Reduce Vinati Organics; target of Rs 79: Nirmal Bang

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Reduce Vinati Organics; target of Rs 79: Nirmal Bang

Nirmal Bang is bearish on Vinati Organics and has recommended reduce rating on the stock with a target of Rs 79 in its February 6, 2012 research report.

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RELATED NEWS Buy ICICI Bank; target of Rs 1100: Motilal Oswal Buy Indian Overseas Bank; target of Rs 122: Dolat Capital Buy Dabur India; target of Rs 122: R K Global ALSO READ See previous views by Nirmal Bang See what other Experts & Brokerages are saying about Vinati Organics See messages about Vinati Organics Vinati Organics BSE | NSE 01/06/12 Are Mutual Funds betting on Vinati Organics?

Nirmal Bang is bearish on Vinati Organics and has recommended reduce rating on the stock with a target of Rs 79 in its February 6, 2012 research report.

"Vinati Organics reported better than expected results for Q3FY12. Sales grew by 16.2% qoq and 34.4% yoy at Rs 118 cr. On back of lower raw material cost and other expenses, EBITDA margin has improved by 718 bps qoq and 193 bps yoy at 24.9%. However, due to higher interest cost, tax and forex loss, PAT margin has declined on yoy basis to 13.6% in Q3FY12 as compared to 16.3% in Q3FY11."

"The company continue to witnessed strong demand in its legacy business of IBB. The company sold 3900 MT of IBB during the quarter at the rate of Rs 120 per kg as compared to 2900 MT in Q3FY11 with selling price of Rs 89 per kg, which helped in improving the EBITDA margins 24.9% in Q3FY12 from 23.0% in Q3FY11. In consideration of high demand in IBB, the company has debottlenecked its existing capacities of IBB to 16000 from 14000 earlier. However, the company couldn't give any specific reason for the sudden uptick in the demand of IBB (was sluggish till Q1FY12) and was also not sure about the sustainability of the same. ATBS sales declined during the quarter from 3000 in Q3FY11 to 2700 in Q3FY12."

"Management has said that due to break down in ATBS plant, sales was impacted for 10 days, which resulted in lower sales. However, our cause of concern is the expansion plan for which the company took debt from IFC in Nov'10. The company has yet again delayed the plan by two quarters and expected to be operational by June'12 now. (original plans to start the plant was May'12). Management keeps pushing the plan in every quarter (5th time in a row). The company was expected to come out with the results of ongoing trails of its new technology PAP in December. However, the company has not yet given any specific details about the outcome nor shared any outlook the possibility of future actions confirming our skeptical view about the success of the technology."

"We had initiated coverage on Vinati Organics on 17th June 2010 at Rs 70 with target price of Rs 100 which was reduced to Rs 95 in May'11. The stock price was moved to Rs 94 after our initiated coverage. At CMP of Rs 79 the stock looks fairly valued (6x FY13E) on fundamentals considering the full benefit of planned expansion would be visible in FY14. We recommend REDUCE the holding in the stock considering lack of limited near term upside triggers," says Nirmal Bang research report.

Public holding more than 90% in Indian cos      

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To read the full report click on the attachment