Vinati Organics Ltd - Growth Momentum Persists; Result Update Q3FY15 :: Edelweiss, report

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Vinati Organics Ltd (VOL) reported Q3FY15 topline of INR 198.6 cr, marginally below our estimate of INR 201.3 crs mainly on account of both volume traction in the ATBS business and better realizations on account of currency depreciation. The company’s gross margins for the quarter at 41.0% (up 193bps QoQ) surprised positively on account lower raw material prices. As a result, the operating margin during the quarter at 24.9% up 447 bps YoY. The company reported an adjusted PAT of INR 28.7 cr as against our estimate of INR 31.4 cr. ATBS segment continued to perform extremely well, while IB continued to be impacted by lower off-take from one of its customer. We continue to like the stock; we believe that the company’s focus on introducing new products and traction in its existing products would help it grow at a faster pace on a healthier balance sheet.

Business mix positively impacts margins

VOL’s business mix shifted substantially in favor of ATBS, with ~45-47% revenues coming from ATBS, ~30-32% from IBB and ~7-9% from IB. The growth in ATBS was impressive, with the company reporting a growth of ~30-35% YoY plus while IBB reported a flattish growth. On account of one of its customer going back to its earlier used cheaper raw material, the off-take from IB has been lower de-growing by ~16-18% and is expected to stay at the current levels in the near future. We believe that traction in ATBS growth and plans to introduce new products on IB base gives visibility on future growth outlook.

Currency and change in business mix leads to margin improvement

A higher-than-expected revenue contribution from ATBS, which is a high-margin product compared to IBB and IB, led to a change in business mix during Q3FY15 in favor of ATBS. Further, the rupee depreciated by ~3% during the quarter and also reduction in the raw material prices, resulted in gross margins improving to 41.1% from 39.1% QoQ. The operating margin for the quarter thus stood at 24.9% (adjusted for forex gains).

Management outlook remains positive

The management continues to guide for at least 20-25% YoY growth in the topline and overall margin of 20-22%, as it is confident that growth in ATBS would be sustained due to the robust demand for the product. Topline growth will also benefit from sustained high growth in low-margin IBB and IB businesses. The company is thus confident of working at full capacity in ATBS over the next 2-3 years. Further, it is working on few new products (IB derivatives) and is expected to commercialise few of them in the next 12 months. It has outlined a capex plan of INR 100 cr to be incurred over the next two years. Of this, INR 30 cr would be spent on de-bottlenecking of its IB & IBB plants, while INR 70 cr would be spent on a new IB derivative product. The company has further revived plan to set up a co-gen power plant at Lote, which is expected to lead to saving of ~INR 8 cr annually on power and fuel costs.

LINK
https://www.edelweiss.in/research/Vinati-Organics-Ltd--Growth-Momentum-Persists;-Result-Update-Q3FY15/10005501.html