Buy Vinati Organics Ltd For Target Rs.2300 - 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 others segments such as IB, Butyl phenols and derivatives.
Q1FY22 Results: Revenue was above our estimates while PAT came in lower than expected owing to higher RMAT cost.
* Reported revenue growth of 67% YoY to | 386.4 crore, led by strong growth from ATBS segment
* Gross margins declined 1880 bps YoY to ~44.6% while EBITDA margin contracted 1570 bps YoY to 26.3%, due to higher RMAT (up 152% YoY) and other operating cost (+61% YoY)
* EBITDA was up 4% YoY to | 101.5 crore
* PAT increased 12% YoY to | 80.9 crore owing to lower-than-expected operational performance.
What should investors do?
The stock appreciated at 33% 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 50x P/E FY23E EPS to arrive at a revised target price of | 2300/share (earlier | 2220/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 | 1085
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