Vinati Organics

Buy

 Vinati Organics reported a muted Q2FY20 performance, Sales de-grew CMP ` 1,960
by 3.1% YoY to ` 2.45bn (below our estimate, D.est: ` 2.95bn) while Target / Upside ` 2,430 / 24%
EBITDA grew marginally by 4.8% YoY to ` 999mn (D.est: ` 1.11bn).
BSE Sensex 40,116
 PAT of ` 1.10bn (up 69.2% YoY) was higher due to reversal of deferred
tax liabilities of ` 225.6mn which is in-line with section 115BBA of NSE Nifty 11,914
income tax act after exercising the option of a lower tax rate. Scrip Details
Vinati Organics performance was marred by lower volume off-take in Iso Equity / FV ` 103mn / ` 2
Butyl Benzene (IBB) due to capacity shutdowns in Ibuprofen facilities of Market Cap ` 101bn
customers in China and technical difficulties in BASF’s Ibuprofen plant.
Vinati Organic’s flagship product – ATBS, too witnessed some volume US$ 1bn
growth challenges from enhanced oil recovery applications. Though 52-week High/Low ` 2,393/` 1,706
realisations have been resilient (gross margin/EBITDA margin expansion of Avg. Volume (no) 32,211
474/308bps YoY to 59.9/40.7%), VO could face near term challenges on
volume growth. NSE Symbol VINATIORGA
Bloomberg Code VO IN
The company was expected to commission an incremental ATBS capacity
of 14,000 TPA and Butyl Phenols capacity of 30,000 TPA in Oct-19. Shareholding Pattern Sep'19(%)
However, there have been delays in commissioning the plant. ATBS is
expected to commission in Dec-19, while Butyl Phenols plant has now Promoters 74.0
Result Update

become ready (Nov-19). As per the management, Butyl Phenols is expected MF/Banks/FIs 6.1
to add ~` 800mn to the topline in FY20E. The company will grow with an FIIs 5.0
industry growth rate of ~10.0-12.0% in ATBS starting FY21E.
Public / Others 14.8
Outlook and Valuation
Vinati Organics has an impeccable product selection history and is a market Valuation (x)
leader in most of the products it manufactures (ATBS: Global market share
- 65%, IBB: Global market share - 65% and IB: Domestic market share - FY20E FY21E FY22E
70%). Vinati Organics has the best in class operational efficiencies which P/E 27.2 24.0 19.9
help them in deriving superior margins (41.1% EBITDAM in H1FY20) and
subsequently return ratios (ROE/RoCE: 30.6/27.8% in FY19). We continue EV/EBITDA 21.1 17.7 14.1
to remain positive on Vinati Organics earnings trajectory given ROE (%) 30.2 26.3 24.9
commissioning of the new ATBS and Butyl Phenols capacity. With the
addition of Butyl phenols, Vinati Organics is expected to report a lower RoACE (%) 28.3 25.0 23.9
blended EBITDA margin in FY21 and beyond. We believe that there could
be near term challenges on the volume off-take in IBB and ATBS and have Estimates (` mn)
thus moderated our estimates (Sales cut by 9.6/11.0% in FY20E/FY21 and
have adjusted EBITDA margins upwards making EBITDA largely the same). FY20E FY21E FY22E
We have rolled forward FY22 estimates, we continue to value VO at 27x Revenue 11,756 14,317 17,583
with a revised TP of ` 2,430 and are buyers on the stock.
EBITDA 4,678 5,435 6,614
Q2FY20 Result (` Mn)
PAT 3,703 4,196 5,055
Particulars Q2FY20 Q2FY19 YoY (%) Q1FY20 QoQ (%)
EPS (`) 72.1 81.7 98.4
Revenue 2,451 2,528 (3.1) 2,907 (15.7)
Total Expense 1,452 1,576 (7.9) 1,706 (14.9)
EBITDA 999 952 4.8 1,202 (16.9) Analyst: Archit Joshi
Depreciation 72 69 4.2 70 2.9 Tel: +9122 40969726
EBIT 927 883 4.9 1,132 (18.1) E-mail: architj@dolatcapital.com
Other Income 112 107 4.5 114 (2.0)
Associate: Priyanka Sureka
Interest 3 2 11.8 3 (9.1) Tel: +91 22 40969751
EBT 1,036 988 4.8 1,243 (16.7) Email: priyankas@dolatcapital.com
Tax (64) 338 (119.0) 419 (115.3)
RPAT 1,100 650 69.2 824 33.6 Associate: Tejas Sonawane
APAT 1,100 650 69.2 824 33.6 Tel: +91 22 40969792
E-mail: tejass@dolatcapital.com
(bps) (bps)
Gross Margin (%) 59.9 55.1 474 57.7 219
EBITDA Margin (%) 40.7 37.7 308 41.3 (59)
NPM (%) 44.9 25.7 1917 28.3 1657
Tax Rate (%) (6.2) 34.2 (4039) 33.7 (3995)
EBIT Margin (%) 37.8 34.9 287 38.9 (112)

November 13, 2019

 Actual vs DART Estimates (` mn)
Particulars Actual Estimated Variance Comments
Revenue 2,451 2,950 (16.9) ` ~250mn sequential impact due to IBB sales.
EBITDA 999 1,113 (10.3) -
EBITDA Margin(%) 40.7 37.7 303 -
PAT 1,100 742 48.2 Due to reversal of Deferred tax liabilities of ` 225.6mn.
Source: DART, Company

Change in Estimates
FY20E FY21E
Particulars (` Mn)
New Previous Change(%) New Previous Change(%)
Revenue 11,756 13,005 (9.6) 14,317 16,089 (11.0)
EBITDA 4,678 4,671 0.2 5,435 5,711 (4.8)
EBITDA Margin(%) 39.8 35.9 388 38.0 35.5 246
PAT 3,703 3,686 0.5 4,196 4,385 (4.3)
EPS(`) 72.1 71.7 0.5 81.7 85.3 (4.3)
Source: DART, Company

We believe that there could be near term challenges on the volume off-take in IBB
and ATBS and have thus moderated our estimates (Sales cut by 9.6/11.0% in
FY20E/FY21 and have adjusted EBITDA margins upwards making EBITDA largely the
same).

Segmental Revenue (` mn) Segmental Revenue Mix %

21,000 100%
18,000
80%
15,000
12,000 60%
9,000
40%
6,000
3,000 20%
0 0%
FY20E

FY21E

FY22E
FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20E

FY21E

FY22E
FY11

FY12

FY13

FY14

FY15

FY16

FY17

FY18

FY19

Isobutyl Benzene (IBB) ATBS

Isobutyl Benzene (IBB) ATBS Isobutylene (IB) Gas
Isobutylene (IB) Gas Others (` mn)
Butyl Phenols Others (` mn) Butyl Phenols

Source: DART, Company Source: DART, Company

November 13, 2019 2

 Profit and Loss Account
(` Mn) FY19A FY20E FY21E FY22E
Revenue 11,081 11,756 14,317 17,583
Total Expense 7,045 7,078 8,883 10,969
COGS 5,251 4,959 6,294 7,759
Employees Cost 542 585 632 683
Other expenses 1,252 1,534 1,956 2,528
EBIDTA 4,036 4,678 5,435 6,614
Depreciation 274 322 519 550
EBIT 3,762 4,357 4,916 6,064
Interest 9 8 8 8
Other Income 500 600 700 700
Exc. / E.O. items 0 0 0 0
EBT 4,252 4,949 5,608 6,756
Tax 1,428 1,246 1,411 1,700
RPAT 2,825 3,703 4,196 5,055
Minority Interest 0 0 0 0
Profit/Loss share of associates 0 0 0 0
APAT 2,825 3,703 4,196 5,055

Balance Sheet
(` Mn) FY19A FY20E FY21E FY22E
Sources of Funds
Equity Capital 103 103 103 103
Minority Interest 0 0 0 1
Reserves & Surplus 10,410 13,890 17,833 22,604
Net Worth 10,513 13,993 17,935 22,706
Total Debt 37 37 37 37
Net Deferred Tax Liability 846 846 846 846
Total Capital Employed 11,395 14,875 18,818 23,590

Applications of Funds
Net Block 4,745 8,135 7,817 8,168
CWIP 1,912 200 900 900
Investments 0 0 0 0
Current Assets, Loans & Advances 5,619 7,358 11,079 15,684
Inventories 924 1,240 1,574 1,940
Receivables 2,440 2,612 3,182 3,907
Cash and Bank Balances 38 1,034 3,590 6,771
Loans and Advances 2 24 29 35
Other Current Assets 1,251 1,484 1,740 2,066

Less: Current Liabilities & Provisions 880 818 977 1,163

Payables 531 585 735 907
Other Current Liabilities 349 232 242 255

Net Current Assets 4,738 6,540 10,101 14,522

Total Assets 11,395 14,875 18,818 23,590
E – Estimates

November 13, 2019 3

 Important Ratios
Particulars FY19A FY20E FY21E FY22E
(A) Margins (%)
Gross Profit Margin 52.6 57.8 56.0 55.9
EBIDTA Margin 36.4 39.8 38.0 37.6
EBIT Margin 34.0 37.1 34.3 34.5
Tax rate 33.6 25.2 25.2 25.2
Net Profit Margin 25.5 31.5 29.3 28.8
(B) As Percentage of Net Sales (%)
COGS 47.4 42.2 44.0 44.1
Employee 4.9 5.0 4.4 3.9
Other 11.3 13.0 13.7 14.4
(C) Measure of Financial Status
Gross Debt / Equity 0.0 0.0 0.0 0.0
Interest Coverage 398.5 544.6 614.5 758.0
Inventory days 30 38 40 40
Debtors days 80 81 81 81
Average Cost of Debt 10.0 21.7 21.7 21.7
Payable days 17 18 19 19
Working Capital days 156 203 258 301
FA T/O 2.3 1.4 1.8 2.2
(D) Measures of Investment
AEPS (`) 55.0 72.1 81.7 98.4
CEPS (`) 60.3 78.3 91.7 109.1
DPS (`) 7.0 7.5 8.0 8.5
Dividend Payout (%) 12.7 10.4 9.8 8.6
BVPS (`) 204.6 272.3 349.0 441.8
RoANW (%) 30.6 30.2 26.3 24.9
RoACE (%) 27.9 28.3 25.0 23.9
RoAIC (%) 37.2 34.6 33.8 37.8
(E) Valuation Ratios
CMP (`) 1960 1960 1960 1960
P/E 35.7 27.2 24.0 19.9
Mcap (` Mn) 100,726 100,726 100,726 100,726
MCap/ Sales 9.1 8.6 7.0 5.7
EV 99,760 98,765 96,209 93,028
EV/Sales 9.0 8.4 6.7 5.3
EV/EBITDA 24.7 21.1 17.7 14.1
P/BV 9.6 7.2 5.6 4.4
Dividend Yield (%) 0.4 0.4 0.4 0.4
(F) Growth Rate (%)
Revenue 51.9 6.1 21.8 22.8
EBITDA 104.6 15.9 16.2 21.7
EBIT 116.4 15.8 12.8 23.4
PBT 109.1 16.4 13.3 20.5
APAT 96.3 31.1 13.3 20.5
EPS 96.3 31.1 13.3 20.5

Cash Flow
(` Mn) FY19A FY20E FY21E FY22E
CFO 2,050 3,227 3,718 4,374
CFI (2,013) (2,000) (900) (900)
CFF (403) (231) (262) (293)
FCFF 36 1,227 2,818 3,474
Opening Cash 1,316 949 1,945 4,501
Closing Cash 949 1,945 4,501 7,682
E – Estimates

November 13, 2019 4

 DART RATING MATRIX
Total Return Expectation (12 Months)
Buy > 20%
Accumulate 10 to 20%
Reduce 0 to 10%
Sell < 0%

Rating and Target Price History

Month Rating TP (`) Price (`)

(`) VO Target Price Jul-19 Accumulate 2,052 1,817
2,350

2,210

2,070

1,930

1,790

1,650
Jul-19
Jun-19

Aug-19

Sep-19

Oct-19
May-19

*Price as on recommendation date

DART Team
Purvag Shah Managing Director purvag@dolatcapital.com +9122 4096 9747

Amit Khurana, CFA Head of Equities amit@dolatcapital.com +9122 4096 9745

CONTACT DETAILS

Equity Sales Designation E-mail Direct Lines

Dinesh Bajaj VP - Equity Sales dineshb@dolatcapital.com +9122 4096 9709
Kartik Sadagopan VP - Equity Sales kartiks@dolatcapital.com +9122 4096 9762
Kapil Yadav VP - Equity Sales kapil@dolatcapital.com +9122 4096 9735
Yomika Agarwal VP - Equity Sales yomika@dolatcapital.com +9122 4096 9772
Ashwani Kandoi AVP - Equity Sales ashwanik@dolatcapital.com +9122 4096 9725
Lekha Nahar Manager - Equity Sales lekhan@dolatcapital.com +9122 4096 9740
Equity Trading Designation E-mail
P. Sridhar SVP and Head of Sales Trading sridhar@dolatcapital.com +9122 4096 9728
Chandrakant Ware VP - Sales Trading chandrakant@dolatcapital.com +9122 4096 9707
Shirish Thakkar VP - Head Domestic Derivatives Sales Trading shirisht@dolatcapital.com +9122 4096 9702
Kartik Mehta Asia Head Derivatives kartikm@dolatcapital.com +9122 4096 9715
Dinesh Mehta Co- Head Asia Derivatives dinesh.mehta@dolatcapital.com +9122 4096 9765
Bhavin Mehta VP - Derivatives Strategist bhavinm@dolatcapital.com +9122 4096 9705

Dolat Capital Market Private Limited.

Sunshine Tower, 28th Floor, Senapati Bapat Marg, Dadar (West), Mumbai 400013
Analyst(s) Certification
The research analyst(s), with respect to each issuer and its securities covered by them in this research report, certify that: All of the views expressed in
this research report accurately reflect his or her or their personal views about all of the issuers and their securities; and No part of his or her or their
compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this research report.
I. Analyst(s) and Associate (S) holding in the Stock(s): (Nil)
II. Disclaimer:
This research report has been prepared by Dolat Capital Market Private Limited. to provide information about the company(ies) and sector(s), if any,
covered in the report and may be distributed by it and/or its affiliated company(ies) solely for the purpose of information of the select recipient of this
report. This report and/or any part thereof, may not be duplicated in any form and/or reproduced or redistributed without the prior written consent of
Dolat Capital Market Private Limited. This report has been prepared independent of the companies covered herein. Dolat Capital Market Private Limited.
and its affiliated companies are part of a multi-service, integrated investment banking, brokerage and financing group. Dolat Capital Market Private
Limited. and/or its affiliated company(ies) might have provided or may provide services in respect of managing offerings of securities, corporate finance,
investment banking, mergers & acquisitions, financing or any other advisory services to the company(ies) covered herein. Dolat Capital Market Private
Limited. and/or its affiliated company(ies) might have received or may receive compensation from the company(ies) mentioned in this report for rendering
any of the above services. Research analysts and sales persons of Dolat Capital Market Private Limited. may provide important inputs to its affiliated
company(ies) associated with it. While reasonable care has been taken in the preparation of this report, it does not purport to be a complete description
of the securities, markets or developments referred to herein, and Dolat Capital Market Private Limited. does not warrant its accuracy or completeness.
Dolat Capital Market Private Limited. may not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error
in the information contained in this report. This report is provided for information only and is not an investment advice and must not alone be taken as
the basis for an investment decision. The investment discussed or views expressed herein may not be suitable for all investors. The user assumes the
entire risk of any use made of this information. The information contained herein may be changed without notice and Dolat Capital Market Private Limited.
reserves the right to make modifications and alterations to this statement as they may deem fit from time to time. Dolat Capital Market Private Limited.
and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of
the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act
as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may
have any other potential conflict of interests with respect to any recommendation and other related information and opinions. This report is neither an
offer nor solicitation of an offer to buy and/or sell any securities mentioned herein and/or not an official confirmation of any transaction. This report is
not directed or intended for distribution to, or use by any person or entity who is a citizen or resident of or located in any locality, state, country or other
jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject Dolat Capital Market
Private Limited. and/or its affiliated company(ies) to any registration or licensing requirement within such jurisdiction. The securities described herein
may or may not be eligible for sale in all jurisdictions or to a certain category of investors. Persons in whose possession this report may come, are required
to inform themselves of and to observe such restrictions.
For U.S. Entity/ persons only: This research report is a product of Dolat Capital Market Private Limited., which is the employer of the research analyst(s)
who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not
associated persons of any U.S. regulated broker-dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker-dealer, and is/are
not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among
other things, communications with a subject company, public appearances and trading securities held by a research analyst account.
This report is intended for distribution by Dolat Capital Market Private Limited. only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of
the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance
on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return
the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person or entity.
In reliance on the exemption from registration provided by Rule 15a-6 of the Exchange Act and interpretations thereof by the SEC in order to conduct
certain business with Major Institutional Investors, Dolat Capital Market Private Limited. has entered into an agreement with a U.S. registered broker-
dealer Ltd Marco Polo Securities Inc. ("Marco Polo"). Transactions in securities discussed in this research report should be effected through Marco Polo
or another U.S. registered broker dealer/Entity as informed by Dolat Capital Market Private Limited. from time to time.

Dolat Capital Market Private Limited.

Corporate Identity Number: U65990DD1993PTC009797
Member: BSE Limited and National Stock Exchange of India Limited.
SEBI Registration No: BSE - INB010710052 & INF010710052, NSE - INB230710031& INF230710031, Research: INH000000685
Registered office: Office No. 141, Centre Point, Somnath, Daman – 396 210, Daman & Diu
Board: +9122 40969700 | Fax: +9122 22651278 | Email: research@dolatcapital.com | www.dolatresearch.com

Our Research reports are also available on Reuters, Thomson Publishers, DowJones and Bloomberg (DCML <GO>)