Our SELL recommendation on Vinati Organics with a discounted cash flowbased target price of INR 1,765 (WACC 11%, terminal growth 5%) is driven by a shift in the revenue mix towards lower-margin iso butyl benzene (IBB), butyl phenol, and other products as compared to ATBS, which has a higher margin. We believe the current valuation is contextually high at ~36x FY24E EPS. Q1 EBITDA/APAT were 12/6% below our estimates, owing to a 5% fall in revenue, higher-than-anticipated raw material cost, offset by higher-than-expected other income.
Financial performance: Q1 revenue grew 4/31% QoQ/YoY to INR 5,063mn on the back of robust demand across products. EBITDA came in at INR 1,309mn (-6/+29% QoQ/YoY). EBITDA margin deteriorated by 270bps sequentially to 25.8%, owing to higher energy cost and tilt in the revenue mix towards lowermargin products.
ATBS: ATBS continued to register strong growth in Q1. It contributed 44% to the Q1 topline (51% in Q4). ATBS is witnessing healthy demand from various end-user industries including oil and gas, water treatment, cosmetic and detergent industries. The company expects the demand to be robust in the coming years, owing to which, it has announced the expansion of its capacity from 40kTPA to 60kTPA.
Iso butyl benzene (IBB): Revenue contribution came in at ~13% in Q1 (9% in Q4), owing to pick-up in demand.
Butyl phenol: The butyl phenol segment clocked in INR ~0.9bn revenue in Q1 (18% of revenue mix) and the management expects this segment to witness strong traction, going forward.
Capex: (1) The company has announced Capex of INR 3bn in order to expand its ATBS capacity from 40kTPA to 60kTPA, which shall come on stream in Dec-23. (2) Veeral Additives' facility came on stream in Mar-22, which will start its supplies from H2FY23. Revenue potential at peak utilisation of this Capex is INR 7bn, which shall accrue from FY25. (3) Capex of INR 2.8bn in Veeral Organics to introduce 5-6 niche speciality chemical intermediates would come on stream in Sep-23. Revenue potential at peak utilisation is INR 2.5bn.
Change in estimates: We cut our FY23/24 EPS estimates by 5.8/3.4% to INR 43.3/54.1 to account for higher input costs and the incorporation of annual report FY22.
Shares of Vinati Organics Limited was last trading in BSE at Rs. 2179.95 as compared to the previous close of Rs. 2161.10. The total number of shares traded during the day was 2062 in over 583 trades.
The stock hit an intraday high of Rs. 2195.00 and intraday low of 2141.25. The net turnover during the day was Rs. 4466791.00.