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Operational synergies to further solidify leadership position

* Vinati Organics (VO) has strengthened its operations through backward integration, which is expected to expand its margins. Additionally, its vertical integration, along with the Veeral Additives (VAPL) merger, is likely to enhance economies of scale and help VO maintain/expand its market share in ATBS and antioxidants (AOs). Further, the commissioning of OSBP and DSBP plants positions VO as the sole domestic producer, reducing India's import reliance.

* With a 65% global market share in ATBS and IBB, VO aims to expand its ATBS capacity by 2HFY25. The company is also diversifying its portfolio through niche products and specialized polymers from Veeral Organics (VOPL) while advancing its sustainability strategy. In FY24, the company added 11.5MW of solar power and is targeting an additional 6.5MW in FY25, further reducing its carbon footprint.

* We continue to believe that VO’s overall long-term growth outlook is healthy. The stock is trading at ~39x FY26E EPS of INR54 and ~28x FY26E EV/EBITDA. It had a fixed asset turnover of 1.5x as of FY24. We value the company at 45x Sep’26E EPS to arrive at a TP of INR2,500. We reiterate our BUY rating on the stock.

Integrated operations to offer cost efficiency and economies of scale

* VO's investment in Butyl Phenol (BP) and Isobutylene (IB) production has strengthened its backward integration strategy. The in-house production is expected to cut raw material costs for the company. This move is likely to expand its margins and ensure supply chain reliability, keeping VO competitive in AOs and specialty chemicals.

* As such, VO, through its vertical integration, is expected to enhance economies of scale by expanding into related product lines, cutting costs, and strengthening its market share in ATBS and antioxidants. The VAPL merger brings operational synergies, which enhances VOL’s competitiveness and profitability in the antioxidants segment.

* VO also commissioned Ortho Secondary Butyl Phenol (OSBP) and DiSecondary Butyl Phenol (DSBP) plants in FY24, serving the agrochemicals, polystyrene, and perfumery industries. As the only player in India, VO has strengthened its domestic market position while reducing import reliance (both products are currently 100% imported into India).

Opportune expansions as demand outlook remains steady

* VO holds a 65% global market share in ATBS and IBB, primarily serving export markets. To meet the growing demand, the company is expanding its ATBS capacity, which is expected to come online in 2HFY25. Despite a temporary sales slowdown due to global destocking, VO expects long-term growth in ATBS usage for water treatment, oil recovery, and adhesives. This capex is expected to solidify the company’s leadership in the specialty monomer segment.

* VOL aims to reduce reliance on a few key products (refer to Exhibit 5) by diversifying its portfolio and customer base. VOPL, its subsidiary, has launched two new products with more set to roll out in FY25. VOPL is also developing specialized polymers with high-temperature resistance and chemical stability for the electronics, automotive, and aerospace industries.

* Sustainability is also key to VO’s long-term strategy, with a keen focus on renewable energy. The company added 11.5MW of solar power in FY24 and plans to increase its renewable energy capacity to 33 MW by FY25 with an additional 6.5MW. These initiatives align with VO's strategy to reduce carbon footprint.

Valuation and view

VOPL has commissioned a plant for MEHQ and Guaiacol with other products (Anisole, 4-MAP, Iso Amylene, etc.), which will come online in FY25. VO has 3ktpa capacity (combined) for MEHQ and Guaiacol, 5ktpa for Anisole, 30ktpa Iso Amylene, and 1ktpa for 4-MAP. These products will be the key growth drivers for VO going forward.

* The supply of AOs started in FY24, which earned a revenue of INR1.5b during that year. The amalgamation of VO with VAPL has already been approved by the NCLT. VO is now the largest and the only double-integrated manufacturer of AOs in India. Our long-term view remains positive for the segment, although there is a threat of Chinese supplies.

* We continue to believe that VO’s overall long-term growth outlook is healthy. The stock is trading at ~39x FY26E EPS of INR54 and ~28x FY26E EV/EBITDA. It had a fixed asset turnover of 1.5x as of FY24. We value the company at 45x Sep’26E EPS to arrive at a TP of INR2,500. We reiterate our BUY rating on the stock.

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