Hi everyone, I have been trying to understand the business for the past few weeks. Thanks to everyone for making the thread so insightful and kudos to people like @vivek_mashrani who had found the business so early and had the conviction to hold on 
Here’s my take on Vinati Organics using Business Model Canvas to try and understand the business first, would love feedback on the same (anything I’ve missed out/misinterpreted)
(Here’s the link to google docs in case anyone wants to make their copy
https://docs.google.com/document/d/1qTP2HRDpQYGU6467mKfR2nqpMg2z_FT_sc9WqfjZrFI/edit?usp=sharing)
Now, coming on to the main question, what are the sources of growth for Vinati for the next few years?
(I’ve mostly used FY19 numbers, though FY20 Annual Report will give the most recent picture)
1. ATBS
According to FY19 numbers, Vinati sold 26000 MTPA (100% capacity utilization) of ATBS and the revenue recorded was Rs 638cr, which roughly translates to a price of Rs 245/kg.
Now, this price was on the higher side due to the exit of Lubrizol, spurt in demand and is more likely to be a one-off thing.
In the last decade, price of ATBS has fluctuated from Rs 150/kg to Rs 200/kg (barring FY 19) and this might give the real picture for the price realization in the longer term.
Management had guided (in FY18) that ATBS volumes can grow 20-25% for the next 3-4 years and reach 100% utilization in the expanded 40,000 MTPA capacity.
I think one major factor as an investor betting on Vinati is the belief that the demand for ATBS will be there and the market will grow 10-12% YoY (as per management guidance).
While it’s hard to predict when the demand stabilises (due to ~20% of it being dependent on Enhanced Oil Recovery and the globally low oil prices) and reach 100% utilization, I have tried to analyze the best capacity utilization with different price range below:
It seems like it is safe to assume that ATBS can generate 700cr odd figure, growing 10% + YoY
Also, for ATBS, the following factors can act in favour of Vinati:
a) ATBS is a high margin product
Put simply, better contribution to the bottomline compared to other products, added to the fact that 50%+ sales are coming from this
(According to FY10 concall when ATBS realizations were around rs 150/kg, ATBS EBITDA margins were around 25% as per management, since then Vinati’s backward integration into IB has led to ~15% saving in costs on logistics and excise as per Ambit Report. Also, the exit of Lubrizol, coupled with increased capacity of ATBS and increasingly dominant market share of Vinati in this segment will ensure margins remain healthy)
b) Growing Market Share
Vinati might be able to steal competitors market share because of reasons like:
i) Better purity of product with little/no discolouration
ii) Advantage of scale (65% global market share with enough capacity of 25000 MTPA to cater to demand for the next few years) and low cost (backward integration with IB)
c) Pricing Power
While this is hard to quantify, but if and when Vinati gains more market share, I assume there will be at least some sort of pricing power with Vinati because of the huge market share it will have
Key Monitorable: How well the ATBS market grows and Vinati’s ability to use the expanded production facility
2. IBB
According to FY19 Annual Report, sales in FY18 were 161cr and the capacity utilization at that time was ~60%
Given that the total capacity for IBB is 25000 MTPA, that roughly translates to 15000 MTPA, which gives the realization price of ~Rs 107/kg, which is also supported by the data below:
Price seems to have been on an increasing trend (barring the exceptional spike in FY21, which again seems unsustainable in the long term but will definitely help Vinati in the short term)
(Source: https://phreakonomics.in/export-import/micro-individual?type=exports&hscode_commodity=1500&startDate=2015-08-01&endDate=2020-08-01¤cy=inr&consolidation=quarter)
Have done a simple analysis of different scenarios again to see the revenue potential:
Let’s assume a ballpark figure of Rs 250 odd crore sales from IBB and since it is a mature market, it won’t grow much, maybe 3-5% CAGR (should grow faster in the short term due to growing pharma/covid situation)
IBB should prove to be a stable market since majority of it is used to make Ibuprofen, unless something adverse happens (like FDA banning it)
Trigger: If some kind of forward integration can be done in this (as IBAP was proposed earlier but the customer didn’t want to source it then), that can be an added bonus. Otherwise, this should be more or less stable
Now, coming to the ‘future’ part, what can provide visibility of growth in the next few years:
3. Butyl Phenols
The 4 types of Butyl Phenols which will start manufacturing this year ( PTBP, OTBP, 2,4 DTBP and 2,6 DTBP) have a revenue potential of 350-400cr (at full capacity, which should be the case in FY22).
Here again, 1/3 input is IB so again Vinati has an advantage here over peers in terms of cost and RM availability.
Also, the management guided in FY18 that the end-user market of BP might be growing at 10-12%.
Currently, around 25,000 MTPA of BP are imported in India and the global size is in lacs of MTPA while Vinati is setting up a capacity of 39,000 MTPA, which tells us that the management is fairly confident of competing in the global market for exports.
In the pre-feasibility report of Aug’16, Vinati estimates that the market size is 4 lac TPA for BP (with the caveat that this also includes the quantity used for captive use)
So, assuming even 1-2 lac MTPA market, the potential for Vinati (assuming that it is able to scale successfully and competes in the global market) can be anywhere between 1200-2000 cr
One thing which gives me some sort of confidence in this segment is that the management is looking to compete globally in a new product, is making good use of synergy (backward integration by using IB), is hungry and has a good past record (which obviously only time will tell how well can they replicate it)
This can be the growth driver for next 2-3 years (350-400cr sales from BPs can increase sales by 30-40% in FY22, provided that ATBS and IBB are stable)
Key Monitorables:
i) How fast can they launch Butyl Phenols
ii) How well they can compete in the global market and scale
iii) If any sort of integration can be done
4. PAP
The only thing to mention here is that if Vinati can get this one correctly, it can be a game changer (albeit a low margin product) because of superior technology (as already mentioned in one of the above posts) which will lead to lower costs and might increase preference for Vinati in a huge market size due to PAP being the key raw material for Paracetamol.
Key thing to be seen is how well can the company make use of its cash cows-ATBS and IBB to experiment and successfully launch new products for future growth
Would love to know other opinions
Disclosure: Tracking, not invested
