Buy Vinati Organics For Target Rs.2,545 - Anand Rathi Share and Stock Brokers
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Bright demand outlook, expansions support future growth; Buy
Higher realisations, better demand across product categories and costs passed on supported Vinati’s Q3 FY23 performance. We are positive on it long-term performance considering good revenue assurance with healthy ATBS demand (oil exploration) and capacity expansion, greater butyl phenol utilisation, the Veeral amalgamation (anti-oxidants) and foray into manufacturing MEHQ, guaiacol and iso-amylene (IB derivatives).
Costs passed on helped to high margins. Vinati’s Rs5.1bn Q3 revenue, up 38% y/y, was supported by higher realisation and volume growth across product categories. Revenue, however, was down 10% q/q due to softening prices. Demand for IBB has picked up and IB demand is stable. Raw material prices rose steeply in Q2, and were passed on though with a lag. This resulted in a 270bps y/y, 662bps q/q, gross margin expansion to 51.6%. Further, better cost absorption, coupled with a drop in logistics costs aided the EBITDA margin expansion to 32.2%, up 705bps y/y, 598bps q/q.
Guidance. Management talked of good demand movement in ATBS. Thus, it is prioritising the ATBS expansion (adding 50% to 60,000 tons in Dec’23) to maintain market share and growth as it is now operating at optimum utilization. The butyl phenol plant (commissioned last year), now operating at ~70%, is aimed to be operated at ~90% in FY24. Further, the anti-oxidant plant is expected to contribute materially from FY24. The amalgamation with Veeral Additives is expected to be complete by end-FY23. Management guided to ~20% revenue growth and 28-30% EBITDA margin in FY24.
Outlook, Valuation. We expect revenue/EBITDA/PAT to clock 26%/30% /29% CAGRs over FY22-25. We maintain our Buy with a lower TP of Rs2,545, assigning a 35x multiple to FY25e EPS. Risks: Delay in expansion and securing customer approvals for new products, slowdown in R&D and new product pipeline.
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