Emkay Global Financial is bullish on Vinati Organics has recommended buy rating on the stock with a target price of Rs 1206 in its research report dated September 04, 2020.
Emkay Global Financial's report on Vinati Organics
VO has announced capex of Rs1.5bn to produce four new specialty chemical products for Agrochemicals, Dyes and Plastic additives industries and expand its Para-Tertiary-Butyl Benzoic Acid (PTBBA) capacity. Management expects revenue contribution of Rs2.4bn (1.6x asset t/o) at its peak level. Capex is expected to complete by FY21-end. All four products are directed to the export market as there is no demand in the domestic market. The strategy of introducing new products looks encouraging in the current scenario where VO’s key product ATBS (60% of FY20 revenue) is struggling to find demand. Covid-19 has dented demand for ATBS and resulted in a slower-than-expected ramp-up of the newly-commissioned Butylated Phenol (BP) plant. However, recovery in IBB volume and better growth in IB derivatives should mitigate such bumps.
Outlook
We expect benefits of the ramp-up in BP and incremental revenue from new products to result in a 20% sales CAGR in FY20-23. We raise FY22/23E EPS by 2.7/7.7% on capex plans. We roll forward valuations to Sept’22 with a TP of Rs1,206 (28x Sept’22E EPS) and upgrade to Buy from Hold, with EW in EAP.
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