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.
Thanks. Had missed this latest interview somehow.
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
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:
https://twitter.com/CNBCTV18News/status/995902078781292544
Notes on the same:
CNBC TV18
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)
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.
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.
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.
Vinati AR is in line with expectations.
| 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 |
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 âthe same is being reconsideredâ. I think there was a similar statement last year as well, and hopefully company is not serious about this. I hate ESOPs.
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.
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 promoterâs remuneration is 10% which is reasonable. Mr. Mohit Muthreja is exiting the directorship after this AGM, reason is not mentioned.
Long Term Debt is now Zero.
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.
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 âfixed dollar per kgâ 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 tooâŚ
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 yearâŚ
disclaimer⌠not invested, tracking
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.
I have not arrived at Rs.58. I was only commenting on the method of calculating forward P/E
Vinati organics came out with results todayâŚcouple of interesting pointsâŚ
Need to watch if they can maintain this levels of margin going further while they are adding new products.
Disclosure: Invested
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 !
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.
Transcript of Q1FY2019 Investor call:
Q1FY19 Conference Call Notes: Notes in Italics are emphasis mine.
1st call after 5 years.
ATBS
Largest product with 50% of sales. FY18 finished with strong growth due to increased usage as applications of this product is growing. Used to make polymers that go into water treatment, EOR and personal care products. Lubrizolâs exit helped us as well. ATBS grew at 35% in value terms and 25% in volume terms in FY18 over FY17. Overall market size is growing.
In FY19 we command global market share of more than 60%. We expect to grow more than 30% on volume basis. Have added new customers and have renegotiated pricing contracts. It is a very difficult monomer to manufacture and we have proprietary technology, we do not see any new competitors entering the market. These kind of margins are expected to continue in the coming years.
Capacity expansion is underway that will take capacity from current 26000 TPA to 40000 TPA. Expected to be completed by April 2019 with a CAPEX of 75-80cr. Expect to grow ATBS volumes by 25% for next 2-3 years. We will need this 40000 TPA to service the market for next 3-4 years. 40000 TPA utilization for the next 5 years is achievable. Reaching full capacity will take 3 years.
FY18 Capacity Utilization - 100%. Have started running at 100% from April this year, as Lubrizol exited in Jan. So yoy basis 30% volume growth over FY18.
For Lubrizol, this was not a core product, they had less than 1% revenue share from ATBS, they had 20% market share. Benefit for us is increased volumes at better prices. Earlier there was a supply surplus, now there is a shortage. This has increased margins and it is a difficult product to manufacture and we do not see any new competitor coming up. We have formula based pricing with our customers, as crude prices go up, our RM prices go up, so do our end product prices but the margins are not affected by crude price. (Margins per volume $/Kg not margins per Revenue.)
There are no inventories in the market due to current situation. This will be a brownfield expansion. Have a Japanese and Chinese competitor, they are not expanding capacity as per our knowledge.
Midyear debottlenecking has been shelved.
IBB
2nd largest product for us. Q1 sales were stable, Q2 will be slightly slower due to shutdown by one of largest customers. Expect to make up for this in Q3 & Q4. Already increased IBB capacity from 16000 to 25000 TPA, this will take care of demand for the next 3-5 years. Last year customer took shutdown to increase capacity, that would have meant 25% growth this year, but unfortunately due to technical failure customer has taken a 3 month shutdown, so this year we will see a 3-5% growth. In FY20 we expect double digit growth (15%) over FY19 as global demand is increasing and customer has already expanded.
IBAP project is on hold because the customer we were making it for is not interested anymore in sourcing IBAP from us.
FY18 Capacity Utilization - 60%
Only 5-6 customers for IBB.
IB & MTBE
Have fared well, and keep growing yoy. IB capacity is at 30000 TPA, it has been increased to cater to BPs. Currently running at 50%. For every KG of ATBS we need 0.35 KG of IB, We sell 6000-7000 TPA of IB in the domestic market.
12000 TPA will go for BPs and 12000 TPA for ATBS rest 8000 TPA we will sell in domestic market.
Customized Products
Delivering as per Expected. We do get queries from customers for customized products because a lot of our processes can be replicated to make other smaller products. They are small in terms of revenue share but much higher in terms of profit share. These being specialized products we get much higher margins here.
BPs
CAPEX to finish by April 2019. Has 4 products. PTBP & OTBP are used as intermediates in resins and perfumes. DTBP are used as RM in anti-oxidants, which are used as additives in plastic manufacturing. CAPEX of 240 cr. Will result in sales of 350-400 cr. In FY20 we expect 60-65% capacity utilization and from FY21 at 100%.
Mostly imported into India from Korea and Singapore. They are not made in India because they do not have the necessary RM which is IB. Since we are the largest manufacturer of IB in India it makes sense to forward integrate and make these products in India. We work on a ROI of 15-20%, so on a CAPEX of 240 cr we can calculate the margins. They will be lower than ATBS but we still expect a payback in 5 years. At 400 cr our market share in India will be 80-90%. 24-25000 TPA are already imported and we are going for a 36-37000 TPA capacity. We will also be exporting some BPs. Globally market size is in lacs of TPA. We are competitive globally as well. We are backward integrated with IB and that gives us a cost advantage. There is scope for increase in capacity and selling products outside India.
For every KG, we need 2/3rd phenol and 1/3 IB for their production. Phenols are readily available in our country and imported as well. We will source it locally. Margins will be similar to IBB. 15-20%. Our costs will be similar to other manufacturers, customers in India will not have to pay for international freight. Usage of products in which BPs are used is growing, that is why we feel our excess capacity will be able to cater to expanding demand. BPs end use market could be growing at 10-12%.
With all of the above we expect to grow by 25% CAGR for next 3 years.
PAP
Have set up a prototype pilot plant. Proprietary technology developed by NCL has been successfully demonstrated at the lab level. Trials on the pilot plant will take 3-6 months. Will take a decision on commercialization only when pilots are successful for 6 months. That is why we havenât mentioned it in our CAPEX plans. Having teething problems right now, have ordered new equipment.
If commercialized, it would have an asset turnover of 1 and EBITDA margins of 20%.
An analyst asked that with 20% EBITDA margins, we have WC and D&A to pay for, how does it qualify 20% ROI? The answer was, "Do not take PAP into your projections, even we are not. Saying this to all analyst, none of us here are taking PAP into our projections for the next 3-5 years also because we are not sure we are going to do this."
FY09 PAP pilot plant was with different technology with 4 cr investment. Market conditions changed and so did our process.
Now we have made changes to the process, improvised it more. This is a different pilot plant. We were successful in that process. (But then why not take it further, why new process?)
Q&A
FY19 EBITDA margins will be at 35%. ATBS is higher margin product and higher volume as well but with BPs coming online we expect same blended margins for next 3 years at EBITDA level.
We do not import anything from China, most of the imports are coming from USA, Korea and ME.
New products beyond PAP
For us to commercialize one product we have to study 10-15 different products at various stages of the RME pipeline. At any given time, we are working at 15-20 products, developing new chemistries, one ex. is that we could further integrate from BPs to make anti-oxidants. It is too premature to talk about any of them. This is what keeps us busy. Our products have a limited market size so to keep growing we need to keep adding new products.
Our criterion for new products is beyond revenue potential, we have set rules:
Right now our biggest endeavour is to close on PAP, one way or the other. Once we decide that, then we will make a pilot plant for the new product and go from there. So any new product is at least one year away from the announcement.
Dividend Payout
We will have healthy cash flows of 400 cr on revenues of 1000 cr this year. We prefer to reinvest capital into our business as that gives us the best returns. Payout will stay at 20%. We need these reserves to pay for our projects via internal accruals without taking on debt.
Growth
Excluding PAP this year we will see an increase in bottom-line by 35-40%, for the next 3 years we will see our profits growing at 25-30%.
CAPEX
FY19 around 300 cr on account of BPs and ATBS. FY20 we do not have the figure as it is mainly dependent on PAP.
Based on the guidance in Conference Call,
FY18 PAT was at 144 cr. Management guides for 35-40% growth in PAT in FY19 which comes to 194.4 to 201.6 cr.
Revenue guidance for FY19 is 1000 cr that means PAT margins will be at 19.4 and 20.1% respectively.
Next 3 years guidance which is upto FY22 is at 25-30% at PAT level. I am taking four cases with the two FY19 PATs above and two different 3 year growth rates given.
Taking FY22 Exit Multiples of 15,20 & 25 we get the following Market Caps.
| Market Cap Sensitivity Analysis | ||||
|---|---|---|---|---|
| Growth | NI/ Exit Multiple | 15 | 20 | 25 |
| 25% | 379.69 | 5695.31 | 7593.75 | 9492.18 |
| 30% | 427.10 | 6406.45 | 8541.93 | 10677.42 |
| 25% | 393.75 | 5906.25 | 7875 | 9843.75 |
| 30% | 442.92 | 6643.728 | 8858.30 | 11072.88 |
Will not choose/favor an exit multiple here as it will become a topic of endless debate as it has in the DMart thread.
Individuals can pick their preferred exit multiple and calculate their 4 year CAGR from the current 7000 cr odd market cap.
PS: This is the story as of now. We will know in 6 months if PAP needs to be added to these projections.
