CMP:
Rs. 465.35; Market Cap: Rs. 2,400.79 Cr; 52 Week High/Low: Rs. 591.00 / Rs.
360.95
Total
Shares: 5,15,91,025 shares; Promoters : 3,73,03,247 shares – 72.31 %; Total Public
holding : 1,42,87,778 shares – 27.29 %; Book
Value: Rs. 109.63; Face Value: Rs. 2.00; EPS: Rs. 25.50; Dividend: 175.00 %;
P/E: 18.39 times; Ind. P/E: 16.35; EV/EBITDA: 11.45 times.
Total
Debt: Rs. 65.30 Cr; Enterprise Value: Rs. 2,438.95 Cr.
VINATI ORGANICS LIMITED: The Company
was founded in 1989, Vinati Organics Limited (VOL) is an India-based company, which
manufactures specialty organic intermediaries and Monomers. The Company is
engaged in manufacturing of speciality organic intermediates and monomers,
including IBB (Isobutyl Benzene), ATBS (2 Acrylamido 2Methylpropane Sulphonic
Acid), NaATBS(Sodium Salt of 2 Acrylamido 2Methylpropane Sulphonic Acid,
Diacetone Acrylamide and Isobutylene. The company gave bonus in November 2007 in
ratio of 1 new share for every two shares held and then company split face
value of its shares from Rs. 10 to Rs. 2 in October 2009. IBB finds application in the manufacturing of
Ibuprofen, while ATBS is a specialty monomer with multiple applications such as
industrial water treatment, oil field applications, construction chemicals,
hydrogels for medical applications, personal care products, emulsion polymers,
detergents, textile print pastes, adhesives and sealants, thickeners and paper
coatings. In an effort towards backward integration, VOL executed a project for
its ATBS plant to manufacture isobutylene (IB), which is one of the major raw
materials. The IB plant in India is the largest plant with a capacity of 12000
TPA. Besides, VOL also manufactures Normal Butylbenzene (NBB), Sodium Salt of
2-Acrylamido 2- methylpropanesulfonic Acid (NaATBS), N-Tertiary Butyl
Acrylamide (TBA), Hexenes and other industrial monomers on a small scale. The
recent addition to its product portfolio includes isobutylene, high purity
methyl tert butyl ether (MTBE) and methanol. The company’s products are exported to
customers across the US, Europe and Asia. VOL is a market leader in its chosen
product categories with presence across more than 22 countries globally. Company
has plants in Mahad-Raigad which the biggest IBB manufacturing facility in the
world. This plant has specialized equipment for the production of IBB that
adheres to the highest standards of quality and purity. Company’s Ratnagiri
plant has customized equipment for the manufacture of ATBS, TBA, IB, HPMTBE,
DAAM and other speciality chemicals. ATBS is engaged in Emulsions for paints
and paper coatings, water treatment chemicals, adhesives, hydrogels and
absorbents, textile, auxiliaries, detergents and cleaners, acrylic fibre,
construction polymers and oil field polymers. VOL’s products are Speciality Monomers 2-acrylamido 2-methylapropane sulphonic acid (ATBS) Sodium salt of 2-acrylamido-2-methylpropane sulphonic
acid (NaATBS) N-Tertiary Butyl Acrylamide (TBA); N-Tertiary Octyl Acrylamide (TOA); Diacetone Acrylamide (DAAM) Specialty Aromatics Iso Butyl Benzene (IBB) Normal Butylbenzene (NBB). C 10 Aromatic Solvent, Hexene; its other Speciality Products
includes Isobutylene (IB); Methanol; High Purity- Methyl Tertiary Butyl Ether
(HP-MTBE); Miscellaneous Polymers; Vinflow HT; Vinplast 245 (Acrylic Super Plasticizer).
Vinati Organics
Ltd is locally compared to IOL Chemicals and Pharmaceuticals Ltd, Deepak
Nitrite Ltd, Paushak Ltd, Dharamsi Morarji Chemical Co Ltd, Navin Flurine
Industries, Panama Petrochem Ltd, Manali
Petrochemicals Ltd, Adi Finechem ltd, Camphor and Allied Products Ltd,
Resonance Specialties Ltd, Camlin Fine Sciences Ltd, Diamines And Chemicals
Ltd, and globally with BASF, AkzoNobel,
Clariant, Evonik, Cognis, Kemira, Lanxess, Rhodia, Wacker and Croda from
Europe, Huntsman, Ashland, Chemtura, Rockwood, Albemarle, Cabot, W.R. Grace,
Ferro Corporation, Cytec Industries and Lubrizol of USA.
Investment Rationale:
Investment Rationale:
Established
in 1989, Vinati Organics Ltd is a speciality chemical company
producing aromatics, monomers, polymers and other speciality products. It is the
world’s largest manufacturer of Isobutyl Benzene (IBB) and 2-Acrylamido 2-
Methylpropane Sulfonic Acid (ATBS). The company’s products are exported to
customers across US, Europe and Asia. VOL is a market leader in its chosen
product categories with presence across more than 22 countries globally. Global Chemical Industry Chemicals are an
essential part of our modern life and have a wide range of product based applications.
In fact, the global chemical output, valued at $171 billion in 1971, is
estimated to have increased to about $3.9 trillion value-wise in 2015. This industry
faced a number of initial challenges, with the most important ones being in the
form of the global meltdown of 2009 and the consequent economic headwinds. However,
a series of cost-cutting measures, along with cash management, deleveraging of
balance sheets, and divestment of underperforming businesses helped it to
counter this scenario. The volume of global chemical output was expected to
increase by 2.4 % in 2015 as against 2.7 % in 2012. The growth is likely to
improve further to 3.8 % in 2016, given the improving economic conditions.
According to the American Chemistry Council (ACC), the regions that are
expected to lead this growth include the Asia Pacific, the Middle East, and
Africa. The global speciality chemicals market is expected to grow at a CAGR of
5.16 % over the period 2013 to 2018. One of the key factors contributing to
this market growth is the increasing demand for specialty chemicals products in
the rapidly developing countries of the APAC region. The global specialty
chemicals market has also witnessed an increase in merger and acquisition related
activity, as key market players increase their attempts to penetrate the
emerging markets. However, the increasingly stringent health and environmental
regulations could pose a challenge to the future growth of this market. India’s
growing per capita consumption and demand for agriculture-related chemicals
offers a goldmine of opportunities for the domestic chemicals industry. With an
increased focus on improving products and the usage intensity of speciality
chemicals, the industry is poised to record strong future growth. The total
market size of the domestic chemicals industry is expected to grow from US$ 108
billion in 2011 to US$ 290 billion in 2017. This segment includes dyes and
pigments, leather chemicals, personal care ingredients and other speciality chemicals
(excluding pharmaceuticals and agrochemicals). In 2015, the Indian chemical
industry earned revenues in the range of US$ 155-160 billion. It is likely to
grow further at a rate of 11 % to 12 % over the next two to three years. Indian Specialty Chemicals Market including
knowledge chemicals as active ingredients in agrochemicals and pharmaceuticals has
the potential to grow at a rate of 15 % p.a. to reach USD 40 billion by FY 2017.
This growth potential is significantly higher than the projected 3 % p.a.
growth rate for the global chemical industry or even the 10 % p.a. growth rate
envisaged for the domestic sector. The chemicals industry in India is the
largest consumer of its own products, consuming as much as 33 % of its total output.
Given the promising growth trends witnessed in the chemicals industry, this
internal consumption is all set to rise even further. The Indian chemicals industry has a diversified
manufacturing base that is characterised by world-class product offerings.
There is a substantial presence of downstream industries in all segments. At
the same time, this large and expanding domestic chemicals market also boasts
of a large pool of highly-trained technical personnel. Promising Export Potential Chemicals
constitute 5.4 % of the overall domestic export volumes. India already has a
strong presence in the export market in the sub-segments of dyes,
pharmaceuticals and agro chemicals. India exports dyes to Germany, the UK, the
US, Switzerland, Spain, Turkey, Singapore and Japan. Vinati Organics Ltd
entered ATBS manufacturing by getting technology developed from National
chemical Laboratories, Pune, and setting a manufacturing plant with an initial
capacity of 1,200tpa in 2002. VOL was the third company globally to enter ATBS after
Lubrizol and Toagosei. Acrylamide tertiary butyl sulfonic acid is a vinyl
polymer. Led by its excellent hydrolytic and thermal stability properties, ATBS
finds wide application in emulsions for paints and paper coatings, water
treatment chemicals, adhesives, hydrogels and super absorbents, textile
auxiliaries, detergents and Cleaners, acrylic fiber, construction polymers, and
oil field polymers. But due to the captive manufacturing practice of Lubrizol
and Toagosei, ATBS was not available at the right price-quantity for other
applications. Leveraging the short‐supply position in ATBS, VOL continuously expanded its capacity to
26,000tpa in FY13 and emerged as the largest manufacturer of ATBS in the world
with over 45 % of global market share. Its robust client base across various
markets, including the US, Europe, Asia, the Middle East, and China, has been a
key to VOL’s success in ATBS. It has some of the world’s largest specialty
chemical companies in its client list, including BASF, Dow chemicals, Nalco
Company (USA), AkzoNobel, SNF Floerger, Ciba, and Clariant chemicals, among
many others. Vinati would be launching 4 new products next year- PTBT/ PTBBA (Para
Tertiary Butyl Toluene / Para Tertiary Butyl Benzoic Acid), IBAP (Isobutyl
AcetoPhenone), TB Amine (Tertiary Butyl Amine), 1 niche customized product.
PTBT/PTBBA is an IB derivative which would be sold in the domestic market.
Currently it is imported in India. The company claims to have a better &
cost effective technology for these products and aims to entirely capture the
domestic market by substituting the imported products and repeat the success
story of IBB. With IBAP, Vinati would be forward integrating from IBB. IBAP is
subsequently used in making Ibuprofen. Vinati claims to have a better and cost
effective technology for IBAP too. While steady expansion in geographic reach
and client base offered scale to VOL’s ATBS operation, its strategic backward
integration to IB (Isobutylene) manufacturing made it the price Leader. VOL is
the only backward‐integrated ATBS manufacturer in the world. VOL’s price leadership in
ATBS contributes 46 % of its total sales is a key to its sector leadership in
profitability. VOL launched innovative and cost competitive products like ATBS,
IBB, and IB, supported by its technological tie‐ups with National
Chemical Laboratories (India), Institut Francais du Petrole (France), and
Saipem S.p.A. (Italy), respectively. Its continued captive research on
productivity and efficiency earned it global leadership in ATBS and IBB. VOL is
the largest manufacturer of IB India. Leveraging its in‐house research, it introduced new products, which like N‐Tertiary Butylacrylamide (TBA), NTertiary Octyl Acryl amide (TOA), High
purity Methyl‐Tertiary Butyl Ehter (HP‐MTBE) and Diacetone Acryl amide (DAAM) and these new product lines make
up about 15 % of its revenue share. The new products are fully integrated with
existing ones as by‐products, co‐products, or their further processed products, which make VOL the most
cost‐effective producer of these products. In
its product pricing pattern, Vinati charges mark up as absolute value per kg
which ensures consistent profit for its irrespective of general pricing trend
of its raw material or finished product. IBB and IB pricing is negotiated with
clients on a monthly basis whereas ATBS pricing is revised with a lag of one
quarter. VOL has renowned clientele like BASF, Nalco, Shasun Chemicals, SMF,
Clariant Chemicals are among its top 10 clients. The top 10 clients account for
50 % of revenue. Vinati's customer count is more than 60 and it exports to 22
countries. And its Export contributes around 66 % of revenue. All of its
exports are dollar denominated. Leadership in sector capacity expansion and
pricing power makes Vinati Organics a strong player in the Specialty Chemicals
segment and with strong management it will surely prove its leadership.
Outlook and Valuation:
Outlook and Valuation:
Vinati Organics, a
leader in specialty chemicals, follows the strategy of becoming the market
leader in whichever product it deals in and enters into a new product only if
it has a better technology. It has a product portfolio of 15 products of which
IBB (Isobutyl Benzene), ATBS (2-acrylamido 2-methylpropane sulphonic acid), IB
(Isobutylene) and HP MTBE (High Purity- Methyl Tertiary Butyl Ether) garner 90 %
of revenue. Specialty chemicals business is knowledge as well as
process-driven. It takes years of knowledge and trial and error to develop the
chemistry to meet not only international purity standards but also achieve a favourable
price-performance ratio. Also, specialty chemicals are required to meet
customized needs of different customers. One of VOL’s products, IBB, which is
used as a raw material for manufacturing ibuprofen, demands a purity level of 99.5
%, as per international standards. Given its usage in making drugs, consistency
in quality is of utmost importance. Although VOL started its business in 1992
by setting up an IBB plant in Mahad with an initial capacity of 1,200mt, it
took eight years of concentrated efforts to get the commitment from its client.
Starting 1998, VOL was able to sell at the most 100mt of IBB to clients.
However, consistent improvement in IBB quality and multiple visits to US-based
clients finally gave VOL its first major IBB order in late 2006. VOL not only
meets, but also beats industry standards in purity by manufacturing IBB with
purity ratio of 99.8 %, the highest level globally. VOL’s another product,
ATBS, had to go through a rigorous process before the company could come up
with a marketable product. Since December 2002, production of ATBS has been
streamlined and the first batch of commercially manufactured ATBS was shipped
to VOL’s clients globally. However, clients rejected the ATBS produced by VOL
because of quality problems. VOL then started providing 18 different parameters
for its product on the basis of which the quality of ATBS could be accessed.
The learning process lasted till 2005 when it finally made a breakthrough. The
acceptable quality of ATBS for Enhanced Oil Recovery (EOR), one of the areas
where ATBS is used, is even higher than its usage in other applications. Weight
of ATBS should be higher than 400,000 amu for it to be used for EOR. The
company’s ATBS product successfully achieved high purity standards with a
purity tolerance level of 0.5 % against the accepted global tolerance level of 3.0
%. VOL, in a tie-up with National Chemical Laboratory or NCL under the guidance
of Dr. Barve, was able first to achieve this feat in India. NCL has exclusively
licenced this technology to VOL. The process developed by NCL is protected by
two US patents. VOL’s other two major products - IB and HP-MTBE - are of
equally superior quality. The company’s IB product achieved a 99.85 % purity
standard, which is among the highest in the world. HP-MTBE achieved a purity
standard of 99.95 %, accepted as one of the highest globally. Hence, it is
believed that given the time and complexity involved in making these products,
it is extremely difficult for a new entrant to foray into this business. The specialty
chemicals which VOL produces accounts for a tiny portion of total raw material
costs of VOL’s clients and hence, the incentive for clients to change its
supplier is very low unless the supplier is not able to provide good and consistent
quality products. There are very few players present in this segment. It takes
a long time to build quality products that are acceptable at the global level.
Hence, a small player can’t start from scratch because the gestation period is
very high. A bigger player may not like to get into this business as it is
completely value-driven and not volume-driven. Revenue from specialty chemicals
would make up tiny portion of total revenues of a big player. Hence it will be
less beneficial for them to get into this space. The above two factors give
companies like VOL tremendous pricing power. Even if VOL decides to marginally
increase its prices, the impact of that increase on the bottom-line of clients
will be minimal. This is evident from VOL’s highly consistent margin profile
since the past five years. Isobutyl Benzene (IBB) was VO’s first product. It is a specialty
chemical widely used as an intermediate in the preparation of Ibuprofen, an
anti‐inflammatory/antiarthritic/ analgesic medicine
for pain relief. Ibuprofen is primarily manufactured in India, China, and in
the USA. It is also used in the perfume industry. VO is a market leader in IBB
with more than 70 % global market share. It has the largest IBB manufacturing capacity
in the world at 14,000TPA at Mahad, Maharashtra. It has acquired the technology
to produce IBB from Institut Francais du Petrole (IFP), France. This is a mature
product with demand of 20,000 TPA globally, growing at 5 % p.a. Vinod
Banwarilal Saraf (a BITS Pilani graduate and an industry veteran) has been the
key driving force behind the successful introduction of products such as
IBB/ATBS and in the scaling up to global levels. He has hands‐on expertise in Grasim Industries in new
chemical and petrochemical projects identification, technical tie‐ups, and feasibility studies. He worked as
Managing Director in Mangalore Refinery & Petrochemicals Ltd. Mr Saraf’s
decades of hands on industry expertise helped VO deliver 5‐8‐fold growth in revenue/profits over the last
eight years. His leadership would ensure sustained business progress. Vinati Organics has capex of Rs. 200 Cr to be complete in
FY17. The new products are likely to be launched throughout FY17 in a phased
manner and ramp up will happen in subsequent 6months. At peak utilisation,
Vinati is eyeing asset turnover of 2- 2.5x from these products. VOL has 5 MW
Co-gen power plants in which it is investing Rs. 50 Cr, which would result in
savings of Rs. 8 Cr in power costs starting FY18.While
the company focuses on maintaining leadership position in each of its products,
new product launches are expected to contribute to total revenue from 2HFY17. Reduction
in prices of crude oil will lead to almost no demand for EOR (Enhanced Oil
Recovery) chemicals. EOR constitutes 15% of ATBS revenue, which will lead to
volume decrease in FY16 for VOL. And it is believed that the demand scenario to
turn favourable from FY17E onwards on the back of new product launches and
expectation of higher demand from user industries with favorable business
dynamics. VOL's revenues and profits have grown at a CAGR of 24 % and 22 % over
FY 11-15 respectively. The return ratios (ROE, ROCE) of the company have
remained above 30 % over FY 11-15, despite a drop in leverage to 0.2x in FY15
from around 1x in FY13. The company's margins also have remained in low to mid
20s which was 26.5 % in FY15. VOL is looking to fund its current expansion
worth Rs. 150 Cr through internal accruals. And as a
diversified specialty chemicals company, VOL is a play on three key emerging
trends like rising demand for specialty chemicals in India which is expected to
be at 15 % CAGR from FY15-FY20E, the migration of global chemical manufacturing
from China to India where Asia is expected to have 70 % production share by
2030 and established product positioning & lowest cost producer. The promoters of VOL currently holds 72.31 % stake in company and they have informed stock exchanges that they intend to increase their stake to 75.00 % which is to purchase 9 lakh shares at a price sub Rs. 500 per share from the secondary market from June 7, 2016 to December 6, 2016, if price goes above Rs. 500 they will refrain from buying. This buyback from the promoter is to offset the dilution done due to conversion of FCCB. At the current market price of Rs. 465.35, the stock is trading at a PE of 24.11 x FY16E and 19.88 x FY17E respectively. The company can post Earnings per share (EPS) of Rs. 19.30 in FY16E and Rs. 23.40 in FY17E. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also .
KEY FINANCIALS | FY15 | FY16E | FY17E | FY18E |
---|---|---|---|---|
SALES (₹ Crs) | 766.30 | 604.70 | 718.90 | 841.00 |
NET PROFIT (₹ Cr) | 115.80 | 99.40 | 120.90 | 149.60 |
EPS (₹) | 22.40 | 19.30 | 23.40 | 29.00 |
PE (x) | 17.60 | 20.50 | 16.90 | 13.60 |
P/BV (x) | 4.70 | 4.00 | 3.30 | 2.80 |
EV/EBITDA (x) | 11.10 | 12.10 | 10.00 | 7.90 |
ROE (%) | 26.70 | 19.40 | 19.80 | 20.30 |
ROCE (%) | 33.00 | 25.70 | 26.80 | 28.00 |
As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % on every purchase. (Why Strict stop loss of 8 % ?) - Click Here
*As the author of this blog I disclose that I do not hold VINATI ORGANICS LTD in my any of the portfolios.
**Dear Reader Friends, if you enjoyed this article then please do share it with your friends & colleagues through Facebook and Twitter, also do drop in your valubale thoughts in comment box...
So, grab a fresh hot cup of coffee, turn on your net & browse on to www.bhavikkshah.blogspot.in & take out few minutes to get to know the most interesting world of investment... Till then HAPPY INVESTING, don't forget to Share !!
So, grab a fresh hot cup of coffee, turn on your net & browse on to www.bhavikkshah.blogspot.in & take out few minutes to get to know the most interesting world of investment... Till then HAPPY INVESTING, don't forget to Share !!
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
Disclaimer:
Disclaimer:
This is a personal blog and presents entirely personal views on stock market. Any statement made in this blog is merely an expression of my personal opinion. These informations are sourced from publicly available data. By using/reading this blog you agree to (i) not to take any investment decision or any other important decisions based on any information, opinion, suggestion, expressions or experience mentioned or presented in this blog (ii) Any investment decisions taken if any would be his/hers sole responsibility. (iii) the author of this blog is not responsible.
As a Disclosures I Confirm that :
I confirm that I shall not deal or trade in securities mentioned in this article within thirty days before and five days after the publication of this article. I also confirm that I will not deal or trade directly or indirectly in securities mentioned in this article in a manner contrary to the ideas put forth in the article. I have not received any financial compensation for writing this article.
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
READ HERE TO KNOW MORE ON LONG TERM INVESTING - CLICK HERE
VIEW THE POWER POINT PRESENTATION ON
Learn Stock Market related course with Bombay Stock exchange Institute Limited. :- www.BSEVarsity.com the new way of High Speed learning
ReplyDeletetx for sharing
ReplyDeleteHello thank you so much ma'am for your visit..glad u liked it
DeleteHave a great week ahead :)
a lot went above my head...but rely on your reports :)
ReplyDeleteHii shweta I am glad that you visited my blog :)
DeleteAnd yeah speciality chemical is bit complex but I think it will be in trend now as I see lots of potential investment waiting by.. anyways read your poem the prey and super liked the way u presented.. thanks once again and have a great day ahead
Keep smiling :)
This detailed analysis helps us to take informed decisions. Thanks a lot. Keep it up
ReplyDeleteVery nice analysis sir, very nice reports, lovely :)
ReplyDeletets a valuable content shared,would like to know more about it.
ReplyDeletemanufacturers of benzophenone in mumbai
Ratnagiri is great place for meditation, eco living and cultural place, it's best tourism place must visit yearly.. i found many informative info from this post and blog
ReplyDelete