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Emkay Global
Vinati Organics (Hold)
Target: ₹1,110
CMP: ₹981.05
Vinati Organics revenues declined 21.7 per cent y-o-y, missing estimates. Globally, muted refining activity led to a 25-30 per cent y-o-y decline in ATBS (Acrylamido tertiary-butyl sulfonic acid) demand (nearly 50 per cent of sales), whereas IBB (Iso Butyl benzene) sales rose over 50 per cent y-o-y on a low base and improved demand from a key customer.
EBITDA margin remained stable y-o-y, led by a 500 bps jump in gross margin, slightly offset by high employee costs. Depreciation (up 10 per cent q-o-q) resulting from the Butylated Phenol (BP) plant commissioning (in Q3-FY20) weighed on profitability.
We believe that IBB and IB derivatives would remain strong in the near term, mitigating the muted performance in ATBS. Low demand and weak near-term outlook in ATBS could delay capacity addition (14,000 tpa). BP ramp-up may take longer-than-expected.
We believe that the stock has already priced in all the major positive factors. New products could be eyed for growth going forward.
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