Buy Vinati Organics; target of Rs 2500: Sharekhan

Sharekhan's research report on Vinati Organics

Q2FY23 performance was mixed with 7.5% beat in revenue at Rs. 566 crore (up 51.4% y-o-y) led by strong growth from ATBS/IBB segments while OPM of 26.2% (down 234 bps y-o-y) missed our estimate by 304 bps as gross margins remained under pressure. In-line PAT of Rs. 116 crore (up 43% y-o-y) as slight miss in operating profit was offset by higher-than-expected other income. Veeral Additives Pvt Ltd’s (VAPL’s) antioxidant plant is expected to see some delayed ramp-up in near term due to slowdown but management expects demand picking-up in FY24. In addition, VAPL’s merger approval is pending from the NCLT and expected to get completed by March’23. Do not see any impact from production cuts by BASF Europe as it supplies to BASF in North America and has diversified customer base. Strong demand for key existing products, ATBS capacity expansion 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) gives us confidence on longevity to sustained high revenue/earnings growth. Management had earlier guided for 25% revenue growth and EBITDA margins of 28-30% in FY23 and has been guiding to almost double revenues to Rs. 3,000 crores by FY25.

Outlook

The recent 12% fall in Vinati’s stock’s price from 52-week high provides a good entry point for investors considering sustained long-term high double-digit earnings growth potential. We maintain a Buy on Vinati Organics with an unchanged PT of Rs. 2,500. Stock is trading at 32x its FY2024E EPS and 26.8x its FY2025E EPS.

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Vinati Organics - 10 -11-2022 - khan