Catalysing Growth - Vinati Organics

Vinati Organics (VOL) is a Mumbai-based company engaged in the manufacturing of organic intermediates and specialty monomers and polymers. These chemicals find their application in plastic, pharmaceutical products, personal care products, etc. The company manufactures mainly three organic chemicals - Iso-Butyl Benzene (IBB),  2-Acrylamido 2-Methyl Propane Sulfonic Acid (ATBS) and Sodium Salt of 2-Acrylamido 2-Methyl Propane Sulfonic Acid (Na-ATBS) through its manufacturing facility at Lote Parshuram and Mahad in Maharashtra.

IBB is a basic raw material used for manufacturing of Ibuprofen, an anti-inflammatory analgesic drug and an ingredient used in the perfume industry. IBB is a major contributor in the total sales of the company. For FY08, it contributed 67 per cent, down from 70 per cent in FY07. It has signed a long-term contract this year with various companies like BASF Corporation of the United States to supply IBB worth Rs 240 crore over the next five years with an escalation clause of passing the increase in raw material prices. ATBS, another chemical produced by the VOL, is an industrial monomer used in the paper and pulp industry, oil sector and in mining. This product contributed 14 per cent of total revenue for the year FY08.

The product which saw the steepest increase in sales is Na-ATBS, which grew by 280 per cent. This led to an increase in its share in revenue from six per cent (FY07) to 13 per cent (FY08). Currently, the company has a capacity of 14,000 TPA (tones per annum) for IBB and 4,000 for ATBS. The company is expanding its capacity in ATBS from 4,000 TPA to 8,000 TPA and this is expected to be completed in the current month. VOL has raised USD 6.00 million FCNR (B) loan to fund this expansion.

Performance and Valuation
In FY08, the company recorded topline of Rs 165.3 crore and bottomline of Rs 15.1 crore against Rs 92.3 crore and Rs 3.5 crore in FY07. It grew by an astounding pace of 78 per cent and 332 per cent respectively. The company continued to post excellent result in Q1FY09 and posted a topline of Rs 42.08 crore and bottomline of Rs 3.18 crore. Sales grew by 51 per cent and profit by 62 per cent. VOL was able to increase its realisation in all products, ranging from 6 per cent to 16 per cent.

It has signed a contract worth more than Rs 300 crore for the coming few years and this gives a good earning visibility for the company. The company's foreign market also saw a robust increase in sales - it increased by 117 per cent and now forms 58 per cent of its total revenue. The current share price of Rs 62 discounts FY08 earning by 4 times and trailing twelve-month earnings by 3.2 times. VOL has return on net worth of 35 per cent which is one of the best in the industry. As the company completes its expansion plan and as oil prices soften, VOL will be able to record a topline of Rs 195 crore and EPS of Rs 18.2 even if grows at 20 per cent. Therefore we recommend our readers to enter the counter with a price target of Rs100 in the next one year.