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Vinati Organics: A dull end to a strong year - Views on News from Equitymaster
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Vinati Organics: A dull end to a strong year
May 21, 2015

Vinati Organics announced its results for the quarter and year ended March 2015. During the year, the company's revenues and profits grew by 11% YoY and 34% YoY respectively.

Performance summary
  • Net sales down by 10% YoY during the quarter.
  • Operating profits up by 10% YoY as margins expand to 28.3% from 23.2% in same quarter last year.
  • Net profits rise by 17% YoY on the back of higher operating profits coupled with lower interest costs.
  • For full year FY15, revenues and profits rise by 11% YoY and 34% YoY respectively.
  • Company's board announces dividend of Rs. 3.50 per equity (dividend yield of 0.6%).

Financial snapshot
(Rs m) 4QFY14 4QFY15 Change FY14 FY15 Change
Net sales 1,953 1,750 -10.4% 6,961 7,717 10.9%
Expenditure 1,501 1,254 -16.4% 5,432 5,800 6.8%
Operating profit (EBDITA) 452 496 9.7% 1,529 1,918 25.4%
Operating profit margin (%) 23.2% 28.3%   22.0% 24.8%  
Other income   35   35 -1.6%   92  91 -0.3%
Interest   42 8 -81.6% 181  98 -46.2%
Depreciation   40   44 11.3% 153   177 15.3%
Profit before tax 406 479 17.9% 1,286 1,735 34.9%
Tax 130 155 19.0% 424   577 36.0%
Effective tax rate 32.0% 32.3%   33.0% 33.3%  
Profit after tax/(loss) 276 324 17.4% 862 1,158 34.4%
Net profit margin (%) 14.1% 18.5%   12.4% 15.0%  
No. of shares (m)       49.4 51.6  
Fully diluted EPS (Rs)*         22.4  
P/E (x)*         25.2  
* trailing 12 months earningsZ

What has driven performance in FY15?
  • During 4QFY15, the company's revenues declined by 10% YoY. As per the company's this has been largely due to the decline in the price of crude, which it has seemingly passed on to customers. However, the strong growth in volumes led to a stronger growth at the operating level. Operating profits (not adjusted for forex related adjustments) were up by 10% YoY during the quarter, while profits came in higher by 17% YoY. Margins expansion was largely due to lower input costs. It may be noted that the company has not provided details for all of the forex related adjustments for the quarter ended March 2015.

  • For the full year FY15, revenues rose by 10% YoY (adjusted for forex fluctuations), while operating profits grew by 18% YoY as margins expanded to 24.3% from 22.7% in FY14. Margin expansion was largely due to lower input costs (as a percentage of sales). At the profit before tax level, the number was up by 20% YoY (not including forex adjustments arising out of foreign currency borrowings and exchange gains).
What to expect?
At the current price of Rs 566, the stock of VOL is trading at a multiple of about 25.2 times its trailing twelve month earnings and about 18.2 times our FY17 estimates.

The fourth quarter is usually the strongest for VOL. However, given the sharp decline in crude prices, the impact of the same was seen on the numbers this time around. We believe the company will be able to maintain its healthy volume sales growth going forward.

Further, it is interesting to note is that the company's total debt levels (long and short term debt) have come down by 68% YoY, which is a strong point in its favour. As what was told to us by company's management earlier, VOL will fund capex through internal accruals. Also, we do not see working capital as a major cause of concern as it remains pretty much in line with the past averages.

As reported by VOL in an official update, it intends to spend Rs 2 bn in FY16 on various projects including setting up a new plant for producing Isobutyl Aceto Phenone (IBAP), which is an intermediary between IBB and Ibuprofen, as well as other projects including expanding the IB capacity & setting up a 5 MW co-generation plant at the company's Lote facility.

We maintain our view of investors putting in 25% of the intended amount in the stock at current prices. Investors who have already invested 25% of the money they intend to put in the stock should not buy more of the same at the current juncture. It would be advisable to wait to buy more of it as and when the stock moves closer to the best buy price.

Please note that for the purpose of risk mitigation, investors are requested not to have more than 5% to 7% exposure to a particular stock in their portfolio.

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