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CARE reaffirms ratings of Vinati Organics Ltd

Posted On: 2021-10-12 16:49:32 (Time Zone: IST)


Credit Analysis & Research Ltd. (CARE) has reaffirmed the ratings assigned to the bank facilities of Vinati Organics Ltd as below:

- Long-term/Short-term Bank Facilities - Reaffirmed CARE AA; Stable / CARE A1+

- Short-term Bank Facilities - Reaffirmed CARE A1+

The ratings assigned to the bank facilities of Vinati Organics Limited (VOL) factor in its market leadership in its two key products, viz, in 2- Acrylamido 2 Methylpropane Sulfonic Acid (ATBS) and Isobutyl Benzene (IBB) in the global market. CARE Ratings believes that the competitive advantage of VOL in both its product segments is expected to sustain in medium term as the manufacturing processes are not easy to replicate and same acts as entry barrier for new entrants.

The ratings also factor in the marginal decline in sales reported by VOL in FY21 (refers to the period April 1 to March 31) on the back of muted demand for ATBS (contributing to around 40% of the total sales for VOL). While revenue from ATBS declined by 36% in FY21 on a YoY basis, revenue from IBB increased by 22% over the same period. Furthermore, during the year FY21, VOL commenced commercial production of a new product, viz., butyl phenol, which contributed to the total revenue of the company. Q1FY22 saw revival in demand in the ATBS segment which led to the company reporting highest-ever quarterly revenue. Furthermore, improved demand for butyl phenols also supported revenue growth in Q1FY22. VOL is currently undertaking capex of around Rs.200 crore (around Rs.110 crore in VOL and around Rs.90 crore in Veeral Organics Private Limited (VOPL; 100% subsidiary of VOL) which will enable it to manufacture additional derivates of isobutylene (IB). As such, future revenue growth will be supported by increasing demand for ATBS and butyl phenols and incremental revenue from new IB derivatives.

The operating margins for VOL have declined in FY21 and Q1FY22 owing to rising raw material cost, increased freight costs as well as change in product mix. While rising input costs are passed on to the customers with a lag, the overall operating margins are expected to be lower than historical levels, albeit at healthy levels owing to increasing share of butyl phenols in the sales mix.

The ratings continue to derive strength from the long-track record and experience of the promoters in the speciality organic chemical industry. VOL continues to benefit from the long-term relationship with established and reputed clientele across various geographies. Backward integrated manufacturing process with zero discharge along with VOL's cost-efficient operations acts as an entry barrier for new entrants. Furthermore, the rating derives strength from healthy cash flows from operations, favourable capital structure along with strong liquidity and debt coverage indicators.

The ratings continue to be tempered by the concentration of its total operating income from limited key products and susceptibility of VOL's operating margin to raw material price/foreign exchange fluctuations.

Shares of Vinati Organics Limited was last trading in BSE at Rs. 2034.20 as compared to the previous close of Rs. 2077.80. The total number of shares traded during the day was 4007 in over 1033 trades.

The stock hit an intraday high of Rs. 2087.35 and intraday low of 2021.10. The net turnover during the day was Rs. 8214547.00.


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