Buy Vinati Organics Ltd For Target Rs.2320 - ICICI Direct
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Newer businesses to drive growth ahead
About the stock:
Vinati Organics is a leading manufacturer of specialty chemical and organic intermediaries with global market leadership in its two key products- 2- Acrylamido 2 Methylpropane Sulphonic Acid (ATBS) and Isobutyl Benzene (IBB). Starting with IBB and subsequent forays into IB, ATBS, Butyl phenols, the company is now moving towards antioxidants.
The company has two manufacturing facilities at Mahad and Lote
In terms of revenue contribution, ATBS constitutes ~40-50% of overall revenue followed by IBB of 20-30% while the rest is from other segments such as IB, Butyl phenols and derivatives
Q3FY22 Results:
Numbers were below our estimates across all parameters, impacted by lower-than-expected performance from both ATBS & IBB.
Reported revenue growth of 65% YoY to | 369 crore, led by decent performance from ATBS segment
Gross margins fell 600 bps YoY to ~48.9% while EBITDA margin contracted 720 bps YoY to 25.1%, due to higher other operating cost (up 106% YoY)
EBITDA was up 29% YoY to | 92.8 crore
PAT increased 30% YoY to | 83.2 crore
What should investors do?
The stock appreciated at 40% CAGR in last three years.
We retain BUY rating on the back of better growth outlook from ATBS and newer products such as Butyl phenols and antioxidant
Target Price and Valuation:
We value Vinati Organics at 42x P/E FY23E EPS to arrive at a revised target price of | 2320/share (earlier | 2270/share).
Key triggers for future price performance:
Upcoming butyl phenol capex to aid revenue growth further
Vertical integration into antioxidant expands revenue visibility
Strong demand from ATBS likely to support group operating margins
Alternate Stock Idea:
Apart from Vinati Organics, in our chemical coverage we also like Neogen Chemical.
Trigger for Neogen Chemical’s future revenue growth would be increasing CRAMS opportunity
BUY with a target price of | 2160
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