Buy Vinati Organics; target of Rs 2245: Motilal Oswal

Motilal Oswal's research report on Vinati Organics

VO reported lower-than-estimated revenues (6% below our estimates) in 4QFY23 because of inventory built-up at customers’ end. This is further expected to continue in FY24 as well. Gross margin declined to 50.3% (down 140bp QoQ), with EBITDAM at 30.3% (down 190bp QoQ). The management has guided that demand for IBB is good and expected to remain robust going forward.  That being said, the management expects to have a muted FY24 with ATBS demand likely to bounce back not before end-FY24. However, the management has started commercial supply of Antioxidants (AOs), which should start contributing to revenues in 1QFY24. Contribution from AOs would further partially offset the weakness in the ATBS segment in FY24. The merger with VAPL is expected to be completed by Jun’23.

Outlook

The stock is trading at 28x FY25E EPS and 21x FY25E EV/EBITDA, with return ratios of 20-23%. It had a fixed asset turnover of 2.4x as of FY23. We value the company at 35x FY25E EPS to arrive at our TP of INR2,245. We reiterate our BUY rating on the stock.