Vinati Organics Q1 Results Review - Revenue Growth Intact, Margins To Improve; Maintain Hold: Systematix

Systematix Research Report

Vinati Organics Ltd. posted healthy YoY growth on a favorable base, while QoQ performance was weak. Revenue increased 20% YoY but dropped 5% QoQ to Rs 5.2 billion (a 7% miss on our estimate), signaling potential headwinds that could inhibit sustained growth.

Gross margin contracted 269 basis points YoY and 168 bps QoQ to 44.9% (estimate 46%) due to the change in product mix and higher raw material costs, which Vinati Organics will likely pass on only from Q2 FY25. The significant 348 bps QoQ contraction overshadowed the 88 bps YoY rise in Ebitda margin to 23.8% (estimate 26%).

Logistic issues, container unavailability and maintenance shutdown at few plants led to costs escalating. Management indicated that certain highmargin customized products sold during 3Q/4Q were missing in 1Q, which also led to the dip in QoQ margin. Both Ebitda (Rs 1.2 billion, up 24% YoY, down 17% QoQ) and profit after tax (Rs 842 million, up 21% YoY, down 19% QoQ) missed our estimates.

Our raised FY25E/FY26E revenue estimate by 2%/9% factors in capacity expansion, new product launches and an improving demand environment, especially in key products like ATBS.

We have cut our FY25 Ebitda margin by 100 bps to 25% to align with the Q1 FY25 performance; however, we have retained FY26E margin at 27%, as we expect the operating environment to improve.

We have slightly trimmed our FY25 EPS by 1% and raised FY26E EPS by 12%. The 19% rally in the stock price in the past six months has rendered the valuations expensive, leaving limited upside potential at the current level.

Thus, we have raised our target price to Rs 1,754 from Rs 1,588, based on an unchanged multiple of 32 times FY26E P/E. Maintain Hold.

Key risks: Product concentration and volatility in raw material prices.

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