Vinati Organics Q4 Results Review - Short-Term Headwinds To Play Spoil Sport: Motilal Oswal

• VO reported lower-than-estimated revenues (6% below our estimates) in 4QFY23 because of inventory built-up at customers’ end. This is further expected to continue in FY24 as well. Gross margin declined to 50.3% (down 140bp QoQ), with EBITDAM at 30.3% (down 190bp QoQ). The management has guided that demand for IBB is good and expected to remain robust going forward.

• That being said, the management expects to have a muted FY24 with ATBS demand likely to bounce back not before end-FY24. However, the management has started commercial supply of Antioxidants (AOs), which should start contributing to revenues in 1QFY24. Contribution from AOs would further partially offset the weakness in the ATBS segment in FY24. The merger with VAPL is expected to be completed by Jun’23.

• Expansion of ATBS capacity by 50% (from 40ktpa to 60ktpa) has been delayed and commissioning is now expected by end-FY24, keeping in mind the demand pressure that could be seen throughout the year in FY24. The management also guided that commissioning of products in VOL (MEHQ, Guaiacol and Iso Amylene) has also been delayed to end-FY24 (from 1HFY24 earlier).

• The sales mix for 4QFY23 stood at: ATBS (44%), IBB (19%), Butyl Phenol and other IB derivatives (16%), Customized products (7%), IB & HPMTBE (9%), and the rest were others. We cut our revenue/ EBITDA/ PAT estimates by 12%/ 19%/18% for FY24 and by 12%/ 18%/ 17% with EBITDAM at 26.5%/ 27.3% for FY24/25. We forecast revenue CAGR of ~25% over FY23-25, translating into an EBITDA/EPS CAGR of 26%/24% over the same period.

• The stock is trading at 28x FY25E EPS and 21x FY25E EV/EBITDA, with return ratios of 20-23%. It had a fixed asset turnover of 2.4x as of FY23. We value the company at 35x FY25E EPS to arrive at our TP of INR2,245. We reiterate our BUY rating on the stock.

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