RESULTS REVIEW 4QFY17 15 MAY 2017

Vinati Organics
BUY
INDUSTRY CHEMICALS Value creation continues
CMP (as on 15 May 2017) Rs 845 Vinati Organics (VOL) reported strong growth in (5) A healthy B/S (net cash). Maintain BUY with an
revenues at Rs 2.0bn (+26% YoY) in 4QFY17, mainly increased TP of Rs 960 (25x FY19E EPS).
Target Price Rs 960 led by a substantial contribution from products
launched in FY17 (~15% of revenues). EBITDA stood Highlights of the quarter
Nifty 9,445
Sensex 30,322 at Rs 605mn (+19% YoY), and EBITDA margin remains Volume details: Products launched in FY17 contributed
KEY STOCK DATA healthy at 31%. Growth in APAT was muted at 3% to ~15% to the revenues. IB and IBB registered strong
Bloomberg VO IN Rs 406mn, owing to a higher tax rate (33% vs 16%). growth in Q4.
No. of Shares (mn) 52 VOLs story remains intact. Revenues from ATBS New product launches: The company launched two
MCap (Rs bn) / ($ mn) 44/680 (42% contribution in FY17) will stay strong, driven by high-margin products in 1QFY17. TB Amines was
6m avg traded value (Rs mn) 31 water treatment and construction chemicals. The launched in 3QFY17. PTBT/PTBBA will start
STOCK PERFORMANCE (%) launch of new products (preferably with higher contributing to revenues from FY18. VOL is undertaking
52 Week high / low Rs 894/456 margins) in FY17 will drive growth till FY19. The two large capex, which are (1) Butyl phenol: ~Rs 2bn
3M 6M 12M commissioning of the proposed ~Rs 7bn projects for capex, >1.5x ATR, commissioning FY19 end, and (2)
Absolute (%) 16.4 56.7 77.6 Butyl phenol and Para amino phenol will start from Para amino phenol: Rs 5bn capex, 1.2x ATR, timeline
Relative (%) 8.7 41.4 58.6
FY19, and will provide another phase of growth. not disclosed yet.
SHAREHOLDING PATTERN (%) VOL remains one of our preferred picks, based on (1) Near-term outlook: The stock has risen ~55% in the
Promoters 73.97 Confidence in its new product launches, (2) Traction last six months, led by the launch of new products and
FIs & Local MFs 6.87 in ATBS demand, (3) High pricing power, given VOLs clarity on future launches. VOL is a multi-year growth
FPIs 1.95 niche position and product selection, (4) Strong story. Every weakness in the stocks price should be
Public & Others 17.21 margins and return ratios (RoE/RoIC of 20%+), and considered as a buying opportunity.
Source : BSE Financial Summary
(Rs mn) 4QFY17 4QFY16 YoY (%) 3QFY17 QoQ (%) FY16 FY17P FY18E FY19E
Net Sales 1,950 1,544 26.3 1,644 18.6 5,995 6,663 8,293 9,274
Satish Mishra
EBITDA 605 507 19.3 531 14.1 1,754 2,192 2,759 3,180
satish.mishra@hdfcsec.com
APAT 406 393 3.3 326 24.7 1,002 1,393 1,734 1,981
+91-22-6171-7334
Diluted EPS (Rs) 7.9 7.6 3.3 6.3 24.7 19.4 27.0 33.6 38.4
P/E (x) 43.5 31.3 25.1 22.0
Deepak Kolhe EV / EBITDA (x) 24.7 19.7 15.7 13.5
deepak.kolhe@hdfcsec.com RoE (%) 20.5 22.9 23.1 21.7
+91-22-6171-7316 Source: Company, HDFC sec Inst Research
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO> & Thomson Reuters
 VINATI ORGANICS : RESULTS REVIEW 4QFY17

Quarterly Financials Snapshot (Rs mn)

Revenue growth was led by Particulars 4QFY17 4QFY16 YoY (%) 3QFY17 QoQ (%)
higher contribution from new Net Sales 1,950 1,544 26.3 1,644 18.6
products launched in FY17 Raw Material Expenses 939 691 35.9 749 25.3
Employee Expenses 104 93 11.6 130 (20.0)
Other Expenses 302 252 19.5 234 28.8
EBITDA margins declined by
EBITDA 605 507 19.3 531 14.1
181bps YoY, owing to higher
Depreciation 53 47 13.5 54 (0.4)
RM and other expenses EBIT 552 460 19.9 477 15.7
Other Income 58 20 188.7 18 228.5
Company is net cash Interest Cost 0.4 12 (96.9) 8 (95.5)
PBT 609 468 30.1 486 25.3
Tax 203 76 169.0 161 26.4
RPAT 406 393 3.3 326 24.7
EO Items (Adj For Tax) - - - - -
APAT 406 393 3.3 326 24.7
AEPS 7.9 7.6 3.3 6.3 24.7
Source: Company, HDFC sec Inst Research

Margin Analysis
4QFY17 4QFY16 YoY (bps) 3QFY17 QoQ (bps)
Tax rate was lower in Raw Material Expenses % Net Sales 48.1 44.7 340 45.6 258
4QFY16, owing to deferred Employee Expenses % Net Sales 5.3 6.0 (70) 7.9 (258)
tax and earlier years Other Expenses % Net Sales 15.5 16.3 (88) 14.2 123
adjustment EBITDA Margin (%) 31.1 32.9 (181) 32.3 (123)
Tax Rate (%) 33.4 16.1 1,723 33.1 31
APAT Margin (%) 20.8 25.4 (462) 19.8 101
Source: Company, HDFC sec Inst Research

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 VINATI ORGANICS : RESULTS REVIEW 4QFY17

Key Assumptions
YE Mar (Rs mn) FY13 FY14 FY15 FY16 FY17P FY18E FY19E
IBB
Sales (Rs mn) 2,047 2,426 2,322 1,782 1,743 1,876 1,923
Capacity Utilisation (%) 84 87 89 92 94 97 99
IBB is a mature product YoY % 33.1 18.5 (4.3) (23.3) (2.2) 7.6 2.5
% of Sales 37.8 35.3 30.6 30.8 26.7 23.1 21.1

ATBS demand is expected to ATBS

Sales (Rs mn) 2,226 2,820 3,499 2,678 2,671 3,136 3,575
improve, with traction in
Capacity Utilisation (%) 52 55 75 68 77 88 100
water treatment and YoY % 4.3 26.7 24.1 (23.5) (0.3) 17.4 14.0
construction chemicals % of Sales 41.1 41.0 46.1 46.3 40.9 38.6 39.3

IB
Sales (Rs mn) 560 867 887 508 480 504 530
Capacity Utilisation (%) 70 80 100 96 89 98 101
YoY % 61.7 54.8 2.3 (42.7) (5.5) 5.1 5.1
% of Sales 10.3 12.6 11.7 8.8 7.3 6.2 5.8

New products (PTBT, Other Products

PTBBA, TB amine, two Sales (Rs mn) 584 759 881 814 1,639 2,614 3,064
custom synthesis products) YoY % 45.5 30.1 16.1 (7.6) 101.3 59.5 17.2
will drive growth % of Sales 10.8 11.0 11.6 14.1 25.1 32.2 33.7

Total Sales (Rs mn) 5,417 6,873 7,590 5,782 6,533 8,131 9,092
YoY % 21.1 26.9 10.4 (23.8) 13.0 24.5 11.8
Source: Company, HDFC sec Inst Research

Change In Estimates
FY18E FY19E
Particulars (Rs mn)
Old New % Change Old New % Change
Revenues 7,924 8,293 4.7 8,811 9,274 5.3
There is increase in EBITDA 2,861 2,759 (3.5) 3,239 3,180 (1.8)
revenues assuming higher APAT 1,750 1,734 (0.9) 1,989 1,981 (0.4)
crude prices. However, AEPS (Rs.) 33.9 33.6 (0.9) 38.6 38.4 (0.4)
there are no major change Source: HDFC sec Inst Research
earnings

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 VINATI ORGANICS : RESULTS REVIEW 4QFY17

Peer Valuation
Mcap CMP TP* EPS (Rs/sh) P/E (x) P/BV (x) ROE (%)
Rating*
(Rs bn) (Rs/sh) (Rs/sh) FY17E FY18E FY19E FY17E FY18E FY19E FY17E FY18E FY19E FY17E FY18E FY19E
AGROCHEMICALS
UPL 424.5 837 NEU 780 35.6 40.0 48.8 23.5 20.9 17.2 5.7 4.7 3.9 27.2 24.8 24.9
PI Industries 113.8 830 BUY 951 31.6 32.1 37.9 26.3 25.8 21.9 7.5 6.0 4.9 32.1 25.8 24.7
Rallis India 47.9 247 BUY 280 9.6 11.0 14.0 25.7 22.3 17.6 4.3 3.8 3.4 18.7 18.2 20.3
Dhanuka Agritech 44.2 900 BUY 881 25.3 31.9 40.1 35.6 28.2 22.5 9.1 7.4 6.1 25.7 29.0 29.8
Insecticides India 14.1 681 BUY 670 26.5 33.2 41.9 25.7 20.5 16.2 3.1 2.7 2.3 12.6 14.0 15.4
FERTILISERS
Coromandel Int 116.5 399 BUY 385 16.4 20.6 25.7 24.4 19.4 15.5 4.0 3.6 3.1 17.3 19.5 21.4
Chambal Fertilisers 54.1 130 BUY 100 9.7 9.8 10.0 13.4 13.2 13.0 2.0 1.8 1.6 15.9 14.4 13.2
CHEMICALS
SRF Ltd 103.7 1,806 NEU 1,663 85.0 93.8 110.9 21.2 19.2 16.3 3.4 3.0 2.6 17.1 16.5 17.1
Vinati Organics 43.6 845 BUY 960 27.0 33.6 38.4 31.3 25.1 22.0 6.4 5.3 4.4 22.9 23.1 21.7
Navin Fluorine 29.2 2,978 NEU 3,300 113.4 137.8 165.0 26.3 21.6 18.0 3.8 3.4 3.0 15.8 16.6 17.5
Source: Company, HDFC sec Inst Research, *As per previous published report

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 VINATI ORGANICS : RESULTS REVIEW 4QFY17

Income Statement Balance Sheet

Year ending March (Rs mn) FY15 FY16 FY17P FY18E FY19E Year ending March (Rs mn) FY15 FY16 FY17P FY18E FY19E
Net Revenues 7,717 5,995 6,663 8,293 9,274 SOURCES OF FUNDS
Growth (%) 10.9 (22.3) 11.1 24.5 11.8 Share Capital - Equity 103 103 103 103 103
Material Expenses 4,565 2,963 3,005 3,760 4,078 Reserves 4,237 5,305 6,667 8,153 9,886
Employee Expenses 319 359 441 520 614 Total Shareholders' Funds 4,340 5,408 6,770 8,256 9,989
Other Expenses 915 920 1,025 1,254 1,402 Long Term Debt 372 133 - - -
EBITDA 1,918 1,754 2,192 2,759 3,180 Short Term Debt 281 288 235 175 175
EBITDA Margin (%) 24.8 29.2 32.9 33.3 34.3 Total Debt 653 421 235 175 175
EBITDA Growth (%) 25.4 (8.6) 25.0 25.9 15.2 Long-Term Provisions & Others 390 492 697 697 697
Depreciation 177 185 214 246 302 TOTAL SOURCES OF FUNDS 5,383 6,321 7,702 9,129 10,862
EBIT 1,741 1,568 1,978 2,513 2,878 APPLICATION OF FUNDS
Other Income (Incl. EO Items) 91 376 96 96 96 Net Block 3,273 3,819 4,736 4,540 5,288
Interest 98 79 28 20 17 CWIP 200 248 74 1,574 2,074
PBT 1,735 1,866 2,046 2,588 2,956 LT Loans & Advances 112 175 253 253 253
Exceptional Items Total Non-current Assets 3,585 4,242 5,063 6,367 7,615
PBT After Exceptional Items 1,735 1,866 2,046 2,588 2,956 Inventories 545 447 671 686 745
Tax (Incl Deferred) 577 550 653 854 976 Debtors 1,291 1,148 1,405 1,589 1,777
RPAT 1,158 1,316 1,393 1,734 1,981 Other Current Assets 30 14 15 19 21
Extraordinary Items - 314 - - - Cash & Equivalents 299 750 653 505 728
APAT 1,158 1,002 1,393 1,734 1,981 Short Term Loans & Advances 243 269 410 510 570
APAT Growth (%) 34.4 (13.5) 39.1 24.5 14.2 Total Current Assets 2,407 2,628 3,154 3,310 3,841
Adjusted EPS (Rs) 22.4 19.4 27.0 33.6 38.4 Creditors 215 223 327 341 375
AEPS Growth (%) 34.4 (13.5) 39.1 24.5 14.2 Other Current Liabilities & Provns 394 325 188 207 219
Source: Company, HDFC sec Inst Research Total Current Liabilities 609 549 515 548 595
Net Current Assets 1,799 2,079 2,639 2,762 3,247
TOTAL APPLICATION OF FUNDS 5,383 6,321 7,702 9,129 10,862
Source: Company, HDFC sec Inst Research

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 VINATI ORGANICS : RESULTS REVIEW 4QFY17

Cash Flow Statement Key Ratios

(Rs mn) FY15 FY16 FY17P FY18E FY19E FY15 FY16 FY17P FY18E FY19E
Reported PBT 1,735 1,866 2,046 2,588 2,956 PROFITABILITY (%)
Non-operating & EO Items (82) (35) (96) (96) (96) GPM 59.2 49.4 45.1 45.3 44.0
Interest Expenses 49 33 28 20 17 EBITDA Margin 24.8 29.2 32.9 33.3 34.3
APAT Margin 15.0 16.7 20.9 20.9 21.4
Depreciation 176 184 214 246 302
RoE 31.1 20.5 22.9 23.1 21.7
Working Capital Change (233) 73 (1,248) (270) (262) RoIC (or Core RoCE) 35.9 29.3 31.2 32.0 30.6
Tax Paid (520) (447) (653) (854) (976) RoCE 24.1 18.5 20.3 20.8 20.0
OPERATING CASH FLOW ( a ) 1,125 1,674 291 1,635 1,942 EFFICIENCY
Capex (568) (766) (957) (1,550) (1,550) Tax Rate (%) 33.3 35.4 31.9 33.0 33.0
Free Cash Flow (FCF) 557 908 (666) 85 392 Fixed Asset Turnover (x) 2.0 1.3 1.2 1.4 1.4
Investments - - - - - Inventory (days) 27 24 39 34 31
Non-operating Income 91 62 96 96 96 Debtors (days) 64 61 81 78 74
Others (58) (18) (78) - - Other Current Assets (days) 1 1 1 1 1
Payables (days) 11 12 19 17 16
INVESTING CASH FLOW ( b ) (535) (722) (939) (1,454) (1,454)
Other Current Liab & Provns (days) 20 17 11 10 9
Debt Issuance/(Repaid) (552) (252) (186) (60) - Cash Conversion Cycle (days) 63 56 91 85 81
Interest Expenses (49) (33) (28) (20) (17) Debt/EBITDA (x) 0.3 0.2 0.1 0.1 0.1
FCFE (1,169) (1,051) (1,170) (1,630) (1,567) Net D/E (x) 0.1 (0.1) (0.1) (0.0) (0.1)
Share Capital Issuance - - - - - Interest Coverage (x) 17.8 20.0 71.9 122.7 164.6
Dividend (145) (217) (31) (248) (248) PER SHARE DATA (Rs)
Others - - (205) - (0) EPS 22.4 19.4 27.0 33.6 38.4
FINANCING CASH FLOW ( c ) (746) (502) (450) (328) (265) CEPS 25.9 23.0 31.1 38.4 44.2
NET CASH FLOW (a+b+c) (156) 450 (1,098) (147) 222 Dividend 3.5 4.0 0.5 4.0 4.0
Book Value 84.1 104.8 131.2 160.0 193.6
EO Items, Others 1 1 1,001 - -
VALUATION
Closing Cash & Equivalents 299 750 653 505 728 P/E (x) 37.6 43.5 31.3 25.1 22.0
Source: Company, HDFC sec Inst Research P/BV (x) 10.0 8.1 6.4 5.3 4.4
EV/EBITDA (x) 22.9 24.7 19.7 15.7 13.5
EV/Revenues (x) 5.7 7.2 6.5 5.2 4.6
OCF/EV (%) 2.6 3.9 0.7 3.8 4.5
FCF/EV (%) (1.3) (1.8) (2.2) (3.6) (3.6)
FCFE/Mkt Cap (%) (2.7) (2.4) (2.7) (3.7) (3.6)
Dividend Yield (%) 0.4 0.5 0.1 0.5 0.5
Source: Company, HDFC sec Inst Research

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 VINATI ORGANICS : RESULTS REVIEW 4QFY17

RECOMMENDATION HISTORY
Vinati Organics TP Date CMP Reco Target
1,050 27-Jun-16 512 BUY 656
950 7-Oct-16 616 BUY 734
850
750
1-Nov-16 591 BUY 735
650 6-Feb-17 755 BUY 820
550 13-Apr-17 740 BUY 848
450 15-May-17 845 BUY 960
350
250 Rating Definitions
BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period
Aug-16

Apr-17
Jan-17
Jul-16

Sep-16

Feb-17
Nov-16
Jun-16
May-16

May-17
Dec-16

Mar-17
Oct-16

NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period
SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

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 VINATI ORGANICS : RESULTS REVIEW 4QFY17

Disclosure:
We, Satish Mishra, PGDM & Deepak Kolhe, MBA, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject
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the specific recommendation(s) or view(s) in this report.
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Any holding in stock No
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 VINATI ORGANICS : RESULTS REVIEW 4QFY17

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Board : +91-22-6171 7330 www.hdfcsec.com
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