PL Stock Report: Vinati Organics (VO IN) - Q1FY24 Result Update - Newer Products to drive major growth - ACCUMULATE

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

Rating: ACCUMULATE | CMP: Rs1,815 | TP: Rs1,955

Q1FY24 Result Update - Newer Products to drive major growth

Quick Pointers:

§ Volumes drop across segments impacted company’s performance.

§ Headwinds across segments persist, recovery expected post FY24

VO reported weak performance during the quarter on account of inventory destocking globally, subdued demand and lower capacity utilization across business segments. We believe recovery to be seen post FY24, with demand improvement from ATBS segment, increasing contribution from butyl Phenol & IBB and volume growth from newer segments such as antioxidants. The stock currently trades at ~40x TTM P/E with return ratios > 20%, we value the stock at 40x P/E on FY25E EPS of ~Rs 49 and arrive at TP of Rs 1955.

§ Sluggish performance, led by challenges in key industries: Revenue down 15%/14% to Rs 4.3bn from Rs 5 bn in previous quarters. Gross Margins were at 47.6% vs 45.5% & 50.3% in Q1FY23 & Q4FY23. EBITDA down 17%/28% YoY & QOQ to Rs 1.1 bn while margins stood at 25.3% vs 25.8% & 30.3% in Q1FY23 & Q4FY23 respectively. Drop in topline was majorly due to volume decline across product segments.

§ Bottomline impacted due to lower topline: PAT dropped 18%/28% to Rs 0.8bn (vs consensus estimates of Rs 1.1bn) and margins were at 19.3% for Q1FY24. The drop in bottom-line was led by lower operating profit YoY & QoQ.

§ FY25E to see major recovery: As per management, recovery is expected only post FY24, while Q2FY24 to be at similar levels as of Q1FY24.

§ Segmental Performance: ATBS, major contributor to topline impacted at larger extent due to volume drop across its user industries while Butyl Phenol segment saw realizations drop in the quarter. The sales mix for 1QFY24 stood at: ATBS (40%), IBB (20%), Butyl Phenol (17%) and others (23%).

§ Concall takeaways: (1) Revenue decline YoY & QoQ has been majorly due to volumes drop in Q1FY24 (2) ATBS expansion to 60,000 MTPA to commercialize by FY24E end, expansion is done on account of increasing demand from customers. (3) Capex for FY25E will include addition of derivatives in MEHQ/gauaicol products. (4) Oil &GAS sector contributes 15% to company’s topline. (5) De-growth in ATBS business is majorly from O&G sector where level of destocking is high and recovery is expected from Oct 2023. (6) For the IBB segment, demand remains stable and RM inflation if any is passed on to customer. (7) Antioxidants & Butyl Phenol at peak utilization should see revenues of Rs 9-10 bn. (8) Management guided Topline to be Rs 20bn in total for FY24E, while would grow at 20-25% rate FY25E driven by higher contribution from Butyl Phenol, Anti-Oxidants & ATBS segments. (9) Anti-Oxidants – revenue to be Rs 1.50bn, and Rs 2bn for FY24 & FY25E respectively. (10) Currently Antioxidants business working on 25% capacity utilizations due to slowdown in the industry (11) Overall Margin profile for FY24E to be around ~28%.

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