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Chola Securities
Vinati Organics (Outperformer)
CMP: ₹1,738
Target: ₹1,900
Vinati Organics Ltd (VOL) was established in 1989 to manufacture specialty organic chemicals. It has since grown to become the world’s largest manufacturer of IBB & ATBS and India’s largest manufacturer of IB & HP MTBE.
In 4QFY19, VOL’s revenue grew a robust 39 per cent y-o-y to ₹296 crore led by recovery in IBB volumes and export volumes of ATBS, aided with solid domestic market sales and higher realisation. Closure of their competitor, Lubrizol’s ATBS plant in the last quarter resulted in firm demand.
We expect a 25 per cent CAGR growth in top line and 20 per cent CAGR growth in EBITDA over FY19-21E with increased ATBS capacity and commissioning of Butyl Phenol plant. We expect the margins to remain healthy over the coming years, given its commanding market share and proprietary technology to manufacture ATBS, which yields high margins and increasing demand from oil & gas, shale recovery and water treatment. Also the company is in an advantageous position due to Lubrizol’s exit.
We value the stock at 27x FY21E EPS to arrive at a Target Price of ₹1,900 and hence rate the stock a ‘outperformer’.
Risk: Slump in demand resulting in lower realisations, increase in prices of raw materials and impact of rupee appreciation.
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