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Vinati Organics (Vinati) reported strong operating performance in a seasonally weak quarter buoyed by GM expansion and lower opex. The company reported 37.8% YoY top-line growth missing our estimates by ~12% while EBITDA/ PAT surged by 76.5%/ 50.7% YoY which was ~5%/ 3% ahead of our estimates. Demand for IBB picked up from Q2 and further improved in Q3 while ATBS demand remained marginally down QoQ due to seasonality. Management in its media interaction remained upbeat on FY23E growth and EBITDA margins of 28-29%. New projects such as Veeral Additives anti- oxidants, ATBS capacity expansion from 40,000MT to 60,0000MT, MEHQ/ Guaiacolcommissioning are expected in FY24E which shall start contributing revenues meaningfully from FY25E. We remain optimistic on Vinati’s growth trajectory with right capital allocation. Hence, we continue to maintain Buy with a revised TP of
Rs2,401 (earlier Rs2,451) based on our marginally revised estimates.

QoQ pricing benefit, lower opex aids Q3 performance

Despite being a seasonally weak quarter, Vinati reported robust QoQ performance backed by GM expansion from product pricing benefit, lower power and fuel cost, and lower opex. EBITDA margins thus expanded by 710bps YoY and 600bps at 32.2% while EBITDA surged 76.5% YoY and 10.3% QoQ at Rs1.6bn.

Marginal lower demand in ATBS made up by other products

Seasonably weak demand in ATBS was made up by increased QoQ IBB demand, stable IB demand, and rising market share in butyl phenols. Effect of RM price increase due toinflated crude prices was reflected in product prices with a lag which supported GM expansion in Q3.

New capexes on track, to support future growth

Vinati has earmarked ~Rs6bn capex over FY23-24E which shall support its future growth. Anti-oxidants from Vinati’s subsidiary, Veeral Additives, shall start contributing fromQ1FY24E onwards. While ATBS capacity expansion and MEHQ/ Guaiacol shall start contributing from Q3/ Q4FY24E onwards. Additionally, rising utilisation of butyl phenols shall aid overall growth.

Strong growth expected in FY25E supported from new projects/ products
Management in its media interaction guided for similar performance in Q4FY23E as in Q3FY23 while remaining upbeat on FY24E growth and margins. Based on current prices, butyl phenols and Veeral Additives together offer ~Rs8bn revenue potential. Veeral Additives is expected to be merged with Vinati by Q1FY24E post necessary regulatory approvals and can achieve ~50% utilisation in FY24E due to its import substitute products. We remain optimistic on Vinati’s technology platform and its sustainable higher margins. Based on 9MFY23 numbers, we have marginally tweaked our FY24E/ FY25E earnings estimates downwards by 2%. Based on our revised estimates, we maintain Buy rating with a revised TP of Rs2,401 (earlier Rs2,451).

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