retail equity research vinati organics ltd...

10th August, 2016

New products to improve revenue growth... Q1FY17 revenue grew by 2% YoY led by higher contribution of ATBS. While revenue from IBB, IB, HPMTBE and others declined by -25%, -17%, -14% & -22% respectively. ATBS revenue witnessed strong traction from water treatment chemicals, paints & mining chemicals. VOL‟s new customised products contributed Rs16cr towards revenue. Few more products are expected to be launched in coming quarter which will improve VOL‟s future revenue growth. We factor revenue to grow at 16% CAGR over FY16- FY18E.

EBITDA margin improves... Q1FY17 gross margins improved by 420bps YoY to 56.4% Vs 52.2% due to higher contribution of ATBS and launch of new products (better margins). But due to increase in employee cost by 14% YoY and other expenses by 6% YoY capped improvement in EBITDA margin to 310bps at 35.6%. Going forward higher contribution from ATBS and change in products mix will improve VOL‟s margin profile. We revise upwards our EBITDA margins estimates by 30bps and 20bps to 32.2% & 30.9% for FY17E & FY18E.

Other Key highlights... CAPEX outlined for FY17E amounts to Rs150cr, Rs50cr is for co-generation plant, Rs100cr for introduction of new products. VOL is expected to be debt free by end of FY17E and current debt is Rs20cr.

Valuations At CMP, VOL is trading at P/E of 18.4x and 16.2x on FY17E & FY18E EPS. Going forward, we believe that higher contribution of ATBS in the sales mix will improve near term EBITDA margins. We are positive on VOL‟s future outlook, considering introduction of new products and better traction in ATBS business. We value maintain target P/E at 17x and maintain „Hold‟ rating with a target price of Rs551.

RETAIL EQUITY RESEARCH

Vinati Organics Ltd Rating as per Mid Cap 12months investment period Speciality Chemicals

BSE CODE:524200 NSE CODE: VINATIORGA CMP Rs525 TARGET Rs551 RETURN 5%

Bloomberg CODE: VO IN SENSEX: 28,085

Company Data

Market Cap (cr) Rs2,710

Enterprise Value (cr) Rs2,653

Outstanding Shares (cr) 5.2

Free Float 28%

Dividend Yield 0.5%

52 week high Rs565

52 week low Rs361

6m average volume (cr) 0.005

Beta 0.84

Face value Rs2

Shareholding % Q3FY16 Q4FY16 Q1FY17

Promoters 72.3 72.3 72.6

FII‟s 0.8 0.7 0.7

MFs/Institutions 6.5 7.2 7.5

Public 18.6 18.5 17.5

Others 1.8 2.0 1.7

Total 100.0 100.0 100.0

Price Performance 3mth 6mth 1 Year

Absolute Return 13.4% 41.2% 5.6%

Absolute Sensex 9.7% 22.4% -0.1%

Relative Return* 3.3% 15.4% 5.7%

*over or under performance to benchmark index

Y.E March (Rs Cr) FY16A FY17E FY18E

Sales 631 727 845

Growth (%) (18.2) 15.2 16.2

EBITDA 207 234 261

Margins (%) 32.8 32.2 30.9

PAT Adj. 124 148 167

Growth (%) 7.1 12.1 13.3

Adj.EPS 24.1 28.6 32.4

Growth (%) 7.1 12.1 13.3

P/E 20.6 18.4 16.2

P/B 5.1 4.0 3.3

EV/EBITDA 12.8 11.1 9.6

ROE (%) 27.0 24.3 22.3

D/E 0.0 0.0 0.0

Anil R Analyst

GEOJIT BNP PARIBAS Research Q1FY17 RESULT UPDATE

Hold

New products to drive growth... Vinati Organics Ltd (VOL) enjoys global leadership in two speciality chemicals, with market share of 60% in IBB and 40% in ATBS.

Q1FY17 PAT grew by 15% YoY, led by strong operating income which grew by 12% YoY.

EBITDA margins improved by 310bps YoY to 35.6% led by higher contribution from ATBS and change in product mix.

We see improvement in future outlook with launches of new products and revival in demand from ATBS.

We revise EBITDA margins estimates by 30bps to 32.2% for FY17E, supported by higher contribution from ATBS and new products.

We factor earnings to grow at 13% CAGR over FY16-FY18E and maintain target P/E at 17x.

We maintain ‘Hold’ rating with a target price of Rs551.

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VOL Sensex Rebased

Quarterly Financials

Profit & Loss Account

(Rs Cr) Q1FY17 Q1FY16 YoY Growth % Q4FY16 QoQ Growth %

Sales 167 163 2.3 154 8.2

EBITDA 60 53 12.0 51 17.4

EBITDA margins 35.6 32.5 32.9

Depreciation 5 5 16.1 5 12.3

EBIT 54 49 11.7 46 17.9

Interest 1 2 42.3 1 20.3

Other Income 1 1 10.8 2 (37.2)

Exceptional Items - - - - -

PBT 54 47 14.5 47 15.5

Tax* 18 16 13.3 8 143.1

Reported PAT 36 31 15.1 39 (9.1)

Adjustment for loss(asso) - - - - -

Adj PAT 36 31 15.1 39 (9.1)

No. of shares (mn) 5.2 5.2 - 5.2 -

EPS (Rs) 6.9 6.0 15.1 7.6 (9.1)

Change in estimates

Old estimates New estimates Change %

Year / Rs Cr FY17E FY18E FY17E FY18E FY17E FY18E

Revenue 715 845 727 845 1.7 -

EBITDA 228 259 234 261 2.6 0.7

Margins (%) 31.9 30.7 32.2 30.9 30bps 20bps

PAT 143 166 148 167 3.5 0.6

EPS 27.7 32.2 28.6 32.4 3.2 0.6

Standalone Financials Profit & Loss Account

Y.E March (Rs Cr) FY14A FY15A FY16A FY17E FY18E

Sales 696 772 631 727 845

% change 25.9 10.9 (18.2) 15.2 16.2

EBITDA 153 192 207 234 261

% change 27.1 25.4 7.8 13.2 11.5

Depreciation 15 16 17 19 21

EBIT 138 174 188 214 239

Interest 18 10 8 3 1

Other Income 9 9 6 9 12

PBT 129 173 187 220 249

% change 25.3 34.9 7.5 18.0 13.3

Tax 42 58 55 73 82

Tax Rate (%) 33.0 33.3 29.5 33.0 33.0

Reported PAT 86 116 132 148 167

Adj* - - - - -

Adj PAT 86 116 132 148 167

% change 25.5 34.4 13.6 12.1 13.3

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

Adj EPS (Rs) 16.7 22.4 25.5 28.6 32.4

% change 25.5 34.4 13.6 12.1 13.3

DPS (Rs) 2.8 2.8 2.8 2.8 2.8

CEPS (Rs) 20.0 26.0 29.1 32.5 36.7

Cash flow


Net inc. + Depn. 101 133 150 168 190 Non-cash adj. 20 2 10 (7) (11) Changes in W.C 10 (23) 19 (63) (35) C.F.O 131 113 167 99 144 Capital exp. (29) (42) (73) 6 (15) Change in inv. 19 (15) (3) (50) (47) Other invest.CF 2 3 4 24 12 C.F - investing (9) (53) (72) (19) (50) Issue of equity - - - - - Issue/repay debt (79) (52) (23) (5) (8) Dividends paid (12) (12) (18) (14) (14) Other finance.CF (23) (10) (9) (2) (1) C.F - Financing (113) (75) (50) (21) (24) Chg. in cash 9 (16) 45 58 70 Closing cash 43 27 72 130 201

Balance Sheet


Cash 43 27 72 130 201

Accounts Receivable 115 129 115 137 160

Inventories 47 54 45 60 75

Other Cur. Assets 31 38 46 72 88

Investments 3 3 3 53 100

Gross Fixed Assets 363 403 476 484 499

Net Fixed Assets 298 321 376 366 360

CWIP 10 20 25 10 10

Intangible Assets 6 7 5 4 3

Def. Tax (Net) (33) (39) (49) (49) (49)

Other Assets - - - - -

Total Assets 519 560 638 783 946

Current Liabilities 66 62 69 64 75

Provisions 21 26 12 34 42

Debt Funds 122 39 16 11 3

Other Liabilities - - - - -

Equity Capital 10 10 10 10 10

Reserves & Surplus 300 424 530 664 816

Shareholder‟s Fund 310 434 541 674 827

Total Liabilities 519 560 638 783 946

BVPS (Rs) 60 84 105 131 160

Ratios

Y.E March FY14A FY15A FY16A FY17E FY18E

Profitab. & Return

EBITDA margin (%) 22.0 24.8 32.8 32.2 30.9

EBIT margin (%) 19.8 22.6 29.8 29.4 28.2

Net profit mgn.(%) 12.4 15.0 20.9 20.3 19.8

ROE (%) 31.3 31.1 27.0 24.3 22.3

ROCE (%) 17.3 19.5 19.4 16.2 14.9

W.C & Liquidity

Receivables (days) 59.8 57.7 70.6 63.3 64.2

Inventory (days) 44.1 40.4 61.1 55.0 58.6

Payables (days) 55.0 51.0 80.7 69.7 60.3

Current ratio (x) 2.7 2.9 3.4 4.1 4.5

Quick ratio (x) 2.0 2.1 1.7 4.2 4.8

Turnover &Levg.

Gross asset T.O (x) 2.0 2.0 1.4 1.5 1.7

Total asset T.O (x) 1.3 1.4 1.1 1.0 1.0

Int. covge. ratio (x) 7.6 17.8 24.0 87.0 205.1

Adj. debt/equity (x) 0.5 0.2 0.1 0.0 0.0

Valuation ratios

EV/Sales (x) 4.0 3.5 4.2 3.6 3.0

EV/EBITDA (x) 18.2 14.2 12.8 11.1 9.6

P/E (x) 31.5 23.4 20.6 18.4 16.2

P/BV (x) 8.9 6.3 5.1 4.0 3.3

Recommendation Summary (last 3 years)

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

Source: Bloomberg, Geojit BNP Paribas Research

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

Buy - Upside is 10% or more. Hold - Upside or downside is less than 10%. Reduce - Downside is 10% or more.

Buy - Upside is 15% or more. Accumulate* - Upside between 10% - 15%. Hold - Absolute returns between 0% - 10%. Reduce/Sell - Absolute returns less than 0%. 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.

General Disclosures and Disclaimers

CERTIFICATION

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

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We have prepared this report based on information believed to be reliable. The recommendations herein 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. The stocks always carry the risk of being upgraded to buy or downgraded to a hold, reduce or sell. The opinions expressed are subject to change but we have no obligation to tell our clients when our opinions or recommendations change. This report is non-inclusive and does not consider all the information that the recipients may consider material to investments. This report is issued by GBNPP without any liability/undertaking/commitment on the part of itself or any of its entities. We may have issued or may issue on the companies covered herein, reports, recommendations or information which is contrary to those contained in this report.

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GBNPP‟s Associates consists of privately held companies such as Geojit Technologies Private Limited (GTPL- Software Solutions provider), Geojit Credits Private Limited (GCPL- NBFC Services provider), Geojit Investment Services Limited (GISL- Corporate Agent for Insurance products), Geojit Financial Management Services Private Limited (GFMSL) & Geojit Financial Distribution Private Limited (GFDPL), (Distributors of Insurance and MF Units).In the context of the SEBI Regulations on Research Analysts (2014), GBNPP affirms that we are a SEBI registered Research Entity and in the course of our business as a stock market intermediary, we issue research reports /research analysis etc that are prepared by our Research Analysts. We also affirm and undertake that no disciplinary action has been taken against us or our Analysts in connection with our business activities.

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Further, the Analyst confirms that: (i) he, his associates and his relatives have no financial interest in the subject company (ies) covered herein, and they have no other material conflict in the

subject company. (ii) he, his associates and his relatives have no actual/beneficial ownership greater than 1% in the subject company covered

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During the past 12 months, GBNPP or its Associates:

(a) Have not received any compensation from the subject company; (b) Have not managed or co-managed public offering of securities for the subject company (c) Have not* received any compensation for investment banking or merchant banking or brokerage services from the subject company received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company and is in receipt of compensation from the subject company.” (e) Have not received any compensation or other benefits from the subject company or third party in connection with the research report (f) The subject company is / was not a client during twelve months preceding the date of distribution of the research report.

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