CMP 111.50

Target Price 123.00

ISIN: INE410B01029

JUNE 6th

, 2013

VINATI ORGANICS LTD Result Update: Q4 FY13

BUYBUYBUYBUY

Stock Data

Sector Specialty Chemicals

BSE Code 524200

Face Value 2.00

52wk. High / Low (Rs.) 180.00/91.35

Volume (2wk. Avg ) 2959

Market Cap ( Rs in mn ) 5505.31

Annual Estimated Results (A*: Actual / E*: Estimated)

Years FY13A FY14E FY15E

Net Sales 5529.15 6413.81 7183.47

EBITDA 1240.94 1441.12 1615.93

Net Profit 686.64 794.88 887.25

EPS 13.91 16.10 17.97

P/E 8.02 6.93 6.20

Shareholding Pattern (%)

1 Year Comparative Graph

BSE SENSEX VINATI ORGANICS LTD

SYNOPSIS

Vinati Organics Ltd is a specialty chemical

company producing organic intermediates,

monomers and polymers.

Vinati Organics Ltd has recommended a

dividend of 125% on the share capital of the

Company i.e. Rs. 2.50 per equity share of face

value of Rs. 2/- each for the year ended

March 31, 2013.

The company’s net sales registered a 20.31%

increase and stood at a record Rs. 1657.35

million from Rs. 1377.57 million over the

corresponding quarter last year.

The company’s net profit registered a 5.92%

increase and stood at a record Rs. 214.70

million from Rs. 202.70 million over the

corresponding quarter last year.

Vinati has increased ATBS capacity from 3,600

MT in 2007 to 12, 000 MT by 2011 & more

than it double capacity to 26,000 MT in 2012.

The company has set up new plant of Di-

Acetone Acryl amide (DAAM) with capacity of

1,000 MT is commissioned in 2012.

Net Sales and PAT of the company are

expected to grow at a CAGR of 17% and 17%

over 2012 to 2015E respectively.

Peer Groups CMP Market Cap EPS P/E (x) P/BV(x) Dividend

Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

Vinati Organics Ltd 111.50 5505.31 13.91 8.02 2.28 100.00

Vikas WSP Ltd 22.50 3140.50 25.07 0.91 0.22 100.00

Anil Ltd 131.00 1279.40 471.50 2.78 0.58 20.00

Pidilite Inds Ltd 281.50 144180.70 8.99 31.28 7.87 190.00

Investment Highlights STANDALONE

Results updates- Q4 FY13,

Vinati Organics Ltd is world second largest

Manufacturer Company producing organic

intermediaries’ monomers & polymers in India,

reported its financial results for the quarter ended

31st MARCH, 2013.

Months MARCH-13 MARCH-12 % Change

Net Sales 1657.35 1377.57 20.31%

PAT 214.70 202.70 5.92%

EPS 4.35 4.11 5.92%

EBITDA 384.64 369.19 4.18%

The company’s net profit jumps to Rs.214.70 million against Rs.202.70 million in the corresponding quarter

ending of previous year, an increase of 5.92%. Revenue for the quarter rose 20.31% to Rs.1657.35 million from

Rs.1377.57 million, when compared with the prior year period. Reported earnings per share of the company

stood at Rs.4.35 a share during the quarter, registering 5.92% increase over previous year period. Profit before

interest, depreciation and tax is Rs.384.64 millions as against Rs.369.19 millions in the corresponding period of

the previous year.

Expenditure :

Break up of Expenditure

Rs. Millions

Q4 FY13 Q4 FY12

Cost of Material Consumed 943.28 853.71

Employee Benefit Expenses 52.54 46.26

Depreciation & Amortization Expense

27.12 18.65

Other Expenses 192.11 178.34

Latest Updates

• Vinati Organics Ltd has recommended a dividend of 125% on the share capital of the Company i.e. Rs. 2.50

per equity share of face value of Rs. 2/- each for the year ended March 31, 2013.

Company Profile

Vinati Organics Limited was established in 1989 to manufacture specialty organic chemicals. It has since grown

to become the world’s largest manufacturer of Isobutyl benzene (IBB) and second largest manufacturer of 2-

Acrylamido 2-Methylpropane Sulfonic Acid (ATBS). The company’s products are exported to customers in

countries across Europe, America and Asia.

Vinati Organics Ltd. (VOL) is a specialty chemical company producing organic intermediates, monomers and

polymers. VOL started commercial production at its second unit installed in Lote Parshuram and became the

third company in the world to manufacture specialty monomers, 2-Acrylamido 2-methylpropanesulfonic Acid.

The plant was installed based on breakthrough technology developed with the aid of National Chemical

Laboratories (NCL), Pune. ATBS is a co-monomer having applications is acrylic fiber, water treatment, emulsions,

paints and oil field drilling industries.

VOL's substantial growth is mainly attributed to its efficient manufacturing and sales practices.

The company always executes critical orders which are as per the customer demands. At Vinati Organics, core

competency largely depends in R&D program, which fructifies in development & optimization of various

products & processes, and continual improvement in products’ quality. The company's strong emphasis on

quality, backed by a highly competent technical team, has enabled it to establish a successful track record in

nurturing long term relationships with highly reputed companies.

Presently being used and appreciated by all manufactures of Ibuprofen in India. The company quality is also

internationally acclaimed and appreciated by the founder manufacturer of Ibuprofen i.e. Knoll Pharmaceuticals

of UK and BASF Corporation of USA.

� Products

• Aromatics

The Company manufactures and exports an assortment of organic chemicals that can be formulated as per

the specific requirements of the clients. The pure and safe to use organic chemicals are primarily used to

develop other chemicals. Some of its other uses include making of various products such as plastics, dyes and

pharmaceutical products. Each chemical is offered in a specific packaging option.

� Isobutyl benzene (IBB)

� Normal Butyl benzene (NBB)

� Hexenes (C6H12)(C-6 Aliphatic

Hydrocarbons)

� C 10 Aromatic Solvent

• Industrial Monomers

VOL offers a range of monomers that are used in various applications. Used in different industries, the

product has features of high purity level, safe to use and easy to handle. Known for hydrolytic and thermal

stability, monomers are offered in different packaging options.

� 2-Acrylamido 2- methylpropanesulfonic Acid (ATBS)

� Sodium Salt of 2-Acrylamido 2-methylpropanesulfonic Acid (NaATBS)

� N-Tertiary Butyl Acryl amide (TBA).

• Industrial Polymers

The company provides a range of pure and environment friendly polymers in client specific formulations.

The product array receives appreciation for its excellent thermal & chemical stability and ease of handling.

Used in various industrial applications, and polymers is available in different packaging options.

� Vintreat - 243

� Vintreat - 343

� Vintreat - 238

� Vintreat - 230

� Vintreat - 245

� Vintreat - CAP

� Vintreat – 140.

� Presence

• Canada

• USA

• Mexico

• Argentina

• United Kingdom

• Netherlands

• Germany

• Belgium

• France

• Italy

• Iran

• India

• China

• Thailand.

• Malaysia

• Japan

• South Korea

• Taiwan

• Australia

� New Products

• Methanol

• Isobutylene

• High Purity MTBE

Financial Highlight STANDALONE

Balance sheet as at March31st, 2012

(A*- Actual, E* -Estimations & Rs. In Millions)

FY12 FY13 FY14E FY15E

EQUITY AND LIABILITIES:

Shareholders’ Funds:

Share Capital 98.75 98.75 98.75 98.75

Reserves and Surplus 1771.52 2313.73 3108.62 3995.86

Net worth (a) 1870.27 2412.48 3207.37 4094.61

Non-Current Liabilities:

Long-term borrowings 913.00 1355.34 1761.94 2149.57

Deferred Tax Liabilities [Net] 149.00 261.02 347.16 420.06

Long term liabilities (b) 1062.00 1616.36 2109.10 2569.63

Current Liabilities:

Short-term borrowings 619.23 653.03 685.68 719.97

Trade Payables 88.78 156.30 223.51 290.56

Other Current Liabilities 265.66 444.76 591.53 727.58

Short Term Provisions 139.73 186.07 230.73 276.87

Current Liabilities © 1113.40 1440.16 1731.45 2014.98

Total (a+b+c) 4045.67 5469.00 7047.91 8679.23

ASSETS:

Non-Current Assets:

Fixed Assets:

Tangible Assets 1405.47 2868.25 3986.05 5120.16

Intangible Assets 37.72 33.09 33.75 34.43

Capital work-in-progress 567.44 140.48 144.69 149.04

(d) 2010.63 3041.82 4164.50 5303.62

Current Assets:

Current Investments 78.98 127.72 172.42 225.87

Inventories 430.22 546.43 672.11 806.53

Trade Receivables 856.80 1131.95 1437.58 1739.47

Cash and Bank Balances 319.53 337.70 359.65 388.42

Short Term Loans and Advances 349.02 282.17 239.84 213.46

Other Current Assets 0.49 1.21 1.82 1.85

(e) 2035.04 2427.18 2883.42 3375.61

Total (d+e) 4045.67 5469.00 7047.91 8679.23

Annual Profit & Loss Statement for the period of 2012 to 2015E

Value(Rs.in.mn) FY12 FY13 FY14E FY15E

Description 12m 12m 12m 12m

Net Sales 4474.61 5529.15 6413.81 7183.47

Other Income 28.32 37.64 42.91 46.34

Total Income 4502.93 5566.79 6456.72 7229.81

Expenditure -3524.65 -4325.85 -5015.60 -5613.88

Operating Profit 978.28 1240.94 1441.12 1615.93

Interest -91.88 -115.38 -132.69 -149.94

Gross profit 886.40 1125.56 1308.43 1465.99

Depreciation -70.37 -99.49 -119.39 -140.16

Profit Before Tax 816.03 1026.07 1189.05 1325.83

Tax -267.97 -339.43 -394.17 -438.59

Net Profit 548.06 686.64 794.88 887.25

Equity capital 98.75 98.75 98.75 98.75

Reserves 1771.52 2313.74 3108.62 3995.86

Face value 2.00 2.00 2.00 2.00

EPS 11.10 13.91 16.10 17.97

Quarterly Profit & Loss Statement for the period of 30 SEP, 2012 to 30 JUNE, 2013E

Value(Rs.in.mn) 30-Sep-12 31-Dec-12 31-Mar-13 30-June-13E

Description 3m 3m 3m 3m

Net sales 1354.80 1418.27 1657.35 1441.89

Other income 9.96 10.31 10.03 10.83

Total Income 1364.76 1428.58 1667.38 1452.73

Expenditure -994.25 -1167.75 -1282.74 -1124.68

Operating profit 370.51 260.83 384.64 328.05

Interest -15.75 -52.79 -22.12 -24.33

Gross profit 354.76 208.04 362.52 303.72

Depreciation -23.79 -26.58 -27.12 -28.20

Profit Before Tax 330.97 181.46 335.40 275.51

Tax -107.32 -57.08 -120.70 -92.02

Net Profit 223.65 124.38 214.70 183.49

Equity capital 98.75 98.75 98.75 98.75

Face value 2.00 2.00 2.00 2.00

EPS 4.53 2.52 4.35 3.72

Ratio Analysis

Particulars FY12 FY13 FY14E FY15E

EPS (Rs.) 11.10 13.91 16.10 17.97

EBITDA Margin (%) 21.86% 22.44% 22.47% 22.50%

PBT Margin (%) 18.24% 18.56% 18.54% 18.46%

PAT Margin (%) 12.25% 12.42% 12.39% 12.35%

P/E Ratio (x) 10.05 8.02 6.93 6.20

ROE (%) 29.30% 28.46% 24.78% 21.67%

ROCE (%) 30.82% 30.32% 29.35% 27.84%

Debt Equity Ratio 0.82 0.83 0.66 0.54

EV/EBITDA (x) 6.87 5.78 5.03 4.54

Book Value (Rs.) 37.88 48.86 64.96 82.93

P/BV 2.94 2.28 1.72 1.34

Charts

Outlook and Conclusion

� At the current market price of Rs.111.50, the stock P/E ratio is at 6.93 x FY14E and 6.20 x FY15E

respectively.

� Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs.16.10 and

Rs.17.97 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 17% and 17% over 2012 to 2015E

respectively.

� On the basis of EV/EBITDA, the stock trades at 5.03 x for FY14E and 4.54 x for FY15E.

� Price to Book Value of the stock is expected to be at 1.72 x and 1.34 x respectively for FY14E and FY15E.

� We expect that the company surplus scenario is likely to continue for the next years, will keep its growth

story in the coming quarters also. We recommend ‘BUY’ in this particular scrip with a target price of

Rs.123.00 for Medium to Long term investment.

Industry Overview

The chemical industry in India is poised for explosive growth in the coming years. India’s population has grown

nearly as large as that of China, with its consuming middle class accounting for about a third of its population.

The chemical industry, which includes basic chemicals and its products, petrochemicals, fertilizers, paints &

varnishes, gases, soaps, perfumes & toiletries and pharmaceuticals is one of the most diversified of all industrial

sectors covering thousands of commercial products. It plays an important role in the overall development of the

Indian economy. It contributes about 3% in the GDP of the country.

In the Chemical Sector, 100 percent FDI is permissible. Manufacture of most chemical products inter-alia

covering organic/ inorganic, dyestuffs and pesticides is delicensed.

Specialty chemical industry

Specialty chemical industry is a knowledge driven industry. In India it has been growing rapidly at 1.2-1.3x of

GDP growth rate (~12%) over the last five years and currently stands at ~$21.5 Billion. Indian specialty

chemical manufacturers have strong presence in export market also. API and colorants (including dyes and

pigments) are the key export oriented products. India exports specialty chemicals to nearby Asia-Pacific

countries which don't have competitive scale of productions. India also exports to developed countries of Europe

and USA where it leverages its low cost of production and quality talent pool.

The key specialty segments in India are agrochemicals, paints coating and construction chemicals, colorants,

Active Pharmaceutical Ingredients (APIs), personal care chemicals and flavors & fragrances.

Specialty chemicals are defined as a "group of relatively high value, low volume chemicals known for their end

use applications and/ or performance enhancing properties."

Market Size

Indian chemical industry is rapidly growing industry and is estimated at ~$108 billion (as per CMIE 2010). Of

this the specialty chemicals account for ~20%, i.e. ~$21.5 billion ($17.7 billion of specialty chemicals and $3.8

billion of agrochemicals, APIs not included here).

Going ahead, the growth potential of the specialty chemicals consumption in India is strong and it is expected to

reach ~$ 45billion by FY17 ($38 billion for specialty chemicals and $6.5 billion for agrochemicals).

Growth Drivers

Specialty chemical industry growth typically follows the growth of these key end markets. For example, an

increasingly urbanized India (cities are likely to comprise 40% of the population by 2030) will double the

requirement for clean municipal water by 2020, and therefore significantly increase municipalities' usage of

water treatment chemicals to treat/recycle waste water. Similarly, increased infrastructure spending by the

government (The XIIth Plan recommends USD 1 trillion investment in development of roads, ports, power and

telecom) accompanied by growth in the real-estate industry, could result in over 15 % p.a. growth in the

construction chemicals and coatings segment.

Growth projections

The market size of specialty chemicals in India has the potential to reach $80- $100 billion by FY21. The base

case growth rate is expected to be higher than the XIIth five year plan targets with an expected growth of ~15%

p.a. And the optimistic case is likely to achieve a growth of ~18% p.a. over the next decade.

Exports

India exports significant proportion of its production of specialty chemicals and API. During April-February

2011, exports of chemicals increased 22 per cent to US$ 7.5 billion. India has emerged as an exporter of dyes,

exporting dyes to Germany, U.K., U.S., Switzerland, Spain, Turkey, Singapore and Japan. The export of dyes is

expected to increase from US$ 1.5 billion in 2005–06 to US$ 2.6 billion in 2020.

Colorants (dyes and pigments) form the bulk of the export of specialty chemicals. Agrochemicals export is also on

the rise and major destinations for agrochemical exports are US, UK, France, Netherlands, Spain, Belgium and

Asia-pacific countries. API exports from India are into both regulated and semi regulated markets spanning

across the world.

Government Initiatives

• The government has removed licencing requirements, except for hazardous chemicals and a few special

drugs

• Entrepreneurs are allowed to set up chemicals industries following the Industrial Entrepreneurs’

Memorandum (IEM) route

• Under the automatic route, 100 per cent FDI is allowed for all chemicals except hazardous ones. Customs

duty

• The peak rate of customs duty on most chemicals is 7.5 per cent.

• The Petroleum Chemical Petrochemical Investment Regions (PCPIR) Policy has been introduced to boost the

development of chemicals and petrochemicals investment regions

• Plans are underway to set up port-based chemicals parks in SEZs to encourage clustering, provide

infrastructure and enable tax concessions

• Downstream SEZs have been planned to use the output of chemicals parks

• The newly approved PCPIR for Tamil Nadu, set up at Cuddalore and Nagapattinam, has received government

support of US$ 1.1 billion.

• PCPIR is a scheme launched by the Ministry of Chemicals and Fertilizers wherein the authority approved

investments of about US$ 34 billion in three states- Gujarat, Andhra Pradesh and West Bengal

• The Government of India also plans to establish port-based chemical parks in special economic zones (SEZs).

Road Ahead

In recent times the production of specialty chemicals have slowly shifted from developed countries to

manufacturing competitive countries of India, China, and Taiwan etc. It is imperative for India to maintain its

manufacturing competitiveness as well as for Indian manufacturers to keep pace with the product/ process

innovation cycles to build its presence in global specialty chemicals industry.

The focus of Indian specialty chemical manufacturers could be on eco-friendly products and in alignment with

stringent regulations. Segments like colorants, flavors & fragrances etc. have strong presence of unorganized

players and the market is expected to observe consolidation in these segments. Export market scenarios may

change with time and create new geographic opportunities to enter.

Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale

of any financial instrument or as an official confirmation of any transaction. The information contained herein is

from publicly available data or other sources believed to be reliable but do not represent that it is accurate or

complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s affiliates shall

not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the

information contained in this report. This document is provide for assistance only and is not intended to be and must

not alone be taken as the basis for an investment decision.

Firstcall India Equity Research: Email – info@firstcallindia.com

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