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Motilal Oswal
Vinati Organics (Buy)
CMP: ₹468.40
Target: ₹595
Vinati Organics (VOL) was established in 1989 by Vinod Saraf to manufacture specialty chemicals. It is the largest manufacturer of Iso Butylbenzene (IBB) and ATBS with global market share in excess of 60-65 per cent and about 45 per cent, respectively.
VOL generates about 88 per cent of its revenue from top three products, i.e. IBB, ATBS and IB (Isobutylene), with 68 per cent coming from exports.
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. Key concerns: a) High reliance on two products: Over time the company has moved from manufacturing a single product (IBB) to ATBS and IBB, which together account for more than 75 per cent of revenues. b) Regulatory concerns: Since around two-thirds of the company’s revenues come from exports, any kind of adverse developments on product quality, and duties could impact business prospects. c) New product launches may not take off: While VOL tends to stick to what it knows best, the long-term growth of the business will depend on its ability to launch newer products to drive growth.
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