Published on 20/04/2017 3:24:23 PM | Source: GEPLCapital Ltd

Buy Vinati Organics Ltd For Target Rs.828.00 - GEPL

Posted in Broking Firm Views - Long Term Report | #GEPLCapital Ltd #Broking Firm Views Report #Chemicals Sector #Vinati Organics Ltd


Company Snapshot

Vinati organics ltd. (VOL) Established in 1989, Vinati Organics Limited (VOL) is a specialty chemical company, focusing on manufacturing specialty chemicals and organic intermediaries. VOL have two plants, both situated in Maharashtra at Mahad (Raigad) and Lote Parashuram (Ratnagiri), both the plants are ISO 9001: 2008, ISO 14001: 2004 and ISO 18001:2007 certified for following quality control, environment, and health and safety standards. The company is mainly involved into manufacturing of specialty chemicals mainly Aromatics, monomers, Polymers and other specialty products. VOL is the world leaders in two of their main products, Isobutyl Benzene (IBB) and 2-Acrylamido 2 Methylpropane Sulfonic Acid (ATBS). The company has presence in over 22 countries worldwide, and export products to customers across the US, Europe and Asia.

 

Investment Rationale

Unique business structure provides an edge over its peer

VOL has unique business structure which gives them edge. The company is mainly involved into manufacturing of specialty chemicals mainly Aromatics, monomers, Polymers and other specialty products. The company is leader manufacturer of the Isobutyl Benezene(IBB) specialty organic intermediately which is used as basic raw material for manufacturing of Ibuprofen. This is widely used in North America, Europe and Asia as anti-inflammatory bulk drug. The company is now a reliable source to provide the drug across the world. VOL has earned distinction of being the only specialty chemicals company in the world to be backward integrated. Now VOL is expanding its producing its product portfolio to specialty drugs like Isobutylene (IB) and 2- Acrylamido-2-Mythylapropane Sulphonic acid (ATBS). This molecule has excellent hydrolytic and thermal stability. VOL is global leader in the manufacturing ATBS. We believe that Unique product portfolio gives long term business partnership to the company and also have the higher profitability. This also provides the long term robust business structure to the company. 

 

Better Business strategy proves a VOL a safer bet

VOL has focus on the cost efficient drug and molecule manufacturing which help them to reduce the operational cost and help them to achieve higher operational efficiency. The company also has strong business collaborations with global leaders and also some of the renowned national players like Institut Francaisdu Petrole (France), Saipem SpA (Italy) and National Chemical Laboratories (India). This provides the strong business structure of the business. VOL has several large customers, whose confidence remains intact due to their reliable services, and they keep returning to them every year. These include large MNCs like BASF, NALCO, Akzo Nobel, SNF, DOW Chemicals, Perrigo, Clariant, Chemtall and Shasun, among others. 

 

Robust Financials makes VOL lucrative

Consistent growth in the top line also backed by operating margin improvement makes VOL more lucrative. The company has grown more than 20.5% CAGR in last 5 years. VOL’s EBITDA margins have improved to 32% in FY16 from 20% in FY13. This shows that company has improved in operating efficiency. Net profit margin has also improved from 11.5% in FY12 to 19.6% in FY16. We believe that this will create a great opportunity for the investor for longer term horizon.

 

Valuation

At CMP of `698, VOL is trading at 27.4x its FY16 EPS of `25.5 which is at an attractive valuation. With 20% sales CAGR, strong margin improvement and strong return ratios, We expect stock to trade at 21.8x its FY18E EPS of `38.0. We assign a BUY rating on the stock with a price target of `828 in next 12 months which is more than 19% upside from current levels. 

 

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