Buy Vinati Organics; target of Rs 2500: Sharekhan

Sharekhan's research report on Vinati Organics

Vinati Organics’ capex plan of ~Rs. 300 crore to augment ATBS capacity by 50% to 60 ktpa (expected by December 2023) and Rs. 280 crore for entry into new products (MEHQ & Guaiacol and Iso Amylene; expected by Sep-23) and company’s track-record of being the top player (as in the case of ATBS/IBB) in its products gives us confidence on longevity to sustained high revenue/earnings growth. Veeral Additives Private Ltd’s (VAPL) merger (expected to get completed by end-FY23) with Vinati would provide synergies in terms of forward integration of Butyl Phenol to antioxidants, which would help tap huge antioxidant market opportunity of Rs. 10,000 crore. Merger of VAL is key catalyst. Strong balance would support capex for capacity expansion and R&D pipeline of 10-12 products would aid product development. We introduce our FY25 earnings estimate and expect 32% PAT CAGR over FY22-25E along with strong RoE/RoCE of 25%/33%. The recent 14% correction in the stock’s price from 52-week high provides good entry for the investors considering sustained long term high double-digit earnings growth potential.

Outlook

We maintain a Buy on Vinati Organics with an unchanged PT of Rs. 2,500. Stock is trading at 31.5x its FY2024E EPS and 26.4x its FY2025E EPS.