Vinati Organics: Buy over a period of 9-12 months

CD Equisearch Pvt Ltd | June 11, 2018, 5:49 p.m.

The stock currently trades at 27.8x FY19e EPS of Rs 34.27 and 23.6x FY2oe EPS of Rs 40.29. VOL manufactures niche speciality chemicals with an integrated business model and attempts to offer highest purity levels globally. However, these factors unmask the company to product concentration risk (75% of revenues come from sales of ATBS and IBB). In an attempt to overcome this challenge, the company is undertaking capital expenditure of nearly Rs 900 crs over the next two and a half years, to widen its product portfolio and ensure sustained future growth. Buttressed by pipeline of new products and sturdy demand off take from its existing products, especially ATBS, we expect revenues to grow in excess of 20% in the next two fiscals. Yet, overreliance on exports (more than two-third of the company’s revenues) and volatility in crude oil prices could increase risk premium. On balance, we advice buying the stock with target of Rs 1209 (previous target: Rs 1058) based on 3ox FY2oe earnings (two year average TTM P/ E is 30) over a period of 9-12 months.



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