Vinati Organics Q2 Results Review - Destocking Weighs On Earnings; Long-Term Guidance Intact: Motilal Oswal

Motilal Oswal Report

Veeral Organics Pvt. Ltd. (a wholly owned subsidiary of Vinati Organics Ltd.) is set to commence production of MEHQ, Guaiacol, Anisole, and Iso Amylene. The capacity for MEHQ and Guaiacol is expected to be 3 kilo tonnes per annum, with the anisole capacity to be five ktpa; the same for Iso Amylene is expected to be 30 ktpa. This should propel Veeral Organics into the next leg of its growth story.

Veeral Additives Ltd. has commenced the commercial supply of antioxidants. Veeral Organics has received in principle approval for its amalgamation with Veeral Additives from the National Company Law Tribunal, and management expects the revenue to reflect in Veeral Organics from next quarter onwards on a consolidated basis.

Veeral Organics is set to become the largest and the only double integrated manufacturer of AOs in India.

Barring the short-term pain in terms of destocking, we continue to believe that this is one stock in the sector that will continue to do well.

The stock is trading at ~34 times FY25E earning per share of Rs 51.2 and ~26 times FY25E enterprise value/Ebitda. It had a fixed asset turnover of 2.4 times as of FY23.

We value the company at 40 times FY25E earning per share to arrive at our target price of Rs 2,050. We reiterate our 'Buy' rating on the stock.

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