Vinati Organics

Gupta · February 2, 2021, 1:30pm

Submission for environment clearance:
Veeral Additives- Pre-FeasibilityReport.pdf (805.1 KB)

Shareholding pre and post merger
Valuation : 10181388 new shares = ~125 Cr
Promoter Group company, yet to start production.
Estimated project cost 110 Cr ( May not be fully invested yet)
Authorized capital 45Cr ( is it their total investment also?)
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Forward integration for Butyl Phenol ( almost ~50% of Phenol capacity, @35k Tonnes)

vivek_mashrani · February 3, 2021, 6:46am

Some more finer points on amalgamation and antioxidants (AO) landscape:

VAPL is into the business of manufacturing Antioxidants (AO’s) - AO 1010, AO 1076, AO 168.
India has a demand of 10000 MT for these AO’s and the global demand is around 300000
MT. VAPL has a capacity of 24000 MT per anum.
The acquisition of VAPL is a forward integration for VOL as Butyl Phenols will be the key raw
materials to manufacture these AO’s. After the acquisition, VOL will be largest and the only
integrated manufacturer of these AO’s in India.
This acquisition will allow VOL to add a new revenue stream of specialty chemicals which
have good growth potential both globally as well as domestically. The growth is driven by
increased consumption of various plastics like LDPE, LLDPE and PP etc.
VAPL has the potential to clock Rs. 500 crores in revenue (Rs. 300 crores incremental
revenue) for VOL.

Deven · February 3, 2021, 10:38am

What’s VP friends view on amalgamation with veeral additives?

https://www.youtube.com/watch?v=8KumlI5gJUg&t=496s - in interview CEO she says veeral organics has zero revenue while veeral additives has (she use the word as revenue potential) 300 to 500 cr.
In BSE note page 8 it shows veeral additives revenue is NIL.

Am missing something…

Disc: Invested.

harsh.beria93 · February 3, 2021, 1:13pm

Management interview (link) and the press release (link) clarifies the whole Veeral Additives potential merger. Key points below

Veeral Additives will manufacture anti-oxidants (AO 1010, AO 1076, AO 168) which is a forward integration as it uses butyl phenols as raw material; Half of the produced butyl phenols will be used for making anti-oxidants
Veeral plant capacity: 24’000 MTPA. Indian demand for AO ~ 10’000 MTPA (mostly imported), global demand for AO ~ 300’000 MTPA. This will make Vinati the only integrated anti-oxidant plant in India
Earlier, company was expecting revenue potential from butyl phenols of ~500 cr. at full potential, it will reduce to 250-300 cr. with rest going to make anti-oxidants. Revenue potential of Veeral additives is 300-500 cr. So overall revenue potential is now 250-300 + 300-500 ~ 550-800 cr. i.e. increased by 50-300 cr. (maximum potential increase is ~300 cr.)
Equity for Veeral is valued at ~125 cr. (net asset ~ 43 cr. P/B ~ 2.9x), no cash outgo but promoters of Veeral will get shares of Vinati organics. If merger goes through, promoter holding will go up from 74.06% to 74.32%
Timeline for merger approval will be 8-10 months. Expect plant to fully ramp up in 6-8 months post approval. Plant and machinery is already ready and only requires few additional machinery
Veeral additives is mostly owned by Vinati’s father and it will related party transaction
Currently producing 3 out of 4 butyl phenols
Increase in staff cost is because of ramp up of butyl phenol plant; buy phenol from Deepak nitrite. Phenol accounts for 50% raw material, other important raw material is isobutylene which Vinati Organics manufactures on their own
ATBS is now back to pre-covid level from January 2021, starting the new capacity in February to meet pent up demand
Guidance: FY21 revenue down by 10-15%, FY22 growth of 20% and FY23 growth of 20%. Expect 1500-1600 cr. revenue in FY23

Instead of creating asset separately and then merging it with the parent company will lead to a proabable goodwill acquisition of ~82 cr. (125 cr. - 43 cr. of net asset), not the cleanest way to build assets.

Disclosure: No investments as on date

Gupta · February 3, 2021, 4:07pm

Earlier, company was expecting revenue potential from butyl phenols of ~500 cr. at full potential, it will reduce to 250-300 cr. with rest going to make anti-oxidants. Revenue potential of Veeral additives is 300-500 cr. So overall revenue potential is now 250-300 + 300-500 ~ 550-800 cr. i.e. increased by 50-300 cr. (maximum potential increase is ~300 cr.)

It means operating margin of ~35% from phenol business!

Is this forward integration (Antioxidants) separate from earlier announced 150Cr? if yes, than all of Phenol capacity will get used in-house. If not, this way of obfuscation by management is not required.

ATBS is now back to pre-covid level from January 2021, starting the new capacity in February to meet pent up demand

Guidance: FY21 revenue down by 10-15%, FY22 growth of 20% and FY23 growth of 20%. Expect 1500-1600 cr. revenue in FY23

With the ATBS back to pre-covid level and they are starting new capacity, should not we see growth in Q4 vs Q4 FY20 to a level of Q419? and it covers the gap to a large extent?

I think she has been quite inconsistent the way she gives guidance on sales. FY23 will be up by just 50%? how it relates to earlier guidance of doubling of revenue in 3-4 years.

Veeral additives is mostly owned by Vinati’s father and it will related party transaction

That conversation got cut in this interview, I think he is not the only owner of Veeral. Things will get more clear when they come for EGM.

103 Cr worth charges on company properties. How much they have invested in this company?

If you see document submitted for the environment clearance, whole story is around Vinati. All this is without any related party transaction of project execution nature in Vinati’ books! Yes we need to ask them / understand what’ the need of building capacity like this! (though the scale of this transactions is very minuscule to worry much).

Disclosure: Invested

Deven · February 4, 2021, 7:35am

Exchange submission of 2nd Feb 2021 - https://www.bseindia.com/xml-data/corpfiling/AttachLive/ca77e928-0ca9-4e2a-8868-7852e085d393.pdf. Page 8, its mentioned as Veeral has 0 revenue.

Exchange submission of 3rd Feb, they gave 1 page detail of Veeral Additives Private Limited. - https://www.bseindia.com/xml-data/corpfiling/AttachLive/2651db8d-ea5d-40d0-a59e-d09ba962b449.pdf. haven’t mentioned veeral revenue instead used word as Potential revenue of 300-500 cr…

Seems company is playing with the word. Any explanation.

Disc: Invested

edwardlobo · February 5, 2021, 11:38am

Will it take a year for it to materalise ?
Would you say the plant is not yet commissioned and is probably at over 50% complete?

mrkakade · February 6, 2021, 5:41pm

Considering following constraints booked profit and exited the stock -

Stagnant or declining revenue for quite some time (2 years) and no growth in sight for few more quarters at least
Delayed new capacity coming into play will keep a drag on revenue
ATBS future demand growth remains blurr as another round of crude price decline can start anytime if Saudi or Russia increases output.
New products will increase revenue but with lower margin levels. Current EBIDTA levels may not be sustainable going forward
Steady share price despite mediocre performance IMO is due to small float - @75% holding by promoters and tight holding by institutional players. Any sizable chunk coming for sale may create good price discovery

harsh.beria93 · February 26, 2021, 9:08am

This question has been clearly addressed in the concall. Here is the excerpt.

Its quite incredible how Vinati Organics keeps chugging along investment in niche chemicals and try to forward and backward integrate to make the most out of their chemicals. Another highlight was their plans to restart trials of PAP. This is something they have been trying (and failing) since 1998 because they haven’t been able to devise a green process.

https://www.bseindia.com/xml-data/corpfiling/AttachLive/2cf70150-ffd2-4979-baac-db5ac2b4f448.pdf

Disclosure: No investments as on date

edwardlobo · March 16, 2021, 7:18am

Vinati utilisation for abts sold out until April

Could be a big quarter finally for Vinati

Together with the bullish phase in the market and that vinati has not yet been a beneficiary inspite of good track record and financials the stock could show massive gains going forward

attaluri · March 16, 2021, 8:10am

Hi @edwardlobo , what is your opinion on valuation discount compared to sector valuation and average valuation from last few years. Any triggers do you see for upcoming few quarters (not only immediate quarter). Appreciate your service in this forum.

edwardlobo · March 16, 2021, 8:35am

There are a few things that are going to work in Vinati’s favour
Vinati supplies a lot to crude industries, crude prices are rising and although the world is talking about electric vehicles, countries like we at India are building one of the largest refineries. We are still auctioning coal and as majority of Indians will now get into upper middle class the demand on electricity will only increase. Most of it will have to be met by traditional resources. Whenever crude does well, Vinati does well due to supply for those industries

Secondly as per the interview, the long awaited basf plant where Vinati supplies ibb has gone live. Vinati has been planning for this for over 2 years by expanding capacity. The demand for ibuprofen is only increasing as people are living longer and have to manage pain, the effects of old age

So I think it’s not just the next time quarter that will be good compared to previous but the numbers are here to stay

From the following quarters after next, they have the new atbs plant taking over some of the extra demand

Market is forward looking as you would see in the case of Paushak markets rallied that stock 3x times just on the news of expansion getting environment clearance

harsh.beria93 · March 18, 2021, 9:48am

Latest management interview (link):

ATBS booked until May, producing all 4 butyl phenol
AO revenue potential: 500 cr., butyl phenol revenue potential: 300 cr.
Formula based pricing gets revised each quarter

Disclosure: No investments

abhishek_chanani · March 25, 2021, 4:49am

My investement thesis for Vinati Organics is as follows;

Due to long term uncertainity of crude oil demand (due to EV/Solar), oil explorers will be hesitant to make huge capex for complex exploration projects
To maintain supply they will rely on production from existing oil wells
One of the most proven ways to continue/improve production from existing oil wells is fracking (Please note, fracking is not used only in shale oil wells, and is used widely for conventional oil wells also)
ATBS is used for fracking and demand should remain strong

Disclosure: Invested

Naman_Gupta · April 17, 2021, 1:54pm

Well, there is no doubt that share is overpriced, considering no growth over last few quarters looking just at the financials, however their is more behind the curtain :

Management has been very proactive and cadid about giving reasons for the same and giving growth projections.
I would not get into details as it is already covered in this forum, however net summary is, management is looking at 50% growth in next 2 years (total 50%) with maintaining a margin of 20%.

Considering Unique and Niche Specialty products and high entry barriers in the segment, along with market leading position, the valuation seems justified.

nil_71 · April 18, 2021, 4:20am

Vinati needs something, beyond ATBS. ATBS helped them to bring the journey so far but others have not clicked that much yet, if I am not wrong…

Surender · April 18, 2021, 10:58am

Business Category: B2B, and Export (~75%) oriented

What likable?

Promoter stake: 74+%
Owner Operator – Vinod Saraf (Chairman: Started the business) and Vinati Saraf Mutreja (Managing Director & CEO, joined in 2006 and took over as MD & CEO from 2018, Daughter of Chairman)
Niche Product – Limited Competition due to cost and technology advantage
Focus on clean and green technology
Excellent Balance sheet – No borrowings, and Cash Surplus
Good NPM (due to Integration approach across value chain), which are main factor in excellent ROE

KPI	Mar-15	Mar-16	Mar-17	Mar-18	Mar-19	Mar-20
NPM - NetProfit from Operating Profit/Sales (A)	14%	20%	21%	17%	23%	29%
Sales/Total Assets (B)	1.3	0.9	0.8	0.7	0.9	0.7
Total Assets /Total Equity (C )	1.4	1.3	1.2	1.2	1.2	1.1
ROA (AxB)	18%	19%	16%	12%	21%	21%
ROE (AxBxC)	25%	24%	19%	15%	25%	23%

Company’s Operating Cash Flows are higher than Net Profit and leave surplus cash after taking care of Business (Capex), Lender (Repayment of borrowings) and Shareholders (Dividends), ensuring a sustainable business model.

What’s not so likable?

Revenue dependent on 2 Key products-IBB and ATBS -that have Limited Market opportunity
Instances of overpromise in past ARs but under delivery
Current valuation- Considering key risks such as Opportunity Size, Limited Key Products, Non-Linear Top line Growth and correlation of ATBS (the star product of overall sales) sales to Oil Prices

Key Risks:

Items	Risk	Advantage
Plant Dependence	Only 2 Plants with Geography Concentration	Cheapest Per Ton Capex
Opportunity Size of Key Products	Limited	Lesser Competition
Limited Key Products	Heavy Dependence on 2 products	Customer Stickiness due to Lower Prices, resulting from Economies of Scale
Customer Concentration	What if contract is terminated?	Guaranteed Offtake
Non-Linear Top line Growth	Contract Pricing based on petroleum derivatives
Oil Prices < $70 Barrel	30% of ATBS sales to customers engaged in Oil Exploring - EOR (Enhanced Oil Recovery)

Disclosure – Not invested due to valuations but in watchlist.

remi · May 13, 2021, 5:10pm

harsh.beria93 · May 17, 2021, 7:05pm

Here are my notes from their Q4FY21 concall.

Expect sales to increase by 40-50% in FY22
ATBS: In FY20, ATBS capacity was 24’000-25’000 MTPA and Vinati was running at full capacity. In FY21, volumes tapered down to ~16’000 MT. Given the current demand forecasts from customers, Vinati should do 30’000-31’000 MT in FY22 (growth of 85%+ over FY21). Most of the incremental growth is coming from abroad markets. 3 global companies make ATBS. Vinati + Chinese player + Japanese company that makes 5’000-6’000 MTPA. Both Japanese and Chinese companies haven’t expanded capacities in the last 5-years. One of the reasons maybe that Vinati is the only backward integrated player. ATBS prices have been $2.5-3.5 per kg over the last decade (its volatility is 20-30% of crude price volatility). Last year ATBS prices were ~$3/kg which has increased to ~$3.5/kg.
Butyl phenol: Currently running at 50-60% of capacity. Expect 250 cr. of revenues from the 4 butyl phenols in FY22. Main raw materials are phenol and isobutylene (backward integrated). Currently, their customers make AOs and Vinati will be competing with them domestically. Wish to become top 5 players in butyl phenol and AOs in the next 4-5 years. Will definitely try to get 80%+ market share domestically.
IB: Current capacity is 40’000 MTPA (can be expanded to 50’000 in case required)
Expect double digit growth in IBB in the next couple of years
Other products contributed 25% of FY21 sales. Should grow at double digits
Debtor and working capital was high in FY21 due to launch of new products. Vinati also gives higher credit period to domestic customers of IBB and butyl phenol which has resulted in higher debtor days.
Loans and advances: Vinati has given 133 cr. of loan to Veeral additives pvt ltd. to pay off loans to HDFC bank. This loan should get nullified once merger is approved.
PAP will not be coming in for the next 2-3 years as technology is not in place
Newer products will be in the butyl phenol value chain
FY22 capex: 200 cr. for new products + 60-70 cr. in Veeral additives + Incremental capex for de-bottlenecking. Expect to incur ~300 cr. of capex over the next 3-years. Existing capacity of ATBS, butyl phenol and veeral additives will take care of next 2-3 years of demand
Big chunk of new capex will be in Veeral Organics (100% owned subsidiary) – this was created to avail lower tax rate of 15% (Veeral Organics has land of 20-25 acre in Mahad). Also Vinati Organics have sufficient land within existing facilities

Disclosure: Not invested

Contrarian_Investor · May 18, 2021, 7:01am

Does anyone have the Q4FY21 conference call transcript?