Vinati Organics Ltd Research Report By Edelweiss

Refuelling for next leg of growth

• Vinati Organics Ltd (VOL) is all set for its next leg of growth on the back of recently commissioned capacities of a few products (the company also has capacities that are in the process of getting commissioned). These include key existing products like ATBS and new products like Butyl Phenols (BPs) and Antioxidants (AOs).

• Due to VOL’s excellent all-round growth, we expect its (a) business to get more diversified, which would reduce erstwhile product concentration risks, and (b) business model to be highly integrated as BPs and AOs are Isobutylene derivatives.

• We expect VOL’s revenue/EBITDA/PAT to grow 31%/28%/28% over FY21E-24E. Thus, we recommend a ‘BUY’ rating on the stock with a TP of INR1,873/share.

Multiple new capacities coming on stream

Commissioning and ramping up of capacities of several products (ATBS, BPs, AOs, IB derivatives) over the next 3-4 years should help VOL clock 31% CAGR in top line. Also, VOL’s capacity in BPs, which has a revenue potential of INR200cr, has come on stream (another INR200cr of products from this capacity will be captively consumed for manufacturing AOs). Additionally, at optimum utilisation, three AOs should contribute INR500cr and IB derivatives (which includes four specialty chemicals as well as capacity expansion of PTBBA) another INR300cr to overall revenue.

Business model to get diversified and increasingly integrated

VOL previously saw sizeable contribution from two key products – IBB and ATBS. As several products are now coming on stream and gaining scale, product concentration risks should now reduce for VOL. Additionally, VOL’s focus on an integrated business model is reflected through its product development strategies. Its new products are downstream derivatives of Isobutylene (IB) – a product manufactured by the company. Further, manufacturing process for AOs will be doubly backward integrated (IB to BP to AO), which would be an enabler of efficiencies in production and cost leadership for these products.

VOL is readying itself for a growth run; recommend ‘BUY’

With multiple growth levers in place, we expect VOL’s revenue/EBITDA/PAT to grow 31%/28%/28% over FY21-24E. While margins may moderate due to the decreasing share of high-margin ATBS products in its product mix, we expect it to remain best-in-class in the industry. We remain positive on VOL and recommend BUY with a TP of INR1,873/share, resulting in an upside of 21%. We expect further upside in the stock price from potential earnings upgrades that could emerge if (a) the company commercializes Para Amino Phenol (PAP) production, (b) off-take of IBB increases owing to a key customer augmenting its Ibuprofen capacity, and (c) new product introductions.