Vinati Organics Limited — Q1 FY25 earnings call

Call held 19 Aug 2024

Management summary

Vinati Organics delivered a strong YoY performance in Q1 FY25 despite sequential margin pressure from rising raw material costs and logistics delays. The company is currently 'sold out' in its flagship ATBS segment, with new capacity slated for FY26. Management remains highly confident in a 20% growth trajectory, backed by a massive ₹800 crore total capex program across ATBS and its niche specialty chemical subsidiary, Veeral Organics.

Highlights

  • Net income grew 19% YoY to ₹533.98 crores, driven by robust demand in the ATBS segment.

  • PAT increased 24% YoY to ₹86 crores, while EBIT rose 23% to ₹114.8 crores.

  • Management guided for a 20% revenue CAGR over the next three years.

  • Sustainable EBITDA margins are expected to normalize between 26% and 27% from Q2 onwards.

  • Total FY25 capex is projected at ₹570 crores, covering ATBS expansion and the VOPL subsidiary.

  • High-grade ATBS now accounts for over 70% of the product's total volume.

  • Antioxidant (AO) sales are targeted to reach ~50% capacity utilization by the end of FY25.

  • Meaningful revenue contributions from the new MEHQ plant are expected starting in FY26.

Key financials

  1. Revenue ₹533.98 Cr +19%YoY
  2. EBIT ₹114.8 Cr +23%YoY
  3. PAT ₹86 Cr +24%YoY
  4. Sustainable EBITDA Margin 26.5%

What they filed

Q1 FY27: revenue up 28.4%, net profit up 4.8% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue553 522 648 542 550 −1%531 +2%604 −7%696 +28%
EBITDA134 142 180 160 167 +25%157 +11%170 −6%170 +6%
Net profit104 94 123 104 115 +11%101 +7%124 +1%109 +5%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Segment breakdown

  • Product-wise Revenue Share
    33% ATBS21% Butylphenol & IB Derivatives15% IBB12% IB & HPMTBE8% Antioxidants (AO)4% Customized Products

Guidance & targets

Revenue

  • Revenue CAGR Revenue · next 3 years · High confidence 20%
    We have basically guided for a 20% CAGR over a period of three years.

    — Kaviraj Devaraj, VP Corporate Finance

  • MEHQ Revenue Contribution Revenue · FY26 · High confidence Meaningful
    meaningful revenue contributions one should start expecting only from FY '26 onwards. Whatever sales that will happen is very meagre numbers as far as FY '25 is concerned.

    — Kaviraj Devaraj, VP Corporate Finance

Margin

  • EBITDA Margin Margin · sustainable basis · High confidence 26% to 27%
    I think one can expect normalized EBITDA margins of 26% to 27% on a sustainable basis.

    — Vinati Saraf Mutreja, MD & CEO

Capex

  • FY25 Capex Spend Capex · FY25 · High confidence ₹570 crores

    Previously ₹550 crores → ₹570 crores

    The overall capex to be spent in FY '25 would be approximately INR570 crores. This includes VOPL.

    — Kaviraj Devaraj, VP Corporate Finance

Capacity

  • Antioxidant Capacity Utilization Capacity · FY25 · Medium confidence 50%
    as far as 50% capacity utilization, yes, for FY25 I think we should be coming closer to that one year.

    — Kaviraj Devaraj, VP Corporate Finance

Risks & concerns

  • Logistics and Supply Chain Disruptions

    medium

    Increased lead times and tanker unavailability caused inventory to remain in transit during Q1.

    Management acknowledged

  • Raw Material Price Volatility

    medium

    Q1 margins were hit by RM price increases, though management notes these are typically passed through in contracts.

    Management acknowledged

  • Rising Energy Costs

    low

    Electricity unit prices rose by ~10% and coal prices also saw an uptick, partially offsetting renewable energy benefits.

    Both acknowledged

  • Stagnant IBB Demand

    low

    Management admitted IBB demand 'remains just as is' due to a languishing API industry.

    Analyst acknowledged

Areas of evasion (1)

  • Specific timeline for R&D-stage niche antioxidants was not provided.

Q&A highlights

3 direct
Sequential Margin Correction Direct
The raw material prices increased during Q1... there were a lot of logistics issues... unavailability of tankers. So we had a lot of inventory in transit, which actually reflect a sale in Q2.

Explains the temporary dip in margins and confirms that delayed sales will catch up in the subsequent quarter.

Asked by Surya Patra, PhillipCapital

ATBS Demand and Product Mix Direct
70% and 70% more than 70% is the high-grade ATBS because that is essentially what is being now asked by the customers.

Reveals a significant shift toward high-grade products which, while costlier to produce, are essential for maintaining market leadership and driving the need for capacity expansion.

Asked by Tejas Sonawane, Asian Market Securities

MEHQ Market Strategy and Sampling Direct
The main demand is in China for MEHQ... It is mostly exports, yes. We have started sampling through traders, which will be used in export sales.

Identifies China as the primary target market for the new MEHQ capacity, highlighting the company's export-oriented growth strategy for new products.

Asked by Abhijit Akela, Kotak Securities

2 min read 5 chapters

Detailed narrative

ATBS Capacity Constraints and High-Grade Shift

Vinati Organics is currently facing capacity constraints in its flagship ATBS segment, which contributes 33% of revenue. Management noted they are 'sold out' as demand for high-grade ATBS, which now makes up over 70% of volumes, continues to outpace supply. To address this, an expansion project is underway, with commissioning expected in the second half of FY25 and meaningful revenue contributions starting in FY26.

Margin Normalization and Logistics Headwinds

Q1 FY25 margins were temporarily suppressed due to a combination of rising raw material costs and logistics bottlenecks, including tanker unavailability. This resulted in higher inventory in transit, which management expects to convert into sales in Q2. Sustainable EBITDA margins are guided at 26-27%, supported by the return of high-margin customized product campaigns typically seen in Q3 and Q4.

Veeral Organics (VOPL) and MEHQ Commercialization

The company's 100% owned subsidiary, VOPL, is a key pillar of its growth strategy with a ₹500 crore capex plan. The MEHQ plant is currently on stream and undergoing sampling and yield optimization. While FY25 will see 'meagre' sales from this unit, management expects it to be a significant revenue driver from FY26 onwards, primarily targeting the Chinese export market.

Antioxidant Business Ramp-up

Despite a weak global demand environment for antioxidants, Vinati is seeing growth in its AO sales, which reached approximately ₹130 crores in FY24. The company aims to reach 50% capacity utilization by the end of FY25. Furthermore, the R&D pipeline is focused on adding niche antioxidants to the portfolio, which will further diversify the segment's offerings.

Capex Intensity and Financial Prudence

The company is in the midst of a heavy investment phase, with a total capex of ₹800 crores (₹300cr for ATBS and ₹500cr for VOPL), of which ₹300cr has already been spent. FY25 capex is pegged at ₹570 crores. Despite this high spend, management reiterated its commitment to a zero-debt policy and a 20% dividend payout ratio, funded by internal accruals and prudent financial management.

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