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ATBS volume recovery expected in H2FY27

Vinati Organics (VO) reported consolidated revenue of INR6.8bn in Q2FY27, up 24% YoY, while EBITDA declined 25% YoY to INR1.3bn, with margins contracting to 18.5%. due to higher logistics and power costs, which could not be fully passed on to customers, and a shift in ATBS sales from Q2 to Q3/Q4. Raw material cost increases were largely passed on. Management expects logistics costs to moderate in H2FY27. ATBS demand is showing meaningful improvement, with Q3 volumes expected to be strong following customer destocking in H1, while antioxidants, IB and IBB delivered strong performance. Management expects FY27 revenue growth of 20–25%, with EBITDA margin guidance of 24–25%, improving to 25–26% in FY28. The antioxidants business is expected to sustain its growth momentum, supported by market expansion. MEHQ commercial sales are expected to commence from April'27, with optimum utilisation targeted within a year.

The company announced INR5bn Capex towards new specialty chemicals across fragrances, personal care, water treatment, oil field and resins, with commercialization expected over two years. Products will largely be export oriented, with average realisations of ~USD3/kg and targeted ROI of 15–20%. An additional INR5bn capex is also under evaluation. ATBS recovery, antioxidant momentum and expected contribution from VOPL are expected to drive growth in H2FY27. We maintain our 'Accumulate' rating with a target price of INR1,081, valuing the company at 21x Sep’28E EPS.

Revenue increased by 28.4% YoY: Consolidated revenue stood at INR6.8bn (23.6% YoY/-2.3% QoQ) (PLe: INR6.5bn; Consensus: Rs6.6bn), actual topline was slightly higher than our estimates. H1FY27 revenue was 26% higher than H1FY26. Gross profit margin stood at 42.2% (vs 55.8% in Q2FY26 and 46.0% in Q1FY27), contracting by 1,360bps YoY and 380bps QoQ due to higher raw material costs.

EBITDA decreased by 25% YoY & 26.3% QoQ: EBITDA declined 25% YoY and 26.3% QoQ to INR1,257mn (PLe: INR1,544mn). EBITDA margin stood at 18.5% (PLe: 23.7%) versus 30.4% in Q2FY26 and 24.5% in Q1FY27, contracting by 1,190bps YoY and 600bps QoQ, respectively. The decline was primarily due to the deferment of a portion of ATBS sales from Q2 to Q3 and Q4, along with higher operating costs. PAT declined 32% YoY but increased 28% QoQ, while PAT margin stood at 12% versus 21% in Q2FY26

Additional insights:

(1) In Q2 increased in raw material cost, energy, logistics and freight costs

(2) The company has largely passed on the increase in RM prices to customers

(3) Increase in logistics and energy costs could not be entirely passed on, resulting in higher revenue but lower profitability

(4) Logistics rates have started cooling in Q3FY27, further reductions in Q4FY27

(5) ATBS Mgmt expect volume recovery in H2FY27

(6) Butylphenol Delivered stable performance during H1FY27

(7) Management expects better performance in H2FY27, supported by improving demand conditions

(8) Antioxidants Management expects the segment to maintain its momentum in H2FY27, supported by market expansion

(9) The company announced a INR5bn investment to develop and commercialise specialty chemicals across fragrances, personal care, water treatment and oilfield applications.

(10) Management expects to close FY27 with 20–25% improvement in topline over FY26.

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