Vinati Organics


(Vivek Mashrani, CFA) #123

BP Wealth has come out with initiating coverage report on 9 Dec 2015. Will share the web-link as soon as it is available in public domain.


(Rajat Setiya) #124

hi guys,

new to this thread. Have couple of queries to understand this business:

  1. How easy or difficult is it for customers to change a supplier (switching costs)?

  2. Currently, growth of topline is in question mark big time (i believe). On one hand IBB is a mature product and shall face declining profitability. While, ATBS is facing headwinds because of crude price fall. Any idea if company has got any in-house capability to produce new hit products (with sales potential enough to make a difference to topline)?

  3. They claim to be lowest cost producers, is there anything apart from backward integration contributing to this?

Thanks
Rajat


(Vivek Mashrani, CFA) #125

Initiating coverage report released by Motilal Oswal today:

http://ftp.motilaloswal.com/emailer/Marketdiary/Result/VINATI231215.pdf


(Kranthi Kumar) #126

Management reaffirms revenue growth of 15% over fy17-18 keeping the margins intact.

Disc: invested. 4% of pf


(Vivek Mashrani, CFA) #127

Initiating coverage report by Karvy released today:

Discl: Invested


(Vivek Mashrani, CFA) #128

Vinati reported its 3Q result today:

http://nseindia.com/corporate/Letter_NSE_30012016_30012016181814.zip

Total income (sales): 152Cr. vs. 202Cr. YoY
EBIDTA: 47 Cr. vs. 50 Cr. YoY
PAT: 30.1 Cr vs. 30.8 Cr. YoY
EPS: 5.85 vs. 5.97 YoY

Bit disappointing set of numbers.

Disclosure: Invested


#129

Seems all specialty Chem. and bulk drug firms to an extent are facing RM adjustment in sales along with slackness in overall demand.


(Sahil Taneja) #130

Not just Indiaā€¦ this seems like a global trendā€¦ the entire sector facing headwindsā€¦


(Prashant Vaishampayan) #131

In Dec15 interview, Ms. Vinati Saraf mentioned that she expects to maintain similar margin level, north of 20 percent in FY17-18. In FY16, comany margins are boosted by export benefits for previous years. Excluding these benefits, Net margins are 17% in 1Q and 3Q and 15% in 2Q. Will new products to be launched in FY17 take up the margin above 20%? what could be other drivers for margin expansion?


(Akshay Jain) #132

If I understand correctly, ATBS margins are above the normal, IB margins are below and new products have around the 20% margin. So as the contribution of ATBS keeps increasing, the margin profile will marginally increase and then stabilize. A question that I have is about the impact of oil price decline. I read that only about 20% of ATBS is related to oil (EOR). So what explains the sharp decline in revenues and secondly why are the profits not increasing at a similar pace (minus the EOR)

Akshay


(Nitin Mukhi) #134

vivek,

i think both atbs and ib are seeing lower volumes this year. atbs because of shale oil demand and ib because of week monsoons in india.
i think in fy17, demand for atleast ib will pick up as we cant have 3 consecutive monsoon failures. atbs we will have to see as to how the gap created by shale oil gets filled.
last year, the capex was close to 50cr, do you have any idea, what tht capex was? from the asset schedule of the annual report, it seems they had also acquired some new factory land (may be a new site)??
wat will be there capex for fy16?? capex for the 1st 6 months (based on half yearly balance sheet was not tht much

i believe tht the 45cr tri-party deal is just tip of the ice bergā€¦outsourcing manufacturing of speciality chemicals is going to be a big theam in futureā€¦these western and japanese compnaies want to reduce their operating cost through outsourcing


(Vivek Mashrani, CFA) #136

Nitin,

We donā€™t have exact volume numbers disclosed anywhere in public domain as far as I understand. Lower revenue is generally due to lower crude prices and hence lower realizations. But since their cost/raw material is also crude derivative it offsets lower revenue. Hence, margin expanded this quarter and profits were in-line. There might be slightly lower uptick in volumes in ATBS though.

As per press release from Vinati in May-15 and subsequent discussion with CS by fellow valuepickrs, they are doing capex of 200 Crs. over 2 years (ideally split of 100 Cr for each year).

Their capital work-in-progress had increased last quarter suggesting they are on track. They are coming up with incremental IB capacity and hence the new plant for the same. Also, they are also adding many other derivatives as per their May-15 press release.

On 10-Dec-2015, they announced tri-party deal which will give incremental 45 Cr revenue for this year. Yes, I believe they might do similar deals for other new chemicals as well (but its just a possibility for now!!)

Disclosure: Invested and views may be biased


(Nitin Mukhi) #138

(1) vivek, if you see co. like atul, aarti industriesā€¦they too had a decline in topline but their operating profit increased because volume was increasing,
in case of vinati, topline was falling (which is understandable) but operating profit was flatā€¦and tht too supported by some previous year export benifitsā€¦
this confirms the fact tht volume have fallenā€¦and in the agro chemical industry, you take any companyā€¦non of them have performedā€¦giving an explaination why IB business will be under pressureā€¦as majority volumes supplied to india agro chemical industryā€¦no to mentionā€¦there would be some dumping from china tooā€¦

(2) i think the capex of 200cr had already started in fy15, look at the gross block additions in annual reportā€¦a 3rd factory is currently being put up with new land and buildingā€¦

(3) for new capacity on IB, i think it is just debottelneckingā€¦u can read abt tht in the only available concall notes on their websiteā€¦by the wayā€¦wat is the current capacity of IBā€¦and how much of it is used captive??

(4) on their website, u can also look at the latest shareholding pattern for dec2016. it is a 26 page documentā€¦containing name wise of all investors ā€¦including individual investorsā€¦

(5) i dont know whether u have heard of a value investor named ashish kochliyaā€¦he was holding 2lac shares as of mar2015ā€¦have reduced it to 1.55lac in dec2015

dis: invested


(Vivek Mashrani, CFA) #139
  1. Agree on the logic

  2. Yes, it looks like they started the capex this year hence the point I mentioned about increase in Capital work-in-progress last quarter. Also, from press release of incremental 45 Cr revenue in 2016-17 >> this implies that capex is on track.

  3. They are doing new capex for IB as well as bottlenecking existing capacity. Current capacity is 12,000 mtpa. They use >50% for captive as far as I know. Rest they sell domestically.

  4. This is very interesting. Didnā€™t knew they give such a detailed split. Thanks for sharing. For individuals they have names of non-residents only (was curious to see my name!! :slightly_smiling: )

  5. Yeah, I am aware of Ashish Kacholiya being the investor. I donā€™t give much importance to their reduction in holding. Though presence of such investors give confidence to many retail investors.


(Nitin Mukhi) #140

i believeā€¦in 2010, their inflection point was ATBSā€¦in 2016, their next inflection point is going to be outsourcing within the IBB derivative segmentā€¦45cr tri party agreement is just the beginningā€¦plz do share if u gather any valuable info abt the company, going foward


(Ravi Srikant) #141

A 50% fall in price and a 25% increase in volume would still lead to lower revenues. I am not implying that volumes did increase. The company has negative operating leverage due to its fixed costs associated with employees etc. A report on Aarti industries does mention that prices of crude derivative products in some cases have fallen more than crude oil itself, with Benzene for eg. down more than 50%.

Will need to figure out the current prices for IBB, ATBS and IB. As of end of FY12, their prices were around 115, 170 and and 100 Rs/ kg respectively. Assuming current prices are 60-70% down from those levels, volumes would have had to show a huge increase to compensate for the fall in price. My guess is that volumes might be marginally down.


(Vivek Mashrani, CFA) #142

Latest interview of Vinati at Antique conference:


(sagararya) #143

Great information here. I have been reading up about specialty chemicals and am surprised to learn that many of them are valued as commodity chemicals.
Regarding Vinati- IBB is the main raw material used in ipubrofen. I read on various sites that FDA has been considering to ban it for a long time now due to its side effects. Indian govt too banned OTC of brufen. How is this impacting Vinati? Could this be reason for muted growth in the past year?


(sagararya) #144

Can anyone please help me understand a couple of things-

  1. How has the operating margin improved despite lower sales? I believe its a cost plus model and hence any benefit is passed on to the consumers. Also the demand for ATBS which is the high margin product gone down recently due to its application in oil recovery. IBB I believe is witnessing low growth and IB has lower margins.

http://www.ratestar.in/company/Vinati-Organics-Ltd-124200

This is quite a substantial improvement in margins YOY (EBITDA). Also as per my understanding the fixed costs in the business is high and hence I would expect lower operating margins due to lower turnover. What am I missing?

  1. What is the difference between ATBS and AMPS? Is it only the process or process/application both? The reason why I am asking this is because Vinati in one of her interviews mentioned that the company will capture all incremental growth in ATBS since they are the only manufacturers globally and with excess capacity. Isnt AMPS a perfect substitute for ATBS.

  2. Where will additional growth come from? ATBS demand is down, IBB has matured, IB is down due to lower demand for agrochemicalsā€¦the performance of their new products is difficult to gaugeā€¦Can Vinati replicate its growth in the past?


(ricky_) #145

@vivek_mashrani

ATBS,IBB and IBā€¦lets concentrate on these 3 main revenue fetchers.

IBB - Vinati is the only company to manufacture this item with maximum purity. So no need to worry about this segment.

Concern1
What about the other two? Why would customers choose vinati over its peers when its time for them to go for these products?

Concern2
Somewhere in this thread I read that there is a chance of IBB getting banned both in domestic as well as international markets. How reliable(and disappointing) do you find this info?

Thanks