Vinati Organics Limited — Q3 FY24 earnings call

Call held 12 Feb 2024

Management summary

Vinati Organics reported a resilient Q3 FY24, characterized by margin expansion despite a slight sequential revenue dip, primarily due to the successful amalgamation with Veeral Additives. Management signaled the end of the global de-stocking phase in its core ATBS segment and is pivoting towards aggressive growth in antioxidants and new specialty chemical niches. The company is maintaining a heavy capex cycle to double its revenue over the next 4-5 years while sustaining healthy 25-27% EBITDA margins.

Highlights

  • Total Income for Q3 FY24 stood at ₹457 crores on a merged basis, a 4% decline QoQ.

  • EBITDA increased by 7% QoQ to ₹124 crores, with margins expanding from 24% to 27%.

  • Profit After Tax (PAT) rose 6% QoQ to ₹77 crores.

  • ATBS expansion to 60,000 MT is on track for completion by December 2024.

  • Antioxidant revenue target set at ₹250 crores for FY25, doubling from FY24 levels.

  • Management expects a 15% to 20% revenue CAGR over the next three years.

  • New MEHQ & Guaiacol plant (VOPL) expected to be commissioned by March 2024.

  • Company remains debt-free with no long-term debt or working capital loans.

Key financials

  1. Revenue ₹457 Cr -4%QoQ
  2. EBITDA ₹124 Cr +7%QoQ
  3. EBITDA Margin 27%
  4. PAT ₹77 Cr +6%QoQ

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 Revenue Mix (Q3 FY24)
    30% ATBS20% IBB20% Butylphenols & IB Derivatives10% Isobutylene20% Antioxidants & Others

Guidance & targets

Revenue

  • Revenue CAGR Revenue · next 3 years · Medium confidence 15% to 20%
    We expect our revenue to have about 15% to 20% CAGR over the next three years.

    — Vinati Saraf Mutreja, MD & CEO

  • Total Revenue Revenue · 4-5 years · Medium confidence ₹3,000 crores
    Yes, that will take us to INR3,000 crores, right? In 4-5 years.

    — Vinati Saraf Mutreja, MD & CEO

  • Antioxidant Revenue Revenue · FY25 · High confidence ₹250 crores

    From ₹120 crores today

    Then, next year I expect this revenue to double from INR120 to about INR250 crores.

    — Vinati Saraf Mutreja, MD & CEO

Margin

  • EBITDA Margin Margin · long-term · High confidence 25% to 27%

    Previously 30% → 25% to 27%

    I think on a blended level, EBITDA margins of 25% to 27% is what is sustainable.

    — Vinati Saraf Mutreja, MD & CEO

Capacity

  • ATBS Capacity Capacity · December 2024 · High confidence 60,000 tonnes

    From 40,000 tonnes today

    No, no. It's 40,000 tonnes. Then, after the expansion in December, it will become 60,000.

    — Vinati Saraf Mutreja, MD & CEO

Capex

  • FY25 Capex Capex · FY25 · High confidence ₹450-500 crores
    That will be another INR450 crores to INR500 crores. Because that will include the balance on the previous expansion as well as the VOPL project.

    — Vinati Saraf Mutreja, MD & CEO

Risks & concerns

  • Global Antioxidant Market Weakness

    medium

    The antioxidant market worldwide has seen demand weakness for 15-18 months, leading to low capacity utilization (currently 25%).

    Management acknowledged

  • Raw Material Price Volatility

    medium

    Margins are sensitive to input prices; low raw material prices inflate margins, while high prices compress them.

    Management acknowledged

  • Project Commissioning Delays

    low

    ATBS expansion was delayed due to market conditions, and some VOPL projects face longer lead times for equipment.

    Analyst acknowledged

Areas of evasion (1)

  • Specific details on competitor capacity additions in ATBS were redirected to 'market research'.

Q&A highlights

3 direct
Gross Margin Impact Post-Amalgamation Direct
Prior to the merger... this INR300 crores was booked as a loan... So, that entire amount of INR32 crores gets knocked off in the last two years of interest income... Secondly, the depreciation... is also adding to about INR15 crores per year.

Explains why the merger initially appeared margin-dilutive due to the loss of interest income and increased depreciation, despite operational synergies.

Asked by Surya Patra

New Project ROI and Margin Profile Direct
The total capex for these projects is about INR480 crores... I expect ROI to be in the range of 15% to 20%... one can assume again a blended margin of around 20% or so.

Provides clear financial expectations for the upcoming VOPL projects (MEHQ, Guaiacol, etc.), which are key to the company's diversification strategy.

Asked by Abhijit Akella

ATBS Pricing and Market Dynamics Direct
I don't think the price correction is as drastic as you are suggesting... The $3.8 of ATBS... was increased RMC prices, increased freight costs. All this has come down... I would say the ATBS price now is... in the range of 3.2-3.3.

Clarifies that the perceived price drop in ATBS is largely a pass-through of lower raw material and freight costs, rather than a loss of pricing power or competitive pressure.

Asked by Priyank Chheda

2 min read 5 chapters

Detailed narrative

Amalgamation with Veeral Additives

The NCLT sanctioned the merger with Veeral Additives Private Limited (VAPL) effective April 1, 2021. This led to a restatement of financials, showing a Q3 FY24 total income of ₹457 crores. While the merger initially impacted margins due to the elimination of ₹32 crores in annual interest income and an additional ₹15 crores in depreciation, management expects it to become 'value-attractive' within six months as capacity utilization improves from the current 25%.

ATBS Recovery and Expansion

Management believes the global de-stocking effect in ATBS is nearly over, with sales picking up in February 2024. The company is expanding ATBS capacity from 40,000 MT to 60,000 MT, with commissioning expected by December 2024. For FY25, management anticipates ATBS volumes to be at least 30% higher than FY24 levels, supported by long-term contracts and a 65% global market share.

Antioxidant Business Growth Trajectory

Despite a weak global market for antioxidants over the last 18 months, Vinati Organics expects to double its revenue from this segment to ₹250 crores in FY25. The company's competitive advantage stems from double backward integration into butyl phenols and isobutylene. They aim to reach full capacity utilization of their 24,000 MT plant within 2-3 years, targeting both domestic (8,000 MT) and export (16,000 MT) markets.

VOPL and New Product Pipeline

The 100% subsidiary, Veeral Organics Private Limited (VOPL), is executing a ₹480 crore capex plan for niche specialty chemicals. The MEHQ and Guaiacol plant (2,000 MT and 1,000 MT respectively) is set for a March 2024 commissioning. Other products like isoamylene derivatives, 4-MAP, and Anisole are scheduled for the second half of FY25. These projects are expected to deliver a 15-20% ROI with a 1:1 asset turnover ratio.

Margin Sustainability and Pricing Strategy

Management clarified that the historical 30% EBITDA margins were 'golden periods' and not sustainable long-term. They have guided for a sustainable blended margin of 25% to 27%. Current margin improvements are attributed to declining raw material prices being passed through, while the company maintains its pricing power through long-term contracts and dominant market positions in core products like ATBS and IBB.

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