last two years in absolute terms. And so, ROCE is down from 29 % to 23 %, RONW is down from 26 % to 21 %. Gross margin is down from 52 % to 50 %, OPM from 30 % to 25 % and Net Margin from 22 % to 19 %. This is the result of ‘fixed dollar per kg’ pricing model, since profits remain flat even though costs and revenues increase. With depreciation of the rupee now, Q1FY19 should be better however. (Note: I calculate the ratios my own way, so they may not tally with what are given elsewhere)

I attended the AGM last year but will miss it this year as I am out of station. Anyone attending, please post your report here as I had done last year. Also ask the management about the investment policy for liquid cash.

(Disc: Invested)


i think margins will be better in ATBS business going forward and the ibb too…

definitely is a good business avalable cheap, but from a technical pov, i guess, it should get even cheaper with a weaker global marker next year…

disclaimer… not invested, tracking

([email protected]) #243

Can you please let me know how did you arrive at Rs58 as I do not know DCF, some basic inputs on that would help me , sorry if this is too much to ask.

(Chandragupta) #244

I have not arrived at Rs.58. I was only commenting on the method of calculating forward P/E

(Vivek Mashrani, CFA) #245

Vinati organics came out with results today…couple of interesting points…

  • Revenue growth was slightly above guidance coupled with moderate raw material prices, implying better pricing of products
  • This resulted in margin expansion by more than 500 bps due to inherent operating leverage

Need to watch if they can maintain this levels of margin going further while they are adding new products.

Disclosure: Invested

(Chandragupta) #247

This explains my earlier point on why the Annual Report is silent on the PAP project.

Meanwhile, extremely strong outlook for the existing product line. Company renegotiating contracts with ATBS customers at higher prices !

(Rudresh) #248

Going by the above interview, if she walks the talk. We are looking at top line of 1000 crore n bottom line of around 300 crore. With that number, v r getting it at PE of 20 which is almost at discount of around 30%. If v extrapolate as per guidance of doubling in 3 years, v r getting at PE of 10 r so. Hard to resist to add on to the current holding.

(shikhar mundra) #249

latest interview.

(sjsandesh) #250

Transcript of Q1FY2019 Investor call: