Motilal Oswal has given Buy recommendation for Vinati Organics recommended buy rating on the stock with a target price of Rs 2379 in its researc with a target price of Rs. 2379 in its research report issued on May 16, 2022

Motilal Oswal’s research report on Vinati Organics

VO reported a beat on our EBITDA estimate, with gross margin in line at 46% (-300bp QoQ). Revenue was above our estimate in 4QFY22, with EBITDAM at 28.6% (+340bp QoQ). The management has guided at a sales growth of 25-30% YoY each in FY23 and FY24, led by the commissioning of an antioxidant plant and foray into niche chemicals through Veeral Organics (an Agrochemical intermediate). It plans to commission Veeral Additives soon and ramp it up to full utilization in three years. We expect margin to be better going forward, with EBITDAM at 29%/31% in FY23/FY24. This will be driven by a captive power plant, decline in raw material cost, as well as the commissioning of higher-margin downstream products. Our revenue growth estimate of 66% was in line with the 69% growth it achieved in FY22. We forecast a revenue CAGR of ~27% over FY22-24, translating in an EBITDA/EPS CAGR of 35%/33% over the same period.

Outlook

The stock has underperformed in the last six months on the back of margin dilution concerns. A gradual ramp-up in expanded capacity over the next three years will drive growth for VO. We value VO at 40x FY24E EPS to arrive at our TP of INR2,379/share. We maintain our Buy rating.

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