MOSL: VINATI ORGANICS (Buy)-Gross margin guidance revised down; revenue potential intact
VINATI ORGANICS: Gross margin guidance revised down; revenue potential intact
(VO IN, Mkt Cap USD2.7b, CMP INR1925, TP INR2220, 15% Upside, Buy)
- Vinati Organics (VO) reported mixed results, with revenue above our estimate (+20%), while EBITDA came in below our estimate (-8%). The gross margin shrank to 45% – the lowest since 3QFY15. The resultant EBITDA margin stood at 26.3% (v/s our est. of 34.3% and 35.4% in 4QFY21).
- Higher freight costs (by INR100m), along with an increase in Phenol and Acrylonitrile prices, impacted margins. Freight costs were the highest for the US and Europe – they are likely to remain at similar levels for the next few quarters as well. VO is in talks with customers to share the cost increase.
- On these lines, the management has revised down its gross margin guidance to 45–50%, with EBITDA margin normalization at 32–33% going forward (unchanged). Higher efficiencies, led by a ramp-up, would lower operating costs and aid EBITDA margins.
- Factoring in the same, we lower our FY22E/FY23E/FY24E EBITDA and EPS by 15%/11%/5%, with the EBITDA margin at 29%/31%/32% (from 36%/35%/34%). We build in margin improvement hereafter as (a) the pressure of commodity price inflation fades over next 2–3 quarters and (b) Veeral Additives comes on-stream (expected in 4QFY22) – which would consume 50% of Butyl Phenol internally.
Vinati Organics Limited. Vinati Organics Limited is engaged in the manufacture of organic and inorganic chemical compounds nitrogenous energetic compounds (n.e.c.). The Company is engaged in manufacturing of specialty organic intermediates and monomers, such as Isobutyl Benzene (IBB), 2 Acrylamido 2Methylpropane Sulfonic Acid (ATBS), Sodium Salt of 2 Acrylamido 2Methylpropane Sulfonic Acid (NaATBS), Diacetone Acrylamide, Isobutylene, High Purity Methyl Tertiary Butyl Ether (HPMTBE) and TB Amine. Its specialty monomers products include N-Tertiary Butyl Acrylamide (TBA) and N-Tertiary Octyl Acrylamide (TOA). Its specialty aromatics products include Normal Butylbenzene (NBB) and C 10 Aromatic Solvent. The Company's other products include Methanol and Hexene. It also offers polymers, including Vinflow_HT and Vinplast 245. Its polymers are used in a range of applications in various industries, such as construction, ceramics, oil drilling, mining, leather and paper. The Company operates in over 20 countries.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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