Mutual Funds Commodities Research Tax Planning IPO Our Team Contact Us    

| More

SELL on Vinati Organics - At an inflexion point - HDFC Securities

Posted On: 2020-08-05 09:28:12

Mr. Nilesh Ghuge & Mr. Harshad Katkar, Institutional Research Analyst, HDFC Securities.

Our SELL recommendation on Vinati Organics with a discounted cash flow based target price of INR 820 (WACC 10%, terminal growth 3%) is driven by (1) demand slowdown for the high margin 2-Acrylamido 2-Methylapropane Sulphonic Acid (ATBS) that contributed ~60% to its revenue mix in FY20, (2) shift in revenue mix towards lower margin Iso Butyl Benzene (IBB), which formed ~32% of the mix in 1Q versus 16% in FY20, (3) slow ramp-up in the recently-commissioned Butyl Phenol product line. In the absence of new product pipeline, we believe current valuations are high at 30.5x Mar-22E EPS. 1Q EBITDA/PAT were 41/125% above estimates owing to better-than-anticipated traction in IBB and lower than the built-in tax rate.

Financial performance: 1Q EBITDA stood at INR 972mn, -19/-4% YoY/QoQ, led by higher sales volume for IBB. Despite sluggish demand for ATBS in the quarter, EBITDA margin expanded to 42.0% (41.3/41.4/40.2% in 1QFY20/4QFY20/FY20), driven by a customised order.

ATBS: The product contributed 40% to the Q1 topline (59% in Q4FY20). The brownfield expansion of 14ktpa has been pushed further to 2HFY21 (earlier: 1HFY21) as current demand for the product can be met by VO's existing capacity of 26ktpa. The demand slowdown for ATBS is owing to its reduced demand by the oil and gas industry that forms 25-30% of its global demand.

Iso Butyl Benzene (IBB): Revenue contribution spiked to ~32% in 1Q. The product should witness good offtake in FY21 as the company has acquired new customers and BASF (a key customer) has resumed production of Ibuprofen, whose production requires IBB as an intermediate.

Takeaways from our call with the management: The Butyl Phenol plant (capacity 35ktpa) that was commissioned in Sep-19 continues to run at low capacity utilisation in 1HFY21, given its muted demand amidst the pandemic. It was expected to contribute ~INR 1bn to the topline in FY21E, which now seems unlikely. Demand for ATBS should continue to remain muted in FY21. IBB should drive volume growth in the fiscal year.

Change in estimates: We cut our FY21/22E EPS estimates by -4/-2% to INR 28.9/32.1 to factor-in a sales mix shift towards lower margin IBB from (high margin) ATBS; EBITDA margin estimate cut by 28/71bps to 39.6/37.4%.

Shares of VINATI ORGANICS LTD. was last trading in BSE at Rs.980 as compared to the previous close of Rs. 983. The total number of shares traded during the day was 2301 in over 388 trades.

The stock hit an intraday high of Rs. 994 and intraday low of 972. The net turnover during the day was Rs. 2258576.

Source: Equity Bulls

Click here to send ur comments or to

Disclaimer:The article above is a gist / extract of the original report prepared by the research firm / brokerage firm. This article is not to be considered as an offer to sell or a solicitation to buy any securities. This article is meant for general information only., its employees or owners or the research firms, its employees or owners won't be responsible for any liability that may arise from information, errors or omissions in these articles. or its employees or owners / the research firms or its employees or clients or owners may from time to time hold positions in securities referred in this article. For detailed research reports, please contact the concerned research firm directly.

Other Headlines:

Mazagon Dock IPO fully subscribed on Day 1 - Angel Broking

Pharma - Sector Thematic - Cardiac: the heartbeat of domestic market - HDFC Securities Institutional Research Desk

Walmart-Tata Retail Deal - Mr. Himanshu Nayyar, YES SECURITIES

HDFC Securities Institutional Research Desk: Chemical Conference Report

Lupin - Launch of Fosaprepitant - Angel Broking

Infosys - Key beneficiary of increased IT spending - Angel Broking

Gateway Distriparks - Holding structure simplified; prepared for next phase of growth - ICICI Securities

Visaka Industries - Demand and pricing tailwinds sustain; maintain a compelling BUY - ICICI Securities

GSK Pharmaceuticals - Analyst call highlights - Sep 28, 2020 - ICICI Securities

HeidelbergCement India - Play on better priced Central India; initiate with BUY - ICICI Securities

Healthcare - Diagnostics: Multiple tailwinds likely to emerge - ICICI Securities

Mazagon Dock Shipbuilders Ltd - IPO Review - ICICI Securities

Persistent Systems - 28th September 2020 - Angel Broking

Canara Bank - 28th September 2020 - Angel Broking

Subscribe to UTI Asset Management Company Limited - IPO Note - Angel Broking

Multiplex Sector - Mr. Jyoti Roy - DVP - Equity Strategist, Angel Broking Ltd

Sale of Sequent stake to Strides Pharma - Angel Broking

Subscribe to Mazagon Dock Shipbuilders Ltd - IPO Note - Angel Broking

JSW Energy - First big renewable step - ICICI Securities

V-MART Retail - Best play in value fashion segment; initiating with BUY - ICICI Securities

Gas sector - New winners and losers likely on policy changes in gas sector - ICICI Securities

Mazagon Dock Shipbuilders Limited - IPO Note - Geojit

UTI Asset Management Company Limited - IPO Note - Geojit

Preview on RBI Monetary Policy - Oct 2020 - Shanti Ekambaram

Rollover Report for September 2020 - October 2020: Angel Broking

Covid Recovery Pulse - Sep 25, 2020 - ICICI Securities

Quick Comment - Suven Pharmaceuticals - ICICI Securities

Derivatives Strategy - Sep 25, 2020 - Positional Option - ICICI Securities

Gladiator Stocks - Ramco Cement - ICICI Securities

IPO Review - UTI Asset Management Company - ICICI Securities

Stock of the Day - Zensar Technologies - Sep 25, 2020 - Angel Broking

Accenture Q4FY2020 Result - Angel Broking

Granules India receives ANDA approval - Angel Broking

Zydus Cadila receives US FDA approval - Angel Broking

Cipla - ANDA approval - Mr. Yash Gupta - Equity Research Associate, Angel Broking Ltd

Mindspace REIT - Mr. Yash Gupta - Equity Research Associate, Angel Broking Ltd

UTI AMC - IPO - Mr. Jaikishan Parmar - Sr. Equity Research Analyst, Angel Broking Ltd

Balkrishna Industries - Growth momentum continues - ICICI Securities

Rollover Analysis (September 25): Nifty starts October series with low OI amid high volatility

Derivatives View (September 25): Sell Bank Nifty in range of 20650-20750 - ICICI Securities

Rollover Analysis - Sept 20: Selling climax on expiry as markets crumble - YES Securities

Zydus Wellness - Leadership in niche categories; initiate at BUY - ICICI Securities

Power - Setting the stage - ICICI Securities

Company Update - Elgi Equipments - ICICI Securities

Nano Nivesh - The Anup Engineering - ICICI Securities

RBI OMO announcement of Rs. 10000 crore - Angel Broking

TCS deal win - Sep 24, 2020 - Angel Broking

View on Pre-Monetary Policy by Upasna Bhardwaj, Senior Economist at Kotak Mahindra Bank

US FDA approval to Zydus Cadila - Angel Broking

HDFC Securities Institutional Research Desk: Cement Sector Thematic - Spotting the sweet spot

Website Created & Maintained by : Chennai Scripts
West Mambalam, Chennai - 600 033,
Tamil Nadu, India

disclaimer copyright © 2005 - 2019