Motilal Oswal's research report on Vinati Organics
VO reported higher-than-estimated revenues (9% above our estimates) in 2QFY23. However, gross margin declined to 45% (down 50bp QoQ). EBITDA was in line, with EBITDAM at 26.2% (up 40bps QoQ). The company was, however, able to maintain its EBITDA/kg margin during the quarter (as per the management). The management is focusing on its already announced capacity expansion to 60ktpa from 40ktpa (expected commissioning in 3QFY24), while Ibuprofen demand also remains strong. Butyl Phenols segments has also come back well after a lackluster FY22 and the management expects a strong 2H for both IBB and BP.
Outlook
The stock has underperformed the Nifty-50 index by 10% over the last six months. A gradual ramp-up in expanded capacity over the next two years will drive growth for VO. We value the stock at 40x FY24E EPS to arrive at our TP of INR2,500. We reiterate our BUY rating on the stock.
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