Vinati Organics

Vinati organics stock story updated.

This does seem to be an excellent business, with some competitive moat, and good growth prospects.


The only question I asked myself on Vinati, and have not been able to answer it yet, is why are there only so few players. The technology is not very difficult to get, so why? That is what I am trying to figure out.

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Re:The technology is not very difficult to get

What I understand

IBB technology is not that difficult to get. Yes, and so others like AOL have stepped in and margins have suffered. IBB share in revenues has gone down from 53% to ~43% ion 1QFY10. As ATBS capacities are ramped up from current 12000 to 18000 MTPA, this will further come down.

The Vinati bet is on ATBS -only 3 players in the world. This technology is difficult to get.

With the increase in capacity it will become the largest producer too (from 2nd largest, Lubrizol ~14000 MTPA).Yes the technology is protected by Patents…I checked and found several references other than the NCL Piune, references at Lubrizol -the current biggest manufacturers.

What I have not understood

Why existing 3 have not stepped up on increasing ATBS capacity. In the conference call I asked Vinati if they have tracked competition and any activity on ATBS increasing capacity. They said they are not aware of any plans of competition on ATBS.

At Lubrizol 10K forms and AR, they do not make any big bones on ATBS, for them it may be one of many products.The other thing I have not yet found answers to is any independent study/reference on the growth potential of ATBS. All we have is what is fed to us by the company.

But I rationalise this going by the growth the company is registering in ATBS QoQ. from 1700 tonnes it has gone to 2100+. Company says that there is such a demand supply position, they are airlifting supplies to clients!

Certainly we need to watch the progress on ATBS carefully…much hinges on that for the company.



Conference Call of Vinati Organics Limited

Event Date / Time : 12th August 2010, 4:15 PM IST

Event Duration : 28 min 01 sec

Presentation Session

Moderator: Good evening ladies and gentlemen. I am Rashmiya, moderator for this conference. Welcome to the conference call of Vinati Organics Limited. We have with us today Ms. Vinati Saraf Mutreja, Executive Director, Vinati Organics Limited, and Mr. N. K. Goyal, Chief Financial Officer, Vinati Organics Limited. At this moment all participants are in listen only mode. Later, we will conduct a question and answer session, at that time if you have a question, please press * and 1 on your telephone key pad. Please note this conference is recorded. I would now like to hand over the conference to Ms. Namrata Sharma of Concept Public Relations. Please go ahead maaam.

Namrata Sharma: Good afternoon everyone. Firstly on behalf of Concept Public Relations, I would like to welcome Ms. Vinati Saraf Mutreja, Executive Director, Vinati Organics Limited, and Mr. N. K. Goyal, Chief Financial Officer of Vinati Organics Limited. Also I welcome all the analysts present here. Now I hand over the call to Ms. Mutreja. Maaam request you to take over from here.

Vinati Saraf Mutreja: Good afternoon everyone. Thank you for joining us to discuss our results today. I am joined by Mr. Goyal who will share some financial results, and I shall brief you on the business outlook and what VOL is planning to achieve in the coming quarter. We have had a firm where our sale has grown by 38% this quarter and we expect to maintain this growth rate going forward. Much of this growth is coming from ATBS where we are witnessing increased and strong demand. Owing to the increased demand, we have now decided to expand our ATBS capacity from existing 10,000 metric tons to 18,000 metric tons. With this expansion, Vinati Organics will become the largest manufacturer of ATBS in the world. The isobutylene plant was commissioned in June 2010, with this strategic backward integration done by us; it is going to further strengthen our progress towards leadership position in ATBS. Other than ATBS, there is a also a capacity expansion to be undertaken in Tertiary Butyl Acrylamide and Vintreat-Cap polymer. We will expand the TBA capacity from 300 metric tons to 1000 metric tons and Vintreat polymer capacity from 1000 metric tons to 3500 metric tons. VOL is also going to introduce two new products, Diacetone Acrylamide, and Tertiary Octyl Acrylamide. Both these Acrylamides, are high value products, and are used as homo polymers and co polymers for manufacturing adhesives, coatings, resins, cosmetics, etc. The Diacetone Acrylamide plant will be ready of 1000 tons and TOA of 300 metric ton capacity plant will be ready by January 2011). The increased capacities and new facilities are expected to yield additional revenues of about 150 crores p.a. We are also setting up a 6 MW active cogeneration plant based at Lote. This will help us in being energy self sufficient and significantly reduce our energy costs. Now I request Mr. Goyal to discuss some of the key financial highlights of our performance during this quarter.

N. K. Goyal: The net sales for the first quarter ended 30th June 2010 was Rs.69.95 crores as against 50.81 crore during the quarter 1 of previous year, registering a 38% growth. EBITDA level stood at Rs.13.49 crores as against 11.79 crores, registering a growth of 14%. In terms of net profit, we have done Rs.8.5 crores, compared to Rs.7.58 crores, registering a growth of (inaudible)%.

Vinati Saraf Mutreja: We will have the Q&A session now.

Question and Answer Session


Moderator: Thank you maaam. Ladies and gentlemen, we will now begin the question and answer session. If you have a question, please press * and 1 on your telephone key pad and wait for your turn to ask the question. If your question has been answered before your turn, and you wish to withdraw your request, you may do so by pressing # key.

First question comes from Mr. Ritesh Khanna from Aadhar Securities.

Ritesh Khanna: Could you just take us through the current realization of your products, mainly IBB and ATBS, and also how the realizations, what range do they fluctuate?

Vinati Saraf Mutreja: Sure. IBB sales rise to somewhere in the range of 90-100 rupees a kg, it is about 150 per kg.

Ritesh Khanna: And usually what range do they usually move in?

Vinati Saraf Mutreja: About 10%, within that.

Ritesh Khanna: Right, thanks.

Moderator: Thank you sir. Next question comes from Ms. Runjhun Jain from Nirmal Bang Securities.

Runjhun Jain: Hello. Good evening everybody. Maaam I just missed the ATBS realized rate.

Vinati Saraf Mutreja: 150 per kg.

Runjhun Jain: Okay. And second question is, whatever expansion you are doing, like from ATBS 10,000 to 18,000, capacity expansion, what is the CAPEX requirement for that including the cogeneration facility, which you are putting up in Lote plant, and how do you plan to fund that?

Vinati Saraf Mutreja: The total CAPEX required is 120 crores, out of that about 50 crores is required for the ATBS expansion, 32 crores for the cogeneration, and the remaining 40 crores is for the Diacetone Acrylamide, TBA, TOA, and Vintreat-Cap polymers. And see the debt-equity ratio is quite low, so mostly we will be taking on debt to fund that and the remaining will be through internal accruals and maybe some fresh equity.

Runjhun Jain: So you are planning some equity dilution?

Vinati Saraf Mutreja: Not necessarily, it depends on our requirement, mainly debt and internal accruals.

Runjhun Jain: Okay. And by when these facilities, like cogeneration is expected to be operational?

Vinati Saraf Mutreja: Cogeneration will be operational after October 2011.

Runjhun Jain: Okay, so what is the CAPEX requirement for this year, remaining part?

Vinati Saraf Mutreja: Out of 120 crores, about 80 crores we will use now in this fiscal.

Runjhun Jain: 80 crores would be in FY11.

Vinati Saraf Mutreja: Yeah. Because ATBS will be operational in May, the increased capacity, DAAM, TBA, that will be operational by January, so maybe 90 crores.

Runjhun Jain: Okay and ATBS would be operational by May 2011?

Vinati Saraf Mutreja: Yeah.

Runjhun Jain: And do you see any price improvement in these products?

Vinati Saraf Mutreja: No, the price is dependent on the raw material price.

Runjhun Jain: And that is, now you are producing it yourself, so you havea

Vinati Saraf Mutreja: Just isobutylene, the other raw materials we are buying.

Runjhun Jain: And how much that percentage, as percentage to cost of the material? Like if I say, 80 basis points of 100 bucks, so what is the percentage of raw material of IB and other products?

Vinati Saraf Mutreja: Would be, raw material cost is around 60% of the sales price.

Runjhun Jain: I am just asking how much is IB and how much other materials?

Vinati Saraf Mutreja: Out of 60%, isobutylene is about 40%, 30%.

Runjhun Jain: Okay, the remaining 20. And in the last con call you said that you saw a recessional quarter last year in terms of raw materials of IBB. So you were expecting some competition in that field, and plus you said that you would see raw materials going up.

Vinati Saraf Mutreja: Yeah, that is correct. In ATBS the raw material has gone up, of ACN. Now we can pass on that price increase to our customers, but that is only after a quarter. So there is a quarterly lag.

Runjhun Jain: Okay. Maaam, actually I am asking about IBB, what is the scenario now?

Vinati Saraf Mutreja: See, in IBB, the margins have come down slightly because of new capacity coming up of IOL, so last year was an exceptional year in terms of margins in IBB. So going forward, this year that margin of IBB will come down.

Runjhun Jain: Okay. And you were seeing some raw material increase also in there?

Vinati Saraf Mutreja: No.

Runjhun Jain: Raw material cost is constant?

Vinati Saraf Mutreja: Yeah.

Runjhun Jain: Okay, whatever the impact is there because of the competition coming in.

Vinati Saraf Mutreja:

Yeah, correct.

Runjhun Jain: Okay, thank you.

Moderator: Thank you maaam. Next question comes from Mr. Varun Goenka from JM Financials.

Varun Goenka: Hello?

Vinati Saraf Mutreja: Hello.

Varun Goenka: Hello Vinati, my answer on the CAPEX and how it would be funded is answered. What I wanted to understand was how is the contracts with the customers and where the clients are?

Vinati Saraf Mutreja: See, about more than 70% of our sales are exports. And our clients are based in USA, Europe, South East Asia, Australia, and some of them are contracted and some are not.

Varun Goenka: So, I mean, who are your major customers and the terms of contract vis–vis your raw material volatility? The pricea?

Vinati Saraf Mutreja: See, in IBB, based on the contracts, we are able to pass through the cost seeing the price every month. In ATBS we change it every quarter. Now, our largest customers are Dow Chemical, Akzo Nobel, BASF, Clarion, Nalco.

Varun Goenka: And top 10 customers comprise of what percentage of your sales, if I may ask, if you have the data?

Vinati Saraf Mutreja: Top 10 would comprise about more than 60%.

Varun Goenka: Okay. And the power generation plant that you are putting up, 6 MW, what will that saving amount to?

Vinati Saraf Mutreja: 8 crores p.a.

Varun Goenka: Okay. That will be all from my side.

Moderator: Thank you sir. Next question comes from Mr. Brijesh Kasera from Anagram Capital.

Brijesh Kasera: Hello.

Vinati Saraf Mutreja: Hello.

Brijesh Kasera: Yeah hi Vinati, I am Brijesh here. If you could, I probably might have missed this earlier, I joined in late. Could you give me a breakup of your production of ATBS, IBB, and IB?

Vinati Saraf Mutreja: Sure, in Q1 we did about 3000 metric tons of IBB and about 2800 metric tons of ATBS.

Brijesh Kasera: Okay. And what about IB?

Vinati Saraf Mutreja: IB we only started in June, so Q1 there was hardly any IB production.

Brijesh Kasera: Okay. And could you give me the corresponding figures for Q1FY10?

Vinati Saraf Mutreja: Yeah, IBB was about 3500 and ATBS was about less than 1200.

Brijesh Kasera: And the same breakup on the sales value?

Vinati Saraf Mutreja: You can calculate no, you know the realizations.

Brijesh Kasera: No, I donat, maaam.

Vinati Saraf Mutreja: I had just mentioned, anyways we willa

Brijesh Kasera: Yeah, if you could do that again please, maaam?

Vinati Saraf Mutreja: The sales of IBB in this quarter were about 30 crores and 40 crores was ATBS and in FY10 IBB was again about 30 crores and ATBS was about 17 crores.

Brijesh Kasera: Okay, thanks a lot. Thatas all from my side.

Moderator: Thank you sir. Next question comes from Ms. Bhavna Jegwani from HDFC Securities.

Bhavna Jegwani: Hello?

Vinati Saraf Mutreja: Yeah, Bhavna, hi.

Bhavna Jegwani: Hi, Vinati. I joined a bit late, so some questions could be repeated. Okay, now the IB plant we started in June and that is 12000 metric tons right?

Vinati Saraf Mutreja: Yeah.

Bhavna Jegwani: So, now what sort of improvement are we seeing in our margins, now that we have started using IB?

Vinati Saraf Mutreja: See, initially we were paying a lot on freight, because IB we were importing, so that freight saving we are seeing.

Bhavna Jegwani: That is something like 20 dollars per ton or something, right?

Vinati Saraf Mutreja: 20 rupees per kg of IB.

Bhavna Jegwani: So, this is directly now going to our bottom line and to start with have we started selling IB outside?

Vinati Saraf Mutreja: Yes, we have started.

Bhavna Jegwani: So, currently at what capacity is the plant running?

Vinati Saraf Mutreja: Currently we are running at about 70% capacity.

Bhavna Jegwani: And of our 70% production 50% is used captively and 50% is sold outside?

Vinati Saraf Mutreja: Yeah, you can say that.

Bhavna Jegwani: Okay. Now, coming to our new projects, if you could just tell me what is coming on stream by when?

Vinati Saraf Mutreja: Yeah, sure. DAAM is to start by January 2011 and ATBS expansion will be completed by May 2011 and Cogen will start after October 2011.

Bhavna Jegwani: And where are we putting up this Cogen?

Vinati Saraf Mutreja: This is all in Lote.

Bhavna Jegwani: And it will just be used captively.

Vinati Saraf Mutreja: Yeah.

Bhavna Jegwani: And this is what you said will save us something like 8 crores or so?

Vinati Saraf Mutreja: Correct, yeah.

Bhavna Jegwani: Now, ATBS and in one other product have we decided to increase how much we wanted to expand the polymer also, originally we had thought of 3000 and now that has gone up to 3500 and ATBS has gone up from 12000 to 18000.

Vinati Saraf Mutreja: Thatas right, yeah.

Bhavna Jegwani: So, what sort of demand are we seeing and are we sure about the offtake of these products?

Vinati Saraf Mutreja: Yeah, absolutely. ATBS demand is growing a lot, very strong demand. In fact we are air freighting the material to customers. We are already running at more than 95%, 90% capacity and going forward the applications of ATBS are increasing, its use is increasing coming from EOR polymers, mining polymers, construction polymers and that is why we think we should be able to sell more than 15, 16,000 tons also.

Bhavna Jegwani: And no one else is planning a capacity expansion over here?

Vinati Saraf Mutreja: Not that we have heard of.

Bhavna Jegwani: And no nuclear, no one else has got the technology.

Vinati Saraf Mutreja: No, nothing like that here.

Bhavna Jegwani: Right, and similarly when is this polymer plant coming on stream?

Vinati Saraf Mutreja: This, see TBN polymer expansion goes hand-in-hand with the ATBS expansion.

Bhavna Jegwani: So, all that will be from May 2011.

Vinati Saraf Mutreja: Yeah, correct.

Bhavna Jegwani: And because of this ATBS expansion will our current plant need to take any shutdown or it will just be parallel?

Vinati Saraf Mutreja: At the most 10-day shutdown, not significant shutdown, because it will be parallel, we are adding new equipments, soa

Bhavna Jegwani: So, we will stock enough, it wonat basically impact our sales or our offtake in any way.

Vinati Saraf Mutreja: No.

Bhavna Jegwani: Right and how much debt do we have on our books currently?

Vinati Saraf Mutreja: We have about 40 crores long term debt.

Bhavna Jegwani: And working capital?

Vinati Saraf Mutreja: I think about 26 crores.

Bhavna Jegwani: And now this 120 crore expansion, how much more debt we will be taking on?

Vinati Saraf Mutreja: At least 70, 75 crores.

Bhavna Jegwani: And that is yet to come, like have we tied up?

Vinati Saraf Mutreja: No, not yet.

Bhavna Jegwani: But it will be, like are we looking for a foreign currency loan or basically it is rupee loan?

Vinati Saraf Mutreja: Yeah, I think we will be interested in foreign currency loan only, because major chunk of our sales are exports.

Bhavna Jegwani: So, then it will form a natural hedge or whatevera

Vinati Saraf Mutreja: Yeah, exactly and plus the interest rates are lower also, soa

Bhavna Jegwani: Right, okay. In terms of guidance, how do you say the rest of FY11 could shape up?

Vinati Saraf Mutreja: In terms of sales we expect from FY10 to FY11 a growth of more than 35%, which is in line with our Q1 sales and that will only increase because IB will also add to that and ATBS also.

Bhavna Jegwani: Right, and in terms of profitability, because our margins seem to be hurting a little bit?

Vinati Saraf Mutreja: Yeah, but in terms of profitability we expect a 15% growth in net profit at least.

Bhavna Jegwani: So, our top line will grow by 35%, but our bottom line will only grow by 15%?

Vinati Saraf Mutreja: Thatas right, yeah.

Bhavna Jegwani: Because of?

Vinati Saraf Mutreja: Because the margins in IBB are coming down.

Bhavna Jegwani: This is now coming to below 10% ora

Vinati Saraf Mutreja: No, see, last year our EBITDA margins in IBB were more than 20%, which was abnormally high for IBB. This year it will stabilize to about 15%.

Bhavna Jegwani: Right, but now ATBS is contributing incrementally to our sales, so should there be such a big hit on profitability, because ATBS will more than make up for this fall in IBBs margins.

Vinati Saraf Mutreja: See, ATBS EBITDA margins will be about 25% or little more than that, so overall our EBITDA margin will be about 20% and the PAT margin will be 15%.

Bhavna Jegwani: Because in this first quarter our PAT margin is only about 12%.

Vinati Saraf Mutreja: Yeah, that will improve because in this quarter the ACN price had shot up by 50% and that price increase in my sales price I can only get from July, starting July because of the quarter lag, so the margin will improve in Q2, Q3 and Q4.

Bhavna Jegwani: Right. Thatas all from my side for now; I will come back if I have more questions, thanks.

Vinati Saraf Mutreja: Sure.

Moderator: Thank you, maaam. Followup question comes from Mr. Ritesh Khanna from Aadhar Securities.

Ritesh Khanna: Yeah, hi. Could you just briefly tell us the input-output ratio for manufacturing ATBS in terms of how much ton of IB is required to manufacture a ton ofa?

Vinati Saraf Mutreja: For 1 kg of ATBS requires about 0.45 kilos of IB and 0.45 kilos of acrylonitrile, these are the two main raw materials.

Ritesh Khanna: Right, also you mentioned the freight cost saving through captive IB manufacturing; could you just tell us the percentage saving in terms of your captive IB production?

Vinati Saraf Mutreja: Sir, it would be about 15% in terms of IB price.

Ritesh Khanna: Right, and could you just briefly take us through the demand supply scenario of ATBS worldwide?

Vinati Saraf Mutreja: Well, the worldwide demand presently is about 30,000 tons, which is growing at more than 10-12, maybe 15% per annum and our share in that is growing even more than that, our sales have been growing by 40% in ATBS for the last three years and we just doubled our ATBS capacity from 5000 to 10000 not even six months back and we are already running at more than 95% capacity utilization and I think the major chunk of this growth is coming from EOR polymers and mining polymers and construction industry.

Ritesh Khanna: Right. Since the demand supply picture is so bright, what prevents competition from coming in?

Vinati Saraf Mutreja: This may be the first mover advantage, because we are constantly increasing our capacity and also the technology is very difficult to get and to manufacture the right quality took us also four years to get the quality right, so that is the entry barrier in this field.

Ritesh Khanna: Okay, thanks.

Moderator: Thank you sir. Next question comes from Mr. Chintan Antani from Monarch Projects.

Chintan Antani: Hello?

Vinati Saraf Mutreja: Yes, hello.

Chintan Antani: Good evening, maaam.

Vinati Saraf Mutreja: Good evening.

Chintan Antani: Maaam, I would like to know your take on raw material cost, because by what you said that your ATBS raw material has gone up by 50%, your take on the next three quarters going in this fiscal year?

Vinati Saraf Mutreja: The trend is that, that price is coming down, the ACN price.

Chintan Antani: It will come down.

Vinati Saraf Mutreja: Yeah, so that is why we expect the margins to improve compared to Q1.

Chintan Antani: So, why did it spike up this quarter, maaam?

Vinati Saraf Mutreja: I think it wasasee ACN is majorly used in acrylic fiber and I think a lot of these ACN plants were closed down for some reason and that is why it shot up, it was just some temporary demand supply gap.

Chintan Antani: So, in the coming three quarters that wonat be big problem.

Vinati Saraf Mutreja: Yeah, it should normalize back, the price.

Chintan Antani: So, will you be passing this hike that you just faced in this quarter next quarter to your customers?

Vinati Saraf Mutreja: Yes, correct.

Chintan Antani: Alright, thank you maaam.

Moderator: Thank you sir. Next question comes from Mr. Donald Francis from Value Picker.

Donald Francis: Hi, Vinati, this is Donald from Value Picker.

Vinati Saraf Mutreja: Hi.

Donald Francis: Most of my questions on ATBS offtake and competition has got answered, but I would just like you to mention if you know of any plans of Lubrizol and Toagosei for increasing capacities, because if you are operating at 90, 95% capacity, perhaps the competition players are also ramping up capacities, are you tracking those?

Vinati Saraf Mutreja: We have not heard of any capacity expansion from any other players.

Donald Francis: And as of now Lubrizol and Toagosei are the only two organized players in this?

Vinati Saraf Mutreja: That is correct, yeah.

Donald Francis: Okay and the other question I had was on, like in IBB you had long term five year kind of contracts with BASF, which are concluding in 2011, have you got any long term contracts for ATBS, which are of that nature or they are only about yearly contracts?

Vinati Saraf Mutreja: No, we have some long term contracts in ATBS also.

Donald Francis: Any clients you could name?

Vinati Saraf Mutreja: No, I cannot name the clients.

Donald Francis: But, they range from one to five years ora

Vinati Saraf Mutreja: Yeah, we have annual contracts also, we have three-year contracts also, two-year contracts also.

Donald Francis: Okay, thank you maaam, for now I am over. If I have anything else I will come back.

Vinati Saraf Mutreja: Sure.

Moderator: Next question comes from Ms. Shareen Tatawala from Angel Broking.

Shareen Tatawala: Good evening, maaam.

Vinati Saraf Mutreja: Good evening.

Shareen Tatawala: Maaam, I wanted to ask a question, that IOL was your customer before?

Vinati Saraf Mutreja: Yes.

Shareen Tatawala: Now it is producing IBB by itself, so isnat the technology part affecting them, because if they get the technology wouldnat it affect your margins?

Vinati Saraf Mutreja: It will, we have lost the market share that we were supplying to IOL, so by that our sales have come down, but other than that I donat understand your question.

Shareen Tatawala: As in IOL is producing it in-house, it can expand its capacity and it can also take up your market share, so what is the backup plan for that?

Vinati Saraf Mutreja: See, because IOL is also producing ibuprofen, so generally from what we have seen in the market the other ibuprofen manufacturers are not very comfortable buying from a competitor, so we have not lost sales to other buyers.

Shareen Tatawala: Okay, but wouldnat they also prefer selling to other buyers?

Vinati Saraf Mutreja: Who?

Shareen Tatawala: IOL.

Vinati Saraf Mutreja: Yeah, but they are their competitors. See, IOL is mainly producing IBB for its captive use, they produce ibuprofen. The other buyers are also producing ibuprofen, so there is a competition element there that is why the other buyers prefer to buy from us, because we are not their competitor in ibuprofen.

Shareen Tatawala: Okay.

Moderator: Followup question comes from Mr. Donald Francis from Value Picker.

Donald Francis: Hi, Vinati. One more question on ATBS, you mentioned last quarter was about 2800 tons and the capacity is being increased to about 18000 metric tons?

Vinati Saraf Mutreja: No, 10000.

Donald Francis: 10000 is current and 18000 metric tons is going to come on by when?

Vinati Saraf Mutreja: By May 2011.

Donald Francis: So, you are expecting this quarterly offtake to reach somewhere between 4000 to 4500 metric tons pretty soon?

Vinati Saraf Mutreja: Sorry?

Donald Francis: Currently the offtake is about 3000 metric tons, so are you expecting the offtake of ATBS to go to 4000, 4500 metric tons pretty soon ora

Vinati Saraf Mutreja: Yes, say after one year it will go up to that much, because from last year to this year also there has been a growth of 40% in ATBS. And just to correct myself, for this quarter in terms of ATBS we did about 2100 metric tons.

Moderator: There are no further questions, now I hand over the floor to Ms. Namrata Sharma for closing comments.

Namrata Sharma: I thank you all on behalf of Concept Public Relations for participating. If you have any further queries please drop in your mail at Once again thank you very much.

Moderator: Ladies and gentlemen, this concludes the conference for today. Thank you for your participation and for using Door Sabhaas conference call service. You may disconnect your lines now. Thank you and have a pleasant evening.

Note: 1). This document has been edited to improve readability.

  1. Blanks in this transcript represent inaudible or incomprehensible words.
1 Like

As investors (who are low on technical knowledge), will we understand if a major product is getting replaced by another product or it is becoming obsolete due to some new technology? Or we might come to know about it too late? Major risk here? I am asking because the company’s product basket is pretty small and niche…
Any views on possibility of equity dilution happening in near future? To what extent?

If I understand your question correctly. Can we buy into Vinati and forget?

Probably No. As you might have noted, the whole story about the products is fed by the company. I have tried hard but could not get any independent corroboration -as you rightly said space is niche, and not well researched/documented.

Coming to specifics

1). You might have observed form the transcript - IBB margins have suddenly started getting hit as a new competitor (earlier customer IOL) has started producing 6000 TPA. It hasnt hurt badly perhaps because teh production, atleast for now is more for captive use -in Ibuprofen manufacture.

2). ATBS tech is protected by patents. Mgmt confirmed only 3 manufacturers of ATBS. ATBS is the groweth engine gropwing at ~40% yoy. Here again there could be sudden developementy of 1 of teh 2 competitors expanding capacity significantly. This is a niche market of ~30000 TPA…there could be a glut suddenly! Certainly there are risks.

So we need to track ATBS momentum every quarter and keep tabs on Lubrizol & Toagesai ATBS (their term is AMPS).

I will closely watch, but wont forget to bet as the odds are currently on it. And as we get more confidence, add on dips. Its a good story:)

Thanks for this question… I am refining the Vinati Organics Stock story bearish viewpoints section with competition ramping up capacities in ATBS scenario


I think reading through the whole transcript, the management expects earnings growth of around 35% in terms of sales but around 15% in terms of net profits. FY 10 eps was around 8 and for FY 11, it is expected to be around 9.2 or so. I dont see the company generating too much investor interest soon based on fundamental factors. Whatever movements are there will be there based on news announcements. Vinati might not be a market outperformer for the next 1-2 quarters unless they surprise on the margins front in second quarter, which probably they might because of the lag effect passing on raw material price increases to their customers.

I am not quite impressed with their cash flows(operating), it is positive alright but it seems to be lagging the Net Profits(EBIDA) . From 2001 -2010 the total EBIDA has been 130.8 Crs vs CFO of 86.5 Crs. It is also a capital intensive business right now and they need to keep expanding capacity to grow which will cause the debt to balloon further. I tried using Bruce Greenwald’s method to calculate Maintainence & growth Capex to ascertain their FCF or owners earnings and found it was negative in all the past 4 years barring 2010. Vinati has major Capex plans coming up and i am concerned about their leverage. Apart from this i share the same concerns of having to believe management on ATBS and some kind of expert view from an industry insider would really help.


Several chemical companies are getting lower PE due to severe competition expected from Chinese companies.Doesnt Vinati Organics feel threatened from Chinese cos?

Vinati Organics makes it to 7th position in ETIG 100 fastest small companies.

Congratulations HItesh!

Valuations are still not expensive??

Vinati Organics Ltd has informed BSE that the Board of Directors of the Company at its meeting held on November 12, 2010, has approved to borrow USD 16 Million in form of ECB / FCCB from eligible lenders for upcoming Capex at Lote-Parashuram Unit. For this purpose, the Company will be holding the Extra Ordinary General Meeting on December 14, 2010.

Vinati Research report Nirmal Bang of 13 Nov. Excerpt below:

Valuation & Recommendations

At the current price of Rs. 81, VOL is trading at a PE of 8.9xFY11 & 6.5x FY12 earnings. The valuations look attractive atcurrent levels given revenue visibility on back of robustdemand outlook and profitability improvement. We hadrecommended the stock at Rs 70 on 17th june 2010. Since thenthe stock has moved 15.7%. Based on our estimated EPS of Rs12.5 for FY12E and a target PE multiple of 8x we arrive at atarget price of Rs. 100 per share indicating a further upside of23%. Consequently, We reiterate our BUY rating on the stockwith a long-term view.

While they may expect to do around Rs.9 to Rs.10/- during the current year, but definitely they should do near to Rs.14/- during next year.

IBB sales are coming down (which is a concern but expected) but ATBS which have higher margins are picking up. They did 2700MT during Q2 which is 90% of their capacity of 12000MT. With ATBS sales are expected to reach full capacity and IBB sales are expected to stabilise & improve, Rs.10/- for FY11 is achievable target. Also note that during Q2, their margins would have been higher but for increase in other expenditure. It had few unexpected expenditure like freight charges which are not repetative.

All the expansion projects have been postponed by 2 to 3 months. So TOA & DAAM would be ready by March 2011 and ATBS by Jun/Jul 11. As all know, these are high margin products and should add more to bottomline


Great results! Here is the interview which came on CNBC. Hope to see some action in the stock tomorrow.


In an interview with CNBC-TV18, Vinati Saraf, Executive Director, Vinati Organics, spoke about the results and her outlook for the company.

Q: Take us through the financials this quarter round, your net sales have grown by almost 50% and your net profits too they are now touching Rs 15 crore which is a good growth of 56%, how has the quarter been for you?

A: This has been the best quarter in the history of the company as far as sales and profit is concerned. We expect to maintain similar sales and profit numbers in Q4 as well. The growth in sales can be attributed to the robust demand of our ATBS monomer in which we are also further expanding because demand is so good. It will make us the largest manufacturer in the world. ATBS is also a high margin product for us and that is what has given us a very good profit numbers as well.

Q: So, even as ATBS ramps up you have already bettered your margins by about 250 basis points and where do you see margins going forward?

A: We expect similar margin levels going forward. We will be expanding the ATBS capacity to 18,000 per annum, today we are at about 10,000 tonnes, We are already on YoY basis, this quarter, ATBS sales were almost double of last year. We expect similar growth going forward as well.

Q: What are your expectations for both FY11 and for the first couple of quarters of FY12 as well, what are you expecting once this ramp up comes on board?

A: Along with ATBS, we are also expanding other monomers such as TBA and getting into a Greenfield project for a new monomer Diacetone Acrylamide (DAAM). These expansions are going to result in a capex of Rs 100 odd crore and part of which will be funded by IFC, we will be tying up with them. This expansion will also result in total revenues of Rs 200 odd crore.

FY’11 Conference Call Invite ofVinati Organics be heldon Tuesday, 24th May, 2011 at 16:00hrs(IST).

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Vinati Organics pegs sales at Rs 1000cr in next 4-5 years

Vinati Organics’ net profit rose by 44% at Rs 16.7 crore for the quarter-ended March 2011, against Rs 11.6 crore same period last year. The net sales stood at Rs 87.6 crore versus Ts 62.3 crore, year-on-year.

In an interview with CNBC-TV18, Vinati Saraf Mutreja, executive director ofVinati Organics, spoke about the companyas fourth quarter performance and the road ahead.

Below is a verbatim transcript of the interview. Also watch the video.

Q: Was this largely a volume driven growth or were you able to push up prices as well? How did the realisations do and what did you do by way of margins?

A: It was mainly a volume-driven growth. The growth coming from our ATBS volume where we have been able to debottleneck our capacity on account of the growing sales demand, so QoQ also there is a growth. Year-on-year as well there is a growth, like our ATBS metric tonne-wise has grown from 7,000 tonne to 11,000 tonne this year.

Q: What is it in terms of expansion hereon? Your total ATBS expansion capacity was suppose to be 18,000. What do you make in FY12? Are you going to see a QoQ as well as year on year jump?

A: The ATBS expansion of 18,000 is expected to be completed by December 2011 and having said that this year we will see the ATBS growing from 11,000 to 15,000 and in FY13 we should reach 18,000 and in FY14 21,000 in terms of volumes. Along with ATBS we are going for other products also which will add to our sales volume.

So next year we should cross Rs 400 crore in revenue and in the next four-five years about Rs 1,000 crore.

Q: Since you do have expansion plans could you tell us what your FY12 and FY13 revenues would look like? What is the kind of growth guidance that you have working with and what about even on the EBITDA margins front?

A: Our total sales should cross Rs 400 crore. That is growth of about 30% in FY12 and in FY13 because most of the expansion gets completed in December. So its effect will be seen more in FY13. We should cross Rs 600 crore then.

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My observations from todays Concall:

1). FY12 Sales projected at 400 Cr. (~25% increase over FY11)

2). ATBS currently 55% of Sales mix. Expected to go upto 60-65% in FY12

3). EBITDA margins expected to go up because of ATBS increased contribution

4). Tax rate scenario will be 33% in FY12 (FY11 was 17.4% due to MAT credits)

5). Keeping depreciation & interest costs at similar levels, the increased tax outgo will impact net margins in a big way. My calculations show net margins falling to 14% from ~16% in FY11).

6). The company maentioned Net margin levels will be maintained because of increased EBITDA.

This scenario is possible only if the company post an EBITDA of over 27% (FY11 23%, FY10 26%), which looks unlikely at the moment, to me.

7). IB capacity of 12000 has low utilisation as the company is unable to sell much beyond captive use. Captive use is some 30-40% only. Even at 18000 ATBS capacity, the IB captive use was projected at 6000 (which was corrected to say 6000 at 12000 or 50%).My guess is the company is unable/unwilling to match the prices quoted by competitor Savla Chemicals. The company gave a sense that they will now look to export IB.

Considering all, my sense is PAT growth will be close to single digits (bothsides).

Welcome views.


You are right. They would not be able to maintain same net margins since tax difference outgo cannot be matched by the increased in ATBS quantity ( 15000MT is expected to be ready by Aug-Sept and 18000MT by Dec 2011 end).

But FY12 would be better one where they should do around EPS of Rs.14 to Rs.15/- with topline reaching around 500Cr.

The trigger would be success of PAP trails which would be known by Dec’11 and introduction of new products.

Management was very confident about the demand for ATBS and this would drive both their topline as well as bottomline for few more years may be till FY15.

In spite of all these plus points, share price is Rs.72/-. PE is approx 6. Why?

Hello Siva,

Market wants the results NOW and not couple of years down the line, which probably explains the stock languishing in Rs 70-75 range. I feel this isa good oppurtunity toaccumulate this stock if one is convinced about the long term prospects.