PL Stock Report: Vinati Organics (VO IN) - Q2FY24 Result Update – All eyes on new product launches - Accumulate

Vinati Organics (VO IN) - Swarnendu Bhushan - Co-Head of Research, Prabhudas Lilladher Pvt Ltd.

Rating: ACCUMULATE | CMP: Rs1,759 | TP: Rs1,997

Q2FY24 Result Update – All eyes on new product launches

Quick Pointers:

§ H2FY24 expected to be better from demand recovery across core business and contribution from newer products such as antioxidants.

§ ATBS segment to witness growth post Dec’23.

We downwards revise our FY24E/FY25E EPS estimates by ~5%/12%, due to delayed growth and debottlenecking of ATBS segment by H1FY25 (delayed from FY24 end). Vinati Organics (VO) reported weak performance YoY (Rev/EBITDA/PAT dropped >20% YoY) on account of continued inventory destocking globally, subdued demand and lower capacity utilization across business segments. ATBS segment, a major topline contributor, continued to face inventory destocking which led to volume drop in H1FY24.

We believe VO will see recovery post FY24 with 1) demand recovery from ATBS segment, 2) increasing contribution from butyl Phenol & IBB and 3) volume growth from newer segments such as antioxidants. The stock currently trades at ~46x TTM P/E with return ratios > 15%. We maintain ‘Accumulate’ rating with revised TP of Rs 1,997 (earlier Rs 1974) valuing at 40x P/E on FY26E EPS of ~Rs 50.

§ Sluggish performance, led by challenges in key industries: Revenue down ~21% to Rs 4.5bn (PLe of Rs 4.6bn/ consensus estimates of Rs 4.5bn) from Rs 5.7 bn in same period last year. ATBS (50% of sales) – a major contributor to topline impacted to large extent from volume drop across user industries; expect demand recovery post Dec-23. However, QoQ topline grew 4%.

§ Gross Margins came in at 46.7% vs 45.0% & 47.6% in Q2FY23 & Q1FY24. EBITDA came in at Rs 1.1 bn (PLe of Rs 1.1bn/consensus estimates of Rs 1.2bn) down 25%YoY, while EBITDA margins were at 24.7% vs 26.2% & 25.3% in Q2FY23 & Q1FY24 respectively. EBITDA drop YoY was led by lower topline.

§ Bottomline impacted due to lower topline: PAT dropped 27%YoY to Rs 842mn (PLe of Rs 848mn/estimates of Rs 895mn) and margins were at 18.8% for the quarter. Drop in bottom-line was led by lower operating profit YoY.

§ Management Takeaways: Veeral Organics to be consolidated by FY24 end. According to the management, FY24E topline will be flat and margins will stand at 27% while for FY25E expect 20-25% growth. Expect topline to improve sequentially (Oct’23 onwards) as Veeral additives will start contributing to the topline. Management expects, 30-40% capacity utilization for Veeral additives (in FY24E) and 50-60% utilization for FY25E. Debottlenecking of ATBS capacity is been delayed from Mar-24 to Jun-24. Commissioning of MEHQ, Guaiacol expected by Mar-24, as planned.

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