vinati organic

5th Floor, Crescent Chamber, Tamarind Lane, Fort, Mumbai - 400 001, India T: +91 22 2265-2626, F: +91 22 2265-1642

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Aegis Logistics Ltd.

Vinati Organic

Company Overview

Vinati Organics Limited was established in 1989 to manufacture specialty

organic chemical. It has since grown to become the world’s largest

manufacturer of Isobutylbenzene (IBB) and second largest manufacturer

of 2-Acrylamido 2-Methylpropane Sulfonic Acid (ATBS).Acrylamido

Methylpropane Sulfonic Acid(ATBS) is being produced by only two

companies in the World. VOL has global oligopoly in two of the main

products it manufactures. Revenues grow at a CAGR of 22% Last Five

years.

Product Line :-

Isobutyl benzene (IBB) Application: Used as the main raw material of Ibuprofen bulk drug and perfumery

2-Acrylamido 2-methylpropanesulfonic Acid (ATBS) Application: Used in acrylic fibre, water treatment chemicals, emulsions for paints paper

coatings, adhesives, hydro gels and super absorbent, textile auxiliaries, oil field, mining

chemicals, construction chemicals and agro-chemicals. The main destinations for exports are

Europe, America and other Asian countries. At present, there are only 3 manufacturers of

ATBS in the world. A major potential application for the monomer is for EOR (Enhanced Oil

Recovery). With the big increase in oil prices, many major companies are in the process of

developing these projects. Isobutylene (IB) Application: Used as a raw material for ATBS, agro-pesticides and for antioxidants

Vintreat – 243, Vintreat – 343, Vintreat – 238, Vintreat – 230, Vintreat – 245, Vintreat – CAP, Vintreat – 140 Application: Suitable for scale prevention in boilers, heat exchangers and industrialcooling

towers. It functions as an effective dispersant and provides fine threshold inhibition against

calcium phosphate. High Purity Methyl tert-butyl ether (HP MTBE) Application: Used as a solvent in the pharmaceutical industry

NEW PRODUCTS

Di-Acetone Acrylamide (DAAM)

Tertiary Butyl Acrylamide (TBA)

Tertiary Octyl Acrylamide (TOA) Application :- All these Acrylamides are used as Homo Polymers & Co-Polymers for

manufacturing :-Adhesives, Coatings ,Resins ,Cosmetics, Photo synthetics ,Treatment of Fiber,

Water Treatment and Cross Linking Agent

Market Data Rs.

CMP 118.50

52 Week High 135(26 Oct 2012)

52 Week Low 60(20 Dec 2011)

Book Value 144 (Cr)

Mcap (Rs Cr) 580(Cr)

Equity (Rs Cr) 9.87

Face Value 2

BSE Code 524200

NSE Code VINATIORGA

Price Volume Chart

Share Holding Pattern

(%) Mar-12 Jun-12

Promoter 74.99 74.99

Institutions 0.5 1.48

Others 24.46 23.53

Total 100.0 100.0 Source: NSE

Sector: Speciality Chemicals and Active Pharmaceutical Ingredient Recommendation: Buy

CMP: Rs.117 TARGET 210

7th November 2012

(‘000)


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Vinati Organic

KEY HIGHLIGHTS :-During the quarter, the company completed 1000 TPA plant of DAAM,

which is used in coatings and personal care industries, 6,000 tonne of high purity MTBE, which is a solvent used in pharma industry and expanded industrial polymers capacity to 4,500 tonne.

In addition, it has completed expansion of its key product ATBS, which is used in the petroleum exploration industry for improved oil recovery, to 26,000 tonne per annum from 12,000 tonne earlier. The management informed that the expanded capacity will be commissioned sometime in November after a facility shutdown and expects to utilize it fully gradually over next 2-3 years. The company had mentioned earlier that its ATBS business is growing 30% annually.

The company has started work on its next phase of expansion projects, which will involve a co-generation power plant with Rs 52 Cr of capex and a few new products with capex of Rs 36.5 Cr to be spent over next 8-18 months. The scrip currently at Rs 124 is trading at a price-to-earnings multiple (P/E) of 8.6 and price-to-book value of 2.8.The company, which has given more than ten times returns to investors in last five years, still continues to grow strong with a number of expansion projects lined up.

BUSINESS OUTLOOK AND GUIDANCE :-Company is diversify its product line and

taking expansion plans to a high margin products. Vinati Organic is seeking to grow at 20-25 % for FY 2013 as per the management guidance. Vinati Organic has expanded its capacity from ATBS from 14000 Metric Tonne to 26000 Metric Tonne ,but the company will not be fully utilizing its capacity in

recent quarters. Vinati Organic plans to set up 6 megawatt co‐generation power plant with the cost of around 3.3 crore in Ratnagiri ,which is currently on hold by the government .Company will be commencing its production in DAAM plant soon ,which will lead them start producing Tertiary Octyl Acrylamide TOA and 2-Acrylamido 2-Methylpropane Sulfonic Acid (ATBS) expansion

BACKWARD INTEGRATION OF VINATI ORGANIC


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Vinati Organic

Clients Profile :- BASF:- Leading in sustainable ibuprofen production from last 20 years.38 % Revenue comes from

healthcare business segment. Company, PAT grew up to 70 % in last 4 years.

Shasun Pharma :- Shasun Chemicals & Drugs Ltd. (SCDL) is one of the largest producers of

Ibuprofen across the world. Companys sales has seen a growth of 56 % in last 4 years.

Nalco:-Vinati organic supplies 2-Acrylamido 2-methylpropanesulfonic Acid (ATBS) to Nalco . Nalco,

revenue has increased 32 % from last 5 years.

Clariant Chemicals India Ltd:- The Clariant businesses bear worldwide responsibility for their

activities. The businesses were established on the basis of shared chemical and technological features and the corresponding market segments. They are organized to meet the specific requirements and opportunities of their markets.

Azkonbel :- Akzo Nobel is the largest global paints and coatings company and a major producer of

specialty chemicals. Vinati organic supplies 2-methyl Propane Sulfonic Acid(ATBS) to Azkonbel

Perrigo :- Perrigo Company is a leading global healthcare supplier that develops, manufactures and

distributes over-the-counter (OTC) and prescription pharmaceuticals, nutritional products, active pharmaceutical ingredients (API) and consumer products

CHEMTALL:- Chemtall, Inc. manufactures chemicals, powders, emulsion, and solution flocculants

.Imports 2-acrylamido ,2 Methyl Propane Sulfonic Acid from Vinati organic.

VINATI ORGANIC SUCCESSFUL EXPANSION CAPACITY HISTORY

Isobutyl benzene (IBB) 2-Acrylamido 2-Methylpropane Sulfonic Acid (ATBS)

1992: Plant comes on stream with 1200 MTA production capacity.

2002: ATBS plant on stream with 1000 MTA production capacity

1996: capacity expansion to 3000 MTA 2009: ATBS capacity expansion to 12000 MTA

1997: capacity expansion to 5000 MTA 2012: ATBS capacity expansion to 26000

2006:- capacity expansion to 10,000 MTA

2008: IBB capacity expansion to 14,000 MTA

SUCCESSFUL CAPACITY UTILIZATION FROM LAST 5 YEARS

2011 2010 2009 2008 2007

2-Acrylamido 2-Methylpropane Sulfonic Acid

Installed Capacity 12000 10000 5000 4000 3000

Production 10744.2 6764.55 4563.39 3441.28 1808.17

Capacity Utilization 89.54 67.65 91.27 86.03 60.27

Iso-Butyl Benzene

Installed Capacity 14000 14000 14000 14000 10000

Production 1134.34 12735.85 11144.72 11094.27 6626.85

Capacity Utilization 8.1 90.97 79.61 79.24 66.27

http://www.perrigo.com/business/otc.aspx

http://www.perrigo.com/business/pharmaceuticals.aspx

http://www.perrigo.com/business/nutritionals.aspx

http://www.perrigo.com/business/api.aspx



http://www.perrigo.com/business/healthcare.aspx


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Vinati Organic

BALANCE SHEET

201203 201103 201003 200903 200803

SOURCES OF FUNDS :

Share Capital 9.87 9.87 9.87 9.87 9.87

Reserves Total 177.15 133.82 89.31 55.03 32.79

Total Share holders Funds 187.02 143.69 99.18 64.9 42.66

Secured Loans 136.97 70.27 56.99 44.84 28.17

Unsecured Loans 35.72 6.69 6.13 6.12 6.12

Total Debt 172.69 76.96 63.12 50.96 34.29

Total Liabilities 359.71 220.65 162.3 115.86 76.95

APPLICATION OF FUNDS :

Gross Block 188.74 148.65 110.95 71.12 64.03

Less : Accumulated Depreciation 44.43 37.48 31.32 26.43 23.18

Less:Impairment of Assets 0 0 0 0 0

Net Block 144.31 111.17 79.63 44.69 40.85

Capital Work in Progress 56.75 36.04 38.36 43.43 10.91

Investments 7.9 3.16 0 0 0

Current Assets, Loans & Advances

Inventories 43.02 35.01 18.89 12.06 12.12

Sundry Debtors 85.68 51.92 35.87 27.92 22.07

Cash and Bank 31.95 1.94 1.79 1.89 1.37

Loans and Advances 34.95 18.57 10.58 7.46 10.66

Total Current Assets 195.6 107.44 67.13 49.33 46.22

Less : Current Liabilities and Provisions

Current Liabilities 15.98 15.05 9.8 11.73 12.88

Provisions 13.97 10.37 4.31 4 2.88

Total Current Liabilities 29.95 25.42 14.11 15.73 15.76

Net Current Assets 165.65 82.02 53.02 33.6 30.46

Deferred Tax Assets 0.26 0.36 0.18 0.13 0.13

Deferred Tax Liability 15.16 12.1 8.89 5.99 5.4

Net Deferred Tax -14.9 -11.74 -8.71 -5.86 -5.27

Other Assets 0 0 0 0 0

Total Assets 359.71 220.65 162.3 115.86 76.95

Contingent Liabilities 18.92 20.39 15.76 21.22 16.1


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Vinati Organic

INCOME STATEMENT 201203 201103 201003 200903 200803

INCOME :

Sales Turnover 473.84 335.26 238.44 203.47 161.36

Excise Duty 26.38 12.61 6.69 12.97 15.03

Net Sales 447.46 322.65 231.75 190.5 146.33

Other Income 2.83 6.35 8.45 5.32 4.03

Stock Adjustments 6.14 4.42 5.11 -0.57 1.87

Total Income 456.43 333.42 245.31 195.25 152.23

EXPENDITURE :

Raw Materials 273.81 187.83 137.94 121.35 96.23

Power & Fuel Cost 25.06 19.97 12.01 7.6 5.38

Employee Cost 18.32 14.87 11.49 8.84 6.2

Other Manufacturing Expenses 17.89 14.83 9.25 4.95 3.71

Selling and Administration Expenses 17.36 15.53 10.72 10.95 8.18

Miscellaneous Expenses 6.17 4.32 2.76 3.14 3.19

Total Expenditure 358.61 257.35 184.17 156.83 122.89

Operating Profit 97.82 76.07 61.14 38.42 29.34

Interest 9.19 7.12 4.42 3.29 3.26

Gross Profit 88.63 68.95 56.72 35.13 26.08

Depreciation 7.03 6.45 4.93 3.25 2.93

Profit Before Tax 81.6 62.5 51.79 31.88 23.15

Tax 23.63 7.51 8.89 6.08 7.45

Deferred Tax 3.16 3.02 2.86 0.59 0.42

Reported Net Profit 54.81 51.97 40.04 25.13 15.2

Extraordinary Items -0.02 -0.01 0 0 -0.01

Adjusted Net Profit 54.83 51.98 40.04 25.13 15.21

Adjst. below Net Profit 0 0 0 0 0

P & L Balance brought forward 120.6 81.29 51.06 31.34 22.11

Appropriations 16.98 12.66 9.81 5.41 5.97

P & L Balance carried down 158.43 120.6 81.29 51.06 31.34

Dividend 9.88 6.42 4.94 2.47 1.97

Equity Dividend % 100 65 50 25 20

Dividend Per Share(Rs) 2 1.3 1 2.5 2


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Vinati Organic

RATIO ANALYSIS

201203 201103 201003 200903 200803

Key Ratios

Debt-Equity Ratio 0.75 0.58 0.7 0.79 0.83

Long Term Debt-Equity 0.35 0.27 0.46 0.44 0.23

Current Ratio 1.41 1.29 1.39 1.18 1

Turnover Ratios

Fixed Assets 2.81 2.58 2.62 3.01 2.68

Inventory 12.15 12.44 15.41 16.83 15.87

Debtors 6.89 7.64 7.48 8.14 7.73

Interest Cover Ratio 9.88 9.78 12.72 10.69 8.1

PBIDTM (%) 20.64 22.69 25.64 18.88 18.18

PBITM (%) 19.16 20.77 23.57 17.29 16.37

PBDTM (%) 18.7 20.57 23.79 17.27 16.16

ROCE (%) 31.29 36.36 40.42 36.48 39.85

RONW (%) 33.15 42.8 48.81 46.73 41.9

Payout (%) 18.57 12.61 12.6 10 13.26

DUPONT ANALYSIS 201203 201103 201003 200903 200803

NP / PBT (X) 0.67 0.83 0.77 0.79 0.66

PBT / EBIT (X) 0.9 0.9 0.92 0.91 0.88

EBIT / Sales (X) 0.2 0.22 0.24 0.18 0.18

Sales / Assets (X) 1.54 1.69 1.67 1.98 2.21

Assets / Equity (X) 1.75 1.58 1.7 1.79 1.83

ROE (X) 0.33 0.43 0.49 0.47 0.42

The risks that may impede achievement of the price target/investment thesis are:- The main raw materials to manufacture IBB and ATBS are petroleum products and hence their prices are linked to crude oil prices. Volatility in crude prices could lead to margin pressures. The Company has hedged itself against such risk through contracts wherein the product prices are bench marked against the input prices. The price variation, depending on products, can vary from monthly to quarterly basis. But in case of spot sales, margins could be affected in case we are not able to pass on the price increase in raw materials. Oversupply due to increased global capacity could also lead to some pressures on margins. As IBB is the main ingredient for making Ibuprofen, and as Ibuprofen in included in the National List of Essential List (NLEM) and the new pharma policy will be aiming in reducing the price of medicine and ingredient which is included in National List of Essential Medicine it could see a margin pressure on Ibuprofen which could effect on IBB profit margins, but its effect could not be much as pharmaceutical firms are already very competitive and selling their products at low cost.

Important Disclosure


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Vinati Organic

This Document has been prepared by Lalkar Securities Private Ltd. The information, analysis and estimates contained herein are based on LSPL assessment and have been obtained from sources believed to be reliable. This document is meant for the use of the intended recipient only. This document, at best, represents LSPL opinion and is meant for general information only. LSPL research desk, its directors, officers or employees shall not in anyway be responsible for the contents stated herein. LSPL expressly disclaims any and all liabilities that may arise from information, errors or omissions in this connection. This document is not to be considered as an offer to sell, or a solicitation to buy any securities. LSPL its affiliates and their employees may from time to time hold positions in securities referred to herein. LSPL Research or its affiliates may from time to time solicit from or perform investment banking or other services for any company mentioned in this document.

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