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Vinati Organics: Good Performance, Promising Future due to Capex Plan - Views on News from Equitymaster
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  • Feb 28, 2017 - Vinati Organics: Good Performance, Promising Future due to Capex Plan

Vinati Organics: Good Performance, Promising Future due to Capex Plan
Feb 28, 2017

We present herewith the December 2016 quarterly result analysis of Vinati Organics.

Performance summary
  • Total income increased by 8% YoY during the quarter. Net sales increased by 15.3% YoY and other operating income declined by 58.8% YoY. The increase in revenue was led by higher contribution of IBB, ATBS, and volumes from new customised products.
  • Operating profits increased by 5.1% YoY. Operating margins stood at 33.5%. Operating margins declined on the back of higher employee cost which has increased by 49% YoY.
  • Other income increased by 19.4% YoY. Depreciation increased 15.9% YoY.
  • Net profit increased by 7.9%. This is primarily on account of expansion in gross margins and higher other income. The net margin stood at 20.6%.

    Financial Snapshot
    (Rs m) 3QFY16 3QFY17 Change 9mY16 9mY17 Change
    Net sales 1,372 1,582 15.3% 3,142 3,150 0.3%
    Other operating income 150 62 -58.8% 325 103 -68.4%
    Total Income 1,522 1,644 8.0% 3,467 3,253 -6.2%
    Expenditure 1,017 1,113 9.5% 2,412 2,197 -8.9%
    Operating profit (EBDITA) 505 531 5.1% 1,055 1,056 0.0%
    Operating profit margin (%) 36.8% 33.5% 33.6% 33.5%
    Other income 15 18 19.4% 27 20 -24.0%
    Interest 20 8 -58.7% 47 19 -59.6%
    Depreciation 46 54 15.9% 92 107 16.1%
    Profit before tax 454 486 7.2% 944 951 0.8%
    Tax 152 161 5.9% 322 289 -10.3%
    Effective tax rate 33.5% 33.1% 34.2% 30.4%
    Profit after tax/(loss) 302 326 7.9% 621 662 6.5%
    Net profit margin (%) 22.0% 20.6% 19.8% 21.0%
    No. of shares (m) 52
    Fully diluted EPS (Rs)* 26.3
    P/E (x)* 27.7
    *Based on a trailing 12-month earnings
    We conducted a conference call with the management to understand the details of the capex plan as well as the future prospects of the business. Here are the highlights.
  • Capex Plan: Vinati has been undertaking capex for three major projects. These include:
    1. Rs 5 billion capex for Para Aminophenol (PAP): PAP is a raw material for paracetamol. Although, paracetamol is a mature market, the play will be on the process and technology. The company has developed a novel process along with NCL (National Chemical Laboratory) which has a patented technology and Vinati has an exclusive license for it. As per the management, the company would look to replace about 20,000-21,000 tonne of PAP which is currently imported from China. The revenue flow from this project is expended to start from FY20.
    2. Rs 1.5-2 billion capex for Butylated Phenols: Butylated Phenols are intermediaries which find applications as raw material for products that go into making perfumes, inks, resins, and plastics. As per the management, revenues are expected from FY19 and the revenue run rate would be about Rs 3-3.5 billion.
    3. Rs 2 billion capex for new IB derivatives (PTBT, PTBBA and TB-Amine): PTBT and PTBBA are IB based derivatives which are currently imported into India. These intermediaries are used in the perfume and personal care industries. Sales from these intermediaries are expected from FY18 onwards. TB Amine is used in the rubber and pharma industries. The company started earning revenues from this product in FY17. The full impact on this product on the financials would come in FY18.
    4. ATBS volumes: ATBS volumes were significantly affected in FY16 on the back of oil related demand for ATBS. However, going forward, management expects a volume growth of about 10-12% on account of increased usage in water treatment chemicals, and personal care polymers.
    5. IBB realisations to improve on the back of forward integration to IBAP: The upgradation of IBB to IBAP, an advanced intermediate for ibuprofen manufacturing, would improve IBB realisations.
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