13th August, 2018

ATBs gains tractions... Revenue grew by 43.6% YoY in Q1FY19 led by higher contribution from ATBS. The strong traction witnessed in its ATBS business driven by exit of Lubrizol from the market and strong demand by user industries. The off-take in IBB segment was healthy led by increased off-take from its key customers. Going forward ATBS will continue to drive overall revenue growth & profitability led by strong demand and incremental volumes led by exit of competitor from business. Additionally, healthy off-take in IBB segment coupled with stable growth in HPMTBE and customised products will drive growth. We factor revenue to grow 32% CAGR over FY18- FY20E.

EBITDA to grow at healthy 38% CAGR over FY18-20E... EBITDA grew by83% YoY and EBITDA margins improved by 740bps YoY 34.7% on account of better product mix. Higher sales of ATBS, IBB and customised products helped gross margins to improve by 390bps YoY to 50.5%. Whereas higher scale and operating leverage supported further margin expansion by 350bps. PAT grew by 107% YoY. Going forward with contribution of IBB and higher demand from ATBs is expected to drive EBITDA growth. We factor EBITDA margin estimates at 31% & 31.3% for FY19E & FY20E. We increase our EPS estimates by 13.5% & 21% for FY19E & FY20E. Consequently we expect PAT

to grow by 33% CAGR over FY18-20E.

Other key highlights... Company to expand its ATBS capacity to 30000 TPA from 26000 TPA, as exit one of its competitors from ATBs will lead to higher volumes. Further, VOL is executing CAPEX for Butyl Phenols, which is expected to contribute towards revenues in FY20E. Also coming up with additional capacities for PAP (Para Amino Phenol) a key intermediate for paracetamol, where they have planned to invest Rs 600cr in Maharashtra with a capacity of 30,000 tonne per annum (TPA)

Valuations The long term outlook has significantly improved by launch of new products and CAPEX initiated for introduction of new products. Given healthy earnings outlook, we value VOL at P/E 28x (27x earlier) on FY20E. While given recent sharp up-move in stock prices we downgrade to Hold from BUY with a target price of Rs1,384.

RETAIL EQUITY RESEARCH

Vinati Organics Ltd

Rating as per Midcap 12 Months investment period Speciality Chemicals

BSE CODE:524200 NSE CODE: VINATIORGA CMP Rs. 1,267 TARGETRs. 1,384 RETURN 9%

Bloomberg CODE: VO:IN SENSEX: 37,869

Company Data

Market Cap (cr) Rs. 6,537

Enterprise Value (cr) Rs. 6,562

Outstanding Shares (cr) 5.2

Free Float 26%

Dividend Yield 0.05%

52 week high Rs. 1,338

52 week low Rs. 760

6m average volume (cr) 0.01

Beta 0.7

Face value Rs. 2

Shareholding (%) Q3FY18 Q4FY18 Q1FY19

Promoters 74.0 74.0 74.0

FII‟s 3.5 3.6 3.5

MFs/Institutions 6.5 6.6 6.7

Public 13.4 13.0 12.8

Others 2.6 2.8 3.0

Total 100.0 100.0 100.0

Price Performance 3 Month 6 Month 1 Year

Absolute Return 33.2% 45.9% 31.8%

Absolute Sensex 6.5% 10.4% 20.1%

Relative Return* 26.7% 35.5% 11.7%

*over or under performance to benchmark index

Standalone (Rs.cr) FY18A FY19E FY20E

Sales 743 1,006 1,291

Growth (%) 11.6 35.3 28.3

EBITDA 211 312 404

Margin (%) 28.4 31.0 31.0

PAT Adjusted 144 197 255

Growth (%) 2.6 37.2 29.2

Adjusted EPS 27.9 38.3 49.4

Growth (%) 2.6 37.2 29.2

P/E 45.4 33.1 25.6

P/B 8.2 6.8 5.4

EV/EBITDA 31.1 21.0 16.2

ROE (%) 19.5 22.3 23.5

D/E 0.0 0.0 0.0

COMPANY UPDATE

Solid earnings growth...outlook brighten-up Vinati Organics Ltd (VOL) enjoys global leadership in two speciality chemicals, with market share of 70% in IBB and 80% in ATBS.

Revenue and PAT grew by 43.9% YoY & 107% YoY led by strong traction in ATBS and customised products.

EBITDA margins improved by 740bps YoY to 34.7% due to better product mix and benefits of scale.

Led by robust demand for IBB & ATBS in FY19E and pick-up in customised products, we expect current growth momentum to continue.

Earnings outlook has significantly improved led by capacity expansion in ATBS and launch of new products in next 1-2 years.

We upgrade our earnings estimates by 13% & 21% for FY19 & FY20E. Consequently, earnings to grow at 33% CAGR over FY18-FY20E.

Given strong earnings outlook and RoE of 26% (last 5yrs), we value VOL at 28x (27x earlier) on FY20E. However we downgrade to “Hold” from Buy with a target price of Rs1,384 given sharp up-move in stock prices.

Hold

Anil R Analyst

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1200

1700

Jul 17 Oct 17 Jan 18 Apr 18 Jul 18

VOL Sensex Rebased

Standalone Financials

Profit & Loss Account

(Rscr) Q1FY19 Q1FY18 YoY Growth % Q4FY18 YoY Growth %

Sales 265 184 43.6 213 24.5

EBITDA 92 50 82.8 65 41.2

EBITDA margins 34.7 27.2 +740bps 30.6 +410bps

Depreciation 7 7 0.3 4 55.3

EBIT 85 43 95.6 61 40.2

Interest - 1 - 1 -

Other Income 12 4 202.4 8 56.0

PBT 97 47 108.0 68 42.9

Tax* 33 16 110.6 16 105.4

Others - - - - -

Exceptional - - - - -

Reported PAT 64 31 106.6 52 23.8

Adjustments - - - - -

Adjusted PAT 64 31 106.6 52 23.8

No. of shares (cr) 5.2 5.2 5.2 EPS (Rs) 12.5 6.0 106.6 10.1 23.8

Change in estimates

Old estimates New estimates Change %

Year / Rscr FY19E FY20E FY19E FY20E FY19E FY19E

Revenue 922 1,138 1,006 1,291 9.1 13.4

EBITDA 277 341 312 404 12.7 18.3

Margins (%) 30.0 30.0 31.0 31.0 +100bps +100bps

PAT 175 211 197 255 13.1 20.6

EPS 33.8 41.0 38.3 49.4 13.1 20.6

Standalone Financials

Profit & Loss Account

Y.E March (Rscr) FY16A FY17A FY18A FY19E FY20E

Sales 631 666 743 1006 1291

% change (18.2) 5.6 11.6 35.3 28.4

EBITDA 207 219 211 312 404

% change 7.8 6.0 (3.8) 47.8 29.6

Depreciation 17 20 23 29 40

EBIT 188 198 188 282 363

Interest 8 3 1 1 1

Other Income 6 10 17 18 30

PBT 187 205 203 299 392

% change 7.5 9.7 (0.6) 47.0 31.2

Tax 55 65 59 102 137

Tax Rate (%) 29.5 31.9 29.3 34.0 35.0

Reported PAT 132 139 144 197 255

Adj* - - - - -

Adj PAT 132 139 144 197 255

% change 13.6 5.9 3.3 37.2 29.2

No. of shares (cr) 5.2 5.2 5.2 5.2 5.2

Adjusted EPS (Rs) 25.5 27.0 27.9 38.3 49.4

% change 13.6 5.9 3.3 37.2 29.2

DPS (Rs) 4.8 4.8 4.5 4.5 4.5

CEPS (Rs) 29.1 31.4 32.5 44.2 57.5

Cash flow

Y.E March (Rscr) FY16A FY17A FY18 FY19E FY20E

Net inc. + Depn. 150 162 169 227 296 Non-cash adj. 10 7 1 (17) (29) Changes in W.C 7 (38) (32) (55) (95) C.F.O 167 130 138 155 172 Capital exp. (73) (114) (42) (263) (165) Change in inv. (3) 85 (4) 120 - Other invest.CF 4 2 7 18 30 C.F - investing (72) (27) (39) (125) (135) Issue of equity - - - - - Issue/repay debt (23) (0) (2) (2) (1) Dividends paid (18) (4) (3) (23) (23) Other finance.CF (5) (2) (1) (1) (1) C.F - Financing (50) (45) (30) (6) (5) Chg. in cash 45 59 70 (177) 32 Closing cash 72 131 200 23 55

Balance Sheet

Y.E March (Rscr) FY16A FY17A FY18A FY19E FY20E

Cash 0.2 0.3 0.1 23 55

Accounts Receivable 115 141 177 240 308

Inventories 43 65 82 111 142

Other Cur. Assets 121 78 97 91 117

Investments 3 62 132 12 12

Gross Fixed Assets 370 484 497 745 945

Net Fixed Assets 370 463 453 673 833

CWIP 25 7 35 50 15

Intangible Assets 5 5 4 3 2

Def. Tax (Net) (49) (70) (81) (81) (81)

Other Assets - - - - -

Total Assets 634 752 899 1,122 1,402

Current Liabilities 30 43 75 104 133

Provisions 2 3 3 3 4

Debt Funds 58 26 25 23 22

Other Liabilities - - - - -

Equity Capital 10 10 10 10 10

Reserves & Surplus 534 670 786 981 1,232

Shareholder‟s Fund 544 680 797 971 1,243

Total Liabilities 634 752 899 1,122 1,402

BVPS (Rs) 106 132 154 192 241

Ratios

Y.E March FY16A FY17A FY18A FY19E FY20E

Profitability& Return

EBITDA margin (%) 32.8 33.9 28.4 31.0 31.3

EBIT margin (%) 29.8 30.5 25.2 28.1 28.1

Net profit margin(%) 20.9 21.9 19.4 19.6 19.7

ROE (%) 26.9 22.9 19.5 22.3 23.5

ROCE (%) 19.6 16.7 14.4 14.4 15.0

W.C & Liquidity

Receivables (days) 70.6 72.7 78.0 75.6 77.4

Inventory (days) 60.2 65.8 71.2 69.5 71.4

Payables (days) 56.2 43.9 56.8 64.4 67.0

Current ratio (x) 8.8 6.3 4.6 4.1 4.2

Quick ratio (x) 3.9 3.3 2.4 2.3 2.4

Turnover &Leverage

Gross asset T.O (x) 1.6 1.5 1.5 1.6 1.5

Total asset T.O (x) 1.1 0.9 0.9 1.0 1.0

Int. coverage ratio (x) 24.0 104.9 154.9 235.3 323.1

Adj. debt/equity (x) 0.1 0.0 0.0 0.0 0.0

Valuation ratios

EV/Sales (x) 10.5 10.2 8.8 6.5 5.1

EV/EBITDA (x) 31.9 30.3 31.1 21.0 16.2

P/E (x) 49.7 46.6 45.4 33.1 25.6

P/BV (x) 12.1 9.7 8.2 6.8 5.4

Recommendation Summary

Dates Rating Target

05-May -14 Accumulate 327

06-August-14 Accumulate 402

05-February-15 Accumulate 589

28-May-15 Hold 565

17-November-15 Reduce 359

15-June-16 Hold 543

10-August-16 Hold 551

05-Novomber-16 Reduce 504

09-February -17 Reduce 685

22-May -17 Reduce 793

29-August-17 Reduce 918

09-November-17 Reduce 904

01-March-18 Accumulate 942

07-June- 18 Buy 1,106

Source: Bloomberg, Geojit Research 13-August-18 Hold 1,384

Investment Rating Criteria Large Cap Stocks; Mid Cap and Small Cap;

Buy - Upside is above 10%. Hold - Upside is between 0%- 10%. Reduce/ Sell - Downside is more than 0%.

Neutral - Not Applicable

Buy - Upside is above 15%. Accumulate - Upside is between 10% - 15%. Hold - Upside is between 0% - 15%. Reduce/Sell - Downside is more than 0%. Neutral - Not Applicable

To satisfy regulatory requirements, we attribute „Accumulate‟ as Buy and „Reduce‟ as Sell. The recommendations are based on 12 month horizon, unless otherwise specified. The investment ratings are on absolute positive/negative return basis. It is possible that due to volatile price fluctuation in the near to medium term, there could be a temporary mismatch to rating. For reasons of valuations/return/lack of clarity/event we may revisit rating at appropriate time. Please note that the stock always carries the risk of being upgraded to BUY or downgraded to a HOLD, REDUCE or SELL. Neutral- The analyst has no investment opinion on the stock under review.

General Disclosures and Disclaimers

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I, Anil R, author of this Report, hereby certify that all the views expressed in this research report reflect our personal views about any or all of the subject issuer or securities. This report has been prepared by the Research Team of GeojitFinancial Services Limited, hereinafter referred to as Geojit.

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