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