Banking on Specialty Chemicals - Rebase of Supply Chain - 1st October, 2021
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Banking on Specialty Chemicals -
Rebase of Supply Chain
1st October, 2021
Strategic Forces Supporting Sector Growth
• Improving products and usage intensity:
India is witnessing transition in the economy with the rise in consumption of specialty and fine chemicals. With focus on improving products and usage
intensity of specialty chemicals, we believe it has the opportunity to climb the supply chain ladder and thus the industry is poised for strong growth in India.
• Economies of scope – Multiple uses in end user industries:
Specialty chemicals industry is not much about economies of scale (like in case of commodity chemicals), but about economies of scope as same product
(specialty chemical) can be used for numerous applications. Major cost centre in the industry is not feedstock or raw material, but product development and
marketing activities.
• Demographic advantage:
India stands out as far as demography and availability of technical man-power is concerned. Specialty chemicals industry, stands to gain rich dividend from
this. The critical success factor for the industry is its capability to provide product/application development at a favourable price-performance ratio.
• Valuation and view:
Indian specialty chemical industry over the past one year has seen re-rating overall. The companies have incurred a lot of capex (nearly doubled over last 5
years) in line with increasing market opportunities. The industry dynamics has changed with its shift towards continuous R&D, improving demand from the
end user industries, China +1 strategy, Push from Indian government in the form of incentive schemes and strong demand from global players for its
products.
Our top picks from the specialty chemicals basket includes:
Coverage Stocks Recommendation CMP Target Upside
Navin Fluorine Ltd - Strong Pipeline of newer opportunities BUY 3,713 4,494 21.0%
Vinati Organics Ltd - Portfolio transformation – Next phase of Growth BUY 1,928 2,349 21.8%
Gujarat Fluorochemical Ltd - Better Chemistry, Sustainable tomorrow ACCUMULATE 1,954 2,201 12.6%
Laxmi Organic Industries Ltd - Venture into fluorospecialty augurs well for margin expansion ACCUMULATE 542 620 14.4%
Balaji Amines Ltd - Play on import substitution in duopolistic market BUY 4,551 5,674 24.7%
Rossari Biotech Ltd - Emphasis on owned chemistries - identifying opportunities ACCUMULATE 1,442 1,612 11.8%
Tatva Chintan Pharma Chem Ltd - A prominent player well positioned in global market ACCUMULATE 2,150 2,379 10.7%
KRChoksey Research
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Thomson Reuters, Factset and Capital IQTable of Contents
Index Page No.
Indian Specialty Chemicals - Fastest Growing Market 5
Specialty Chemicals Gaining Prominence In Global Chemical Industry 6
China’s Manufacturing Disruption – An Opportunity For Indian Specialty Sector – ‘China+1 Strategy’ 7
Indian Specialty Chemicals – Segments & Key Usage 8
Specialty Chemicals – End User Industry Demand Drivers 9 – 10
Specialty Chemicals – End-Use Segment Analysis 11
India Government Policy Interventions – A Shot In The Arm 12
Capacity Expansion Plays A Major Role In Sector Growth 13
Future Outlook Of Indian Specialty Chemical Sector 14
Coverage Initiation - Specialty Chemicals Companies 15
i) Navin Fluorine International Limited 16
ii) Vinati Organics Limited 22
iii) Gujarat Fluorochemicals Limited 28
iv) Laxmi Organic Industries Limited 34
v) Balaji Amines Limited 40
vi) Rossari Biotech Limited 46
vii) Tatva Chintan Pharma Chem Limited 53
Peer Comparison 59
KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
is also available on Bloomberg KRCS
Thomson Reuters, Factset and Capital IQ
www.krchoksey.com
3Research contributions:
Parvati Rai
Research Head
Email: head-research@krchoksey.com; Ph no +91-22-6696 5413
Kushal Shah
Research Analyst
Email: research3@krchoksey.com; Ph no +91-22-6696 5555
Priyanka Baliga
Research Analyst
Email: priyanka.baliga@krchoksey.com; Ph no +91-22-6696 5408
KRChoksey Research
is also available on Bloomberg KRCS
Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
www.krchoksey.com 4
Thomson Reuters, Factset and Capital IQIndian Specialty Chemicals - Fastest Growing Market
Fastest growing India’s specialty chemicals industry to uphold the momentum
• The global chemicals market stood at ~USD 4.9 trillion in 2020 of which specialty chemicals constituted ~17% market share with the market size of ~USD
846.9 bn (Source: Arizton). India’s chemical market stood at ~USD 178 bn (~4% global market share) of which specialty chemicals market constituted
17% market share with ~USD 31.1 bn market size in FY20 (source: FICCI).
• India has grown at fastest pace of 11.7% in terms of value in last five years whereas global market has grown by ~5% during the same period. Over the
years, there has been a shift in chemical manufacturing operations from Europe and North America to Asia due to flexible government regulations and
low cost of labour. Globally specialty chemicals market is expected to grow at 5.6% CAGR during CY20-26E while Indian specialty chemicals market is
expected to observe a rapid growth of 9% during the same period (Source: Arizton).
• China had a dominant market share of 40.6% in 2019 and it has contributed half of the growth of the world chemical market over the past two decades.
However, increasing economic turbulence since mid-2018 had an impact on China’s GDP growth as well as strict environmental norms imposed by
government have impacted China’s chemical market growth.
Specialty Chemicals - Geographic Segmentation; India – expected to grow at 9% CAGR over FY20-26E
9.0%
6.4%
5.3% 4.8% 5.1% 4.7% 5.1%
4.5% 4.4% 4.2% 4.4% 4.3% 4.2%
3.7% 3.3% 3.7% 3.2%
211.6
152.5
97.1
59.2 56.6 55.8
31.1 30.1 27.6 26.1 23.6 17.8 16.0 11.7 8.6 7.8 7.0 6.8
South Africa
France
Japan
US
Canada
Mexico
Spain
China
India
Italy
UAE
Others
Brazil
Germany
South Korea
Netherlands
Belgium
Saudi Arabia
Market Size - 2020 CAGR (20-26E)
Source: Arizton
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Thomson Reuters, Factset and Capital IQSpecialty Chemicals Gaining Prominence in Global Chemical Industry
High value low volume products of specialty chemicals has gained prominence based on their quality
• A specialty chemical is formulated to provide functional benefits to a formulation or product. It includes common categories like construction chemicals,
elastomers, surfactants, polymers, cosmetic additives, adhesives, agrichemicals and textile auxiliaries. These chemicals are primarily used to provide a
specific attribute to a product.
• Rising demand in end user segments, advanced technology and rapid innovation has resulted into rising demand for specialty chemicals products.
• India ranks ninth in exports of global chemicals and chemical products (excluding pharmaceutical products) and these exports have grown at a CAGR of
7.2% between FY16-20. This was primarily on account of major share from specialty chemicals which accounted for more than 50% of chemical exports.
India is a net exporter, being a key supplier for a wide array of specialty chemicals for players across the globe.
• In India, Gujarat and Maharashtra have emerged as the most preferred manufacturing locations for leading specialty chemical companies on account of:
i) Close proximity to ports simplifies distribution process towards global markets, that facilitates better movement of raw materials and finished goods
ii) Abundant availability of skilled manpower
iii) Favorable government policies and regulations
iv) Presence of adequate infrastructure facilities with an active shift towards adoption of sustainable manufacturing methods, as ‘green’ chemicals /
‘sustainable chemistry’ has been rapidly evolving in India.
In Indian chemical market, revenue contribution from specialty chemical has increased from 18% in 2010 to 22% in 2020,
while exports have contributed more than 50% of total exports.
Indian Chemical Market by Sub-Segments in FY20 India’s Specialty Chemical Segment 2019- a Net Exporter
Others (biotech,
Bulk
pharma API & Petrochemical
others) Petrochemical chemicals Specialty
Bulk Chemicals Building
19% Intermediates (organics and Chemicals
25% Blocks
Inorganics)
Agrochemicals & Specialty
Fertilissers Chemicals
Self-sufficient Net Importer Net Importer Net Exporter
15% 22%
Petrochemicals
19%
Source: FICCI, KRChoksey Research Source: FICCI, Avendus Capital, KRChoksey Research
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Thomson Reuters, Factset and Capital IQChina’s Manufacturing Disruption – An Opportunity for Indian Specialty
Sector – ‘China +1 Strategy’
• Over the last three decades, China has emerged as the most dominant player in the $4-trillion global chemicals industry, with nearly 36 percent market
share. Lower labour costs, high subsidies (capital and export), and, more importantly, relaxed environmental norms were among the key factors that led
to this unparalleled success.
• However, many of these factors have proven to be unsustainable in the long run.
• China is losing ground on decreasing cost competitiveness.
• China’s specialty chemicals market has seen a downturn in recent years due to various factors. Major factors that have contributed to a slowdown in the
specialty chemicals market in China include:
Changing global trade dynamics: US–China trade war have also Labor costs of China's Zhejiang province (USD / year)
impacted the production growth in China. Its on select companies 13,000
and the expected impact of end-user industries convinced 10,330
companies to reduce dependence on China.
7,750
Stringent environmental norms: The Chinese government started
implementing stricter environmental protection norms from January 5,100
4,000
2015. Pollution in the river has reached dangerous levels with several
chemical manufacturers located near the river owing to proximity to
ports. Relocation of toxic manufacturing plants to dedicated
industrial parks, along with higher operational and capital costs,
CY2000 CY2005 CY2010 CY2015 CY2018
have hit the operations of Chinese chemical companies, resulting in
large supply-chain disruptions in the industry. Source: Contract Pharma
Rising Labour cost: The labour cost (hourly cost of compensation) in
China was lower than that of India till 2007. However the labour cost Solid waste treatment cost (USD per ton)
increased at faster rate than India post FY2005.
• Apart from rising labour costs, stricter implementation of pollution-control 1,200
measures and withdrawal of subsidies have eroded China's cost advantage.
• While large chemical plants may shift to dedicated zones, we believe that 800
the implementation of the above-mentioned policies by China will result in
an adverse cost structure, compared to other alternatives like India. 450
• The Chinese government's introduction of a green tax, based on the
quantity of solid waste produced in the manufacturing process, will 180 190
significantly reduce the profitability of Chinese manufacturers and
discourage new entrants.
• All these has led to global chemical companies seeking to diversify CY2000 CY2005 CY2010 CY2015 CY2018
procurement away from China (commonly known as 'China+1' strategy).
Source: Contract Pharma, CRISIL
KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
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Thomson Reuters, Factset and Capital IQIndian Specialty Chemicals – Segments & Key Usage
The Specialty Chemicals Industry can be subdivided into various segments like Agrochemicals, Dyes & Pigments, Surfactants, Specialty Polymers etc.
Growth prospects for some of these segments, notably nutraceutical ingredients, specialty polymers (high-performance and engineering thermoplastics),
and electronic chemicals are strong due to the positive outlook for the corresponding end-user industries. Segments such as nutraceuticals, cosmetic
chemicals, and flavors and fragrances owe their prospects to rising levels of disposable income in the developing world. Key usage for specialty chemicals
lies in agricultural field, which constitutes both usage in fertilizers as well as crop protection applications. Specialty chemicals also find usage in electronics,
automotive, aircrafts, other transportation modes and defence equipment, Housing and Consumer Goods applications.
Key Usage Areas of Specialty Chemicals Overall Impact on Indian Specialty Chemical Sub-Segments
COVID
Segment Key Factors
Impact
•Fertilisers
Agriculture Flavours & Surge in demand for flavors (packaged foods) as well as fragrances
•Crop protection applications Fragrance
Positive
(sanitizers and soaps) has benefited the segment
Personal Care Change in behavioral patterns resulting in an increased demand for
Positive
Chemicals hygiene products, such as sanitizers and soaps
•Electronics Nutraceutical Increased health awareness and strong preference for preventive care
Positive
Ingredients likely to drive demand for nutraceuticals
Polymers & •Automotive, Aircrafts & other
Additives transportation modes Increased demand for disinfectants, cleaning agents and detergents to
Surfactants Positive
•Defence Equipment support demand growth over near term
Largely insulated from COVID impact given limited disruption in
Agrochemicals Neutral
agricultural activity, and good monsoon outlook for the year
•Construction materials High demand from packaging segment, which is partially offset by lower
Polymer Additives Neutral
demand from automotive and industrial applications
Housing •Sealants, coatings, paints and
plastics Likely to benefit over the short-term from shutdown of dye intermediate
Dyes and Pigments Neutral
facilities in China
Adverse impact of decline in industrial activity to be partly offset by
Water Chemicals Neutral
increased demand for water disinfectants
•Perfumes
Consumer •Detergents Demand is likely to be muted over the near term given the headwinds in
Textile Chemicals Negative
Goods end-use market
•Textile
•Pharmaceuticals Construction Decline in construction activity negatively impacted the demand over the
Negative
Chemicals near term
Source: Industry, KRChoksey Research
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Thomson Reuters, Factset and Capital IQSpecialty Chemicals – End User Industry Demand Drivers (1/2)
• The specialty chemical market, especially in India, is expected to exhibit dynamic growth in the coming years.
• One of the leading factors driving the specialty chemicals market growth is the criticality of special compounds having applications in various industries.
• Continuous R&D by the highly fragmented small to medium scale companies in this market has facilitated development of products with optimum and
advanced features. This is one of the major factors that drives the growth of this market.
• Also rapid industrialization, noticeable demand from Asian countries such as India and China have arisen. There has been rise in investments in
construction and infrastructure development projects in Asia-Pacific. Therefore, Asia-Pacific is considered as a favourable destination for the specialty
chemical manufacturers; thereby, boosting the market growth.
• With it rising demand for Indian Specialty Chemicals is mainly fueled by growth in the end-user industries such as Agriculture, Pharmaceuticals, Food,
construction, electronics, dyes and pigments etc.
Agrochemical industry:
• Agrochemical is expected to account for around one-eight market share in this space.
• The Indian agrochemical market is expected to grow at 12% CAGR to reach USD 18.2 bn during CY21-CY25 vs. 6.6% CAGR growth anticipated in global agro-
chemicals market. This provides huge opportunity for India.
• Increase in population base along with rise in demand for food is further demanding agrochemicals for the better crop production and protection, which
further drives the growth of the specialty chemicals market during the forecast period.
• Furthermore, growing awareness among farmers toward the use of agrochemicals in farming fuels the growth of the market.
• With increase in urbanization and industrialization there is decrease in agriculture land, which leads to growth in demand for agrochemicals to increase
the crop yield per acre of land; thereby, driving the growth of the specialty chemicals market during the forecast period.
Pharmaceutical industry:
• India imported Active Pharma Ingredients (APIs) and Key Starting Materials (KSMs) worth approximately USD 3 bn, as per the trade statistics of 2019.
These APIs and KSMs account for over 60% of the total imports by pharmaceutical companies.
• Attractive investment opportunities exist in the domestic manufacturing of APIs and KSMs, fueled by lucrative incentives from the PLI Scheme of the
Government of India.
• India is the third largest API market in the Asia-Pacific region, and China is its main competitor. The overall outlook for API manufacturers has improved
due to lower supplies from Chinese companies. This is a big positive for companies in the Specialty Chemicals space that cater to the Pharmaceutical
industry, as higher API production domestically would mean higher demand of intermediate molecules.
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Thomson Reuters, Factset and Capital IQSpecialty Chemicals – End User Industry Demand Drivers (2/2)
Water treatment chemicals:
• According to UN-Water, nearly 80% of the wastewater generated is released into the environment without sufficient treatment. In such a scenario, the
employment of specialty formulations becomes all the more crucial, which in turn will favour this market.
• India imports account for over 90% of the total demand for water treatment membranes (ultrafiltration, reverse osmosis and nano filtration).
• Stringency in effluent discharge norms and policies related to chemical regulations offer opportunities for the development of advanced membranes and
specialty chemicals for industrial effluent treatment and zero liquid discharge.
• In addition, the demand for water treatment chemicals in Asia-Pacific region, especially in China and India, is increasing due to rise in need for potable
water in domestic and industrial applications because of increasing population.
• Thus the unprecedented increase in the use of water treatment chemicals will fuel the growth of the specialty chemicals industry in India.
Fluorochemical industry:
• The global Fluorochemicals market is expected to grow at 5% CAGR and touch USD 30 bn by CY25. The growth in the fluorochemicals market will help the
Indian companies to tap this huge market opportunities.
• India’s fluorochemical market has grown at 10% CAGR to reach USD 450 mn by CY20. The incremental usage of Fluorochemicals in Pharma and
Agrochemicals is likely to help it clock a growth of 14% CAGR to reach USD 880 mn by CY25.
Other industries:
• Improving standards of living in most of the developing countries, trade liberalization, growing demand for electronics, and advancements in process
technology are one of the other major factors that boost the growth of the specialty chemical industry.
• Rise in urbanization and industrialization in the country like India drives the demand for paints & coatings, which would further fuel the demand for
construction chemicals, which in turn would drive the specialty chemicals market in the coming years.
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Thomson Reuters, Factset and Capital IQSpecialty Chemicals – End-User Industry Analysis
Global Specialty Chemicals Market 2020 – Segmental Share
Water Personal Paint and
Agrochemical Dyes and Home Care Constructio Textile Flavour and Electronic Food
End User Industries Treatment Care Coating
and Fertilizer Pigments Ingredients n Chemicals Chemicals Frgrance Chemicals Additives
Chemicals Ingredients additives
Market Size 2020 ($bn) 216.8 112.28 107.3 86.26 74.86 78.92 35.2 39.4 27.6 25.01 13.11
Market Size 2026 ($bn) 314.32 157.42 139.84 119.7 107.54 106.61 47.78 55.68 37.15 32.15 16.72
CAGR % (2020-2026E) 6.39% 5.79% 4.51% 5.61% 6.22% 5.14% 5.23% 5.93% 5.08% 4.27% 4.13%
Segment Market Share 25.6% 13.3% 12.7% 10.2% 8.8% 9.3% 4.2% 4.7% 3.3% 3.0% 1.5%
Entry Barrier
Product Specification
Market Growth
Source: Arizton
Indian Specialty Chemicals Market 2019- Segmental Share
Flavours &
Dyes and Personal Care Textile Specialty Construction Water
End User Industries Agrochemical Surfactants Fragrances
Pigments Chemicals Chemicals Polymers Chemicals Chemicals
Nutraceutical
Market Size 2019 ($ bn) 9.2 7.0 1.0 2.0 1.8 1.3 1.4 2.4 0.8
Market Size 2025 ($ bn) 18.1 12.3 2.3 3.8 3.8 2.3 3.1 6.3 1.9
CAGR % (2019-2025E) 12.0% 10.0% 15.0% 11.0% 11.5% 10.0% 15.0% 17.1% 15.0%
Segment Market Share 29.3% 22.2% 7.1% 6.1% 6.1% 4.0% 4.0% 3.0% 3.0%
Entry Barrier
Product Specification
Market Growth
Source: FICCI High Medium Low
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Thomson Reuters, Factset and Capital IQIndia Government Policy Interventions – A Shot In the Arm
• Indian government has taken up various initiatives to promote the local specialty chemicals industry and to capture the market share lost by China due
to their ESH norms enforcement. India government recognizes chemical industry as a key growth element and expects it to contribute around 25% of
the GDP by FY25.
• In the budget of FY22, the government has allocated INR 233.14 Cr (USD 32.2 mn) for the department of Chemicals and petrochemicals. The
government has set a vision 2034 for Chemicals and petrochemicals industry, which will promote domestic production, reduce imports, and attract
investments in the sector. The government also permits 100% FDI under automatic route except in case of few hazardous chemicals. The government
has mandated BIS like certifications for imported chemicals to prevent dumping of cheap and substandard chemicals in the country.
• The Government has overhauled the previous PCPIR (Petroleum, Chemicals and Petrochemical Investment Regions) policy and is taking active steps to
make necessary amendments and speed up the completion of ongoing projects. With the Central Government taking over the lead role of a developer,
the concept of PCPIR is being redrawn to attract a combined investment of over USD 420 bn through the proposed new PCPIR policy that is set to be
implemented between FY2020–35.
• In order to reduce the dependency on imports and catalyse investments in greenfield projects for manufacturing APIs, KSMs and drug intermediates,
the Department of Pharmaceuticals, Ministry of Chemicals and Fertilisers, outlined the details of the Production Linked Incentive (PLI) Scheme in July
2020.
• With a project outlay of over worth USD 1 billion, financial incentives shall be provided for six consecutive years on the sales of 14 fermentation-based
APIs, 23 chemically synthesised APIs, and four KSMs at the following rates starting from FY22–23. The scheme has a direct impact on the chemical
industry as APIs are an integrated part of downstream chemicals.
• In addition to being approved for medical devices, the scheme has recently been extended to ten new sectors with a total outlay of USD 19.6 bn. The
chemical industry’s applications are spread across all these sectors, and they are expected to indirectly impact the increased consumption of polymers,
resins, fibers, bulk chemicals, paints, pigments, battery chemicals, food additives, etc.
• The growth in India’s domestic manufacturing sector and increased demand for environment friendly chemicals and products, pave the way for higher
demand for specialty chemicals.
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Thomson Reuters, Factset and Capital IQCapacity Expansion Plays a Major Role in Sector Growth
Various companies from specialty chemicals industry are heavily investing in scalability by expanding production capacities to cater captive demand in
domestic and international markets. These expansions are largely funded through recent IPO proceeds or internal accruals owing to healthy balance sheet
position while some may be funded through borrowings.
Capex
Company Purpose Place
(INR cr)
1,500 Two long term contract manufacturing projects NA
It includes –
• A range of product to be introduced in nitro toluene value chain
• Other value added and specialty chemical products
Aarti Industries Ltd
3,000 - 3,500 • Additional custom manufacturing opportunity being explored NA
• Setting up you UMPPs (Universal multi-purpose product plant)
• Expansion of existing pharma products
• Introduction of new pharma API and intermediates
Atul Ltd 1,500 Planned capacity expansion NA
Deepak Nitrite Ltd 400 – 600 IPA manufacturing plant expansion by 30 KTPA Dahej, Gujarat
Gujarat Fluorochemicals Ltd 300 – 350 6 new Fluoropolymers Dahej, Gujarat
Alkyl Amines Chemicals Ltd 300 – 350 Aliphatic Amines Kurkumbh and Patalganga, Maharashtra
Laxmi Organics Industries Ltd 300 Fluorospecialty site Lote Parshuram, Maharashtra
195 Multi-Purpose plant (new product portfolio) Dahej, Gujarat
Navin Fluorine International Ltd
436 High performance product Dahej, Gujarat
Fine Organic Industries Ltd 150 – 160 Expansion completed - total capacity expanded upto 111 KTPA Ambernath and Patalganga, Maharashtra
Tatva Chintan Pharma Chem Ltd 160 expansion of 200 KL and 14 assembly lines Dahej, Gujarat
Clean Science and Technology Ltd 100 – 110 Plant 13 - to expand performance chemicals production Kurkumbh, Maharashtra
Rossari Biotech Ltd 100 Greenfield expansion completed of 132,500 MTPA Dahej, Gujarat
Vinati Organics Ltd 90 Forward integration of existing product - Butyl Phenol (3 products) Mahad, Maharashtra
Balaji Amines Ltd 70-80 Greenfield project (Unit IV) - Acetonitrile Solapur, Maharashtra
Source: Company, KRChoksey Research
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Thomson Reuters, Factset and Capital IQFuture Outlook of Indian Specialty Chemical Sector
• India’s Specialty chemicals market is worth USD 31.1 bn at the end of 2020, and it is one of the largest exports segments of the chemicals and petro
chemicals industry of India. The specialty chemicals market is expected to grow at a CAGR of 9% during CY20-CY26E. The major drivers for the same are
domestic consumption, exports growth and policy push from Indian Government. Among all the APAC countries such as China, Japan, and South Korea,
India’s specialty market is expected to grow at the fastest pace when compared to China (6.4%), Japan (4.5%) and South Korea (4.4%).
• The phrase “China + 1” captures the strategy that many large manufacturers are following to increase the diversity and resiliency of their supply chains by
moving some Chinese-based sourcing to other countries.
• The Indian chemical industry is at the cusp of a structural growth, led by the shift in global supply from China, increase in outsourcing opportunities due
to global consolidation and domestic demand, fuelled by burgeoning consumption.
• Specialty chemicals consumption in the country is low compared with the global average. While all players in the chemical industry in India would benefit
from this shift, specialty chemical manufacturers will gain the most, given the higher entry barriers and potential for value-added niche products. This
provides enormous scope.
• This slowdown provides an opportunity to India to enhance its share in the global export market Growth of chemicals and specialty chemicals is
dependent upon growth in major end-user industries such as construction, textiles, automobiles and consumer durables. Going forward, specialty
chemicals is expected to register 12-13% CAGR over the next five years driven by the growth in the economy.
• There is a direct link between investments, innovation (measured by research and development, or R&D spend) and global competitiveness.
• Indian players can gain by updating product mix, launching new specialty chemicals and more R&D.
• Moreover, increasing availability of basic chemicals is likely to support further investments in the specialty chemicals segment.
• Many Indian companies have been investing in research and development (R&D), which is enabling them to move up the value chain and create multiple
growth opportunities.
• While Growth will be underpinned by stable regulations and active enforcement we believe it would provide a long runway of sustainable growth for the
industry.
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Thomson Reuters, Factset and Capital IQCoverage Initiation - Specialty Chemicals Industry
Strong Pipeline of newer Portfolio transformation – Next Better Chemistry, Sustainable
opportunities phase of Growth tomorrow
New venture into fluorospecialty Play on import substitution in Emphasis on owned chemistries -
augurs well for margin expansion duopolistic market identifying opportunities
A prominent player well
positioned in global market
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Thomson Reuters, Factset and Capital IQNavin Flourine International Ltd
Strong pipeline of newer opportunities
CMP Target Potential Upside Market Cap (INR Mn) Recommendation Sector
INR 3,713 INR 4,494 21.0% 1,84,250 BUY Specialty Chemicals
MARKET DATA
Navin Fluorine International Ltd. (NFIL) established in 1967 is one of largest manufacturer of speciality
Shares Outs (Mn) 50
fluorochemicals in India. NFIL belongs to the Padmanabh Mafatlal Group – one of India’s oldest industrial
Equity Cap (INR Mn) 99
houses. NFIL operates one of the largest integrated fluorochemicals complexes in India with manufacturing
Mkt Cap (INR Mn) 1,84,250 locations at Surat and Dahej in Western India and Dewas in Central India. NFIL is one of the few companies in
52 Wk H/L (INR) 4,212/1,957 fluorination chemistry with the experience, capability and expertise in scale up from research to pilot and
Volume Avg (3m K) 297.9
manufacturing. NFIL has its R&D centre located at Surat named as Navin Research Innovation Centre (NRIC).
Face Value (INR) 2
Overview of company’s business
Bloomberg Code NFIL IN Equity
Data as on 1st Oct 2021
SHARE PRICE PERFORMANCE
NFCIL
640
440
240
40
Mar-20
Mar-21
Sep-20
Sep-21
Mar-19
Sep-19
Sep-18
Legacy High Value
Business Business
NAVIN FLUORINE INT SENSEX
SHARE HOLDING PATTERN (%)
Particulars Jun-21 Mar-21 Dec-20
HPP (New
Inorganic Specialty
Promoters 30.21 30.22 30.51 Refrigerants CRAMS Business
Fluorides chemicals
FIIs 26.65 25.10 24.53 Vertical)
DIIs 15.18 15.82 16.88
Others 27.95 28.86 28.08
Source: Company Website
Total 100 100 100
Source: Bloomberg
KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
is also available on Bloomberg KRCS www.krchoksey.com
Thomson Reuters, Factset and Capital IQCustomer addition and commissioning of cGMP3 to support the CRAMS
business
• NFIL business strategy is on track to expand market presence in newer
• CRAMS offer custom chemical syntheses of fluorinated compounds for
geographies. It added new customers during the Q1FY22 which
the pharmaceuticals, agro chemicals and specialty chemicals industries.
includes few mid-sized biopharma companies.
• NFIL provides a comprehensive basket of services for developing new
• New customer development was seen across European and US region.
products, processes and novel technologies to its clients with complete
Overall segmental revenue nearly doubled during the Q1FY22 to INR 67
large scale manufacturing support ensuring stringent customer
Cr. Such robust performance was driven by repeat orders leading to
specifications and regulatory compliances.
better capacity utilisation.
• NFIL entered segment in 2011 and had a product portfolio of 2-3
• The business is positioned for sustainable growth on the back of a
compound with it.
strong enquiries and order flows from innovator global pharma majors.
• Its acquisition of majority stake (51%) in UK based company Manchester
• NFIL is also working on a strategy to debottleneck the CGMP3 facility
Organics Limited (MOL), gave NFIL mileage to its CRAMS business with
which is fully geared to deliver quantities required by life sciences, agro
access to catalogue of 12,700 compounds in 2011, which currently has
chemical and other specialty chemical industries for further growth.
catalogue of 50,000 compounds with it.
• Its ability to handle large projects and complex chemistry will improve
• CRAMS revenue contribution has grown from 5% in FY15 to 22% in FY21,
significantly, backed by long-term contract which was signed with one
which is mainly attributable to commissioning of cGMP2 in FY16,
large US customer in FY20, that should result in CRAMS business to
growth in European market.
report robust 22.1% CAGR from FY20 to FY23E.
cGMP3 to be next growth driver for the CRAMS Revenue growth to accelerate due to Capex programme
segment undertaken
21.06 25.51
55%
50%
45%
25% 4.86 7.28 14.8 42% 21%
10.61 11.76
2.68 3.35 9.95
7%
11% 26%
1.78 1.73 9%
-12% -3%
FY19 FY20 FY21 FY22E FY23E FY24E FY19 FY20 FY21 FY22E FY23E FY24E
CRAMS (INR Bn) Growth % Revenue (INR Bn) Growth %
Source: Company, KRChoksey Research Source: Company, KRChoksey Research
KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
is also available on Bloomberg KRCS www.krchoksey.com
Thomson Reuters, Factset and Capital IQDiversification and Expansion Plan to accelerate growth
• NFIL has been constantly looking into new product segment within • Recently NFIL’s Board of director has approved capex plan for setting
fluorochemical segment. up MPP at Dahej, Gujarat. New facility will enhance companies' product
offerings and commercialise new products in life science and crop
• Recently it has entered into a contract with global company for
science sector in specialty chemical business, thereby strengthening
manufacture (intermediate and final product) and supply of High-
customer relationship.
Performance Product (HPP) in fluorochemical space.
• The planned capex will be undertaken through NFIL’s wholly owned
• Contract is worth USD 410 mn for seven years and sales will be evenly
subsidiary Navin Fluorine Advanced Sciences Ltd, with capex of INR 195
staggered over years commencing from Q4FY22.
cr which is expected to be funded through internal accruals. These
• This is a new product vertical for NFIL which opens new set of facility is expected to commence business operation from H1FY23.
opportunity. Contract will be executed through NFIL’s wholly owned
• Its focus on in house R&D facilities to explore newer opportunities in EV
subsidiary Navin Fluorine Advanced Science Ltd. (NFASL).
space by product addition and process efficiency should augur well in
• The unit construction is progressing well and is expected to be the coming quarters which should provide next phase of growth.
completed by Q4FY22. Capex will be funded through internal accruals
and debt.
Consistent operating cash generation helps to meet capex through internal
Specialty Chemical to be skewed towards Domestic sales
accruals and reduce dependency on borrowed funds.
6.05 40% 42% 40% 40% 40% 39%
4.30 4.40
2.2
1.57 60% 58% 60% 60% 60% 61%
0.9
FY19 FY20 FY21 FY22E FY23E FY24E FY19 FY20 FY21 FY22E FY23E FY24E
CFO (Rs Bn) Domestic Exports
Source: Company, KRChoksey Research
Source: Company, KRChoksey Research
KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
is also available on Bloomberg KRCS www.krchoksey.com
Thomson Reuters, Factset and Capital IQProfitability to improve with changing product mix
• NFIL in the past has been efficiently adopting changing business • It also witnessed good demand from International and domestic
environment in order to continue its growth trend and increase value to markets, (exports contributed 47% in this quarter). Its shift towards
its stakeholders. high value business from volume driven business is expected to
increase company’s profitability.
• Over a period NFIL has shifted its focus from volume driven Refrigerant
business and inorganic fluorides to high value business like specialty
Product mix skewing towards high value products
chemical and CRAMS. 27.5%
improved EBITDA margin
• Recently it has ventured into new business vertical of High
Performance Products (HPP). Share of high-value business has 26.0%
24.8% 26.5%
21.9% 25.8% 6.25
consistently increased in past and is expected to continue to grow 3.84 5.58
over FY21-23E. 3.03
2.63
2.18
• Growth in high value business is attributable to management
aggressive expansion plans and thrust to increase its share in revenue
contribution. High value business revenue contribution has grown
from 42% in FY15 to 59% in FY21, mainly driven by growth in CRAMS
business. FY19 FY20 FY21 FY22E FY23E FY24E
• Specialty segment during Q1FY22 delivered record growth in its topline. EBITDA (INR Bn) EBITDA %
Revenue contribution from this segment came at INR 133 Cr against Source: Company, KRChoksey Research
INR 97 Cr in the same period last year showing a jump of 37%. This was
mainly driven by the new product mix and market share gains. • Going forward we expect the expansion and capex will be more
High Value business contribution to expand to ~77% by FY23E skewed towards high value business which is visible with NFIL’s entry
81% into new business vertical (HPP) and expansion of MPP for its
77% specialty chemical business. Capex (INR 195 Cr) will be funded through
65% 68% 20.74
internal accrual and debt.
52% 16.26
48%
• We expect High value- business to reach ~77% of total revenue
7.64 10.12 contribution by FY23E. Mainly led by new business vertical (HPP)
4.78 5.54 which will start revenue contribution from Q4FY22. High value
business being a high margin business we expect EBITDA margin to
FY19 FY20 FY21 FY22E FY23E FY24E reach 27.5% by FY24E from 21.9% in FY19.
High Value Business (INR Bn) % of Total Revenue
Source: Company, KRChoksey Research
KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
is also available on Bloomberg KRCS www.krchoksey.com
Thomson Reuters, Factset and Capital IQPremium valuation on timely diversification & changing biz dynamics
NFIL is well placed to benefit from increasing usage of fluorine molecule in Pharmaceuticals and Agrochemicals. It provides a comprehensive basket of
services for developing new products, processes and novel technologies to its clients with complete large scale manufacturing support. NFIL has been
constantly looking into new product segment within fluorochemical segment.
Key business growth drivers:
• The business is positioned for sustainable growth on the back of a strong enquiries and order flows.
• The new product vertical opens new set of opportunity for NFIL. Growth in NFIL’s high value business is attributable to management’s aggressive
expansion plans and thrust to increase its share in revenue contribution.
• Its focus on in house R&D facilities to explore newer opportunities in EV space by product addition and process efficiency should augur well in the coming
quarters and provide next phase of growth.
NFIL TTM PE and average PE trend
80 Currently it is trading at 38.46x on FY24E EPS, which is far above NFIL’s 5
year average PE multiple of 20.6x. Stock has been re-rated significantly in
recent years, on account of company’s expansion plan, diversification
40 strategy and management focus on high value business. Company’s
product mix is expected to be skewed towards high value business,
which is expected to contribute ~77% of total revenue in FY23E from ~52%
in FY20, thereby improving company’s profitability going forward. We
0
initiate coverage on stock with “BUY” rating with target price of INR
Sep-18
Mar-19
Sep-19
Mar-21
Sep-21
Mar-20
Sep-20
4,494/share, applying PE multiple of 43x on FY24E EPS, indicating upside
potential of 21.0% from CMP.
Average PE PE
Source: Company, Factset, KRChoksey Research
Key Risks and concerns:
• Company’s capacity to deliver on schedule to customers, any decline in production can have a staggering impact on its ability to service the needs of
customers the world over.
• Closure of its mines and increase in the price of key raw materials due to procurement issues can impact the margins.
• CRAMS business has a higher gestation period which can affect the growth story.
KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
is also available on Bloomberg KRCS www.krchoksey.com
Thomson Reuters, Factset and Capital IQNavin Flourine International Ltd
FINANCIAL SUMMARY
Income Statement (INR Mn) FY19 FY20 FY 21 FY 22E FY23E FY 24E Balance Sheet (INR Mn) FY19 FY20 FY21 FY22E FY23E FY 24E
Property, plant and equipment 2,850 3,642 3,759 7,349 9,119 9,689
Revenues 9,959 10,616 11,756 14,802 21,061 25,510
Right-of-use assets 0 208 217 219 213 199
COGS 4,766 4,838 5,488 6,957 9,899 11,735
Investment properties 562 550 539 528 516 505
Gross profit 5,194 5,777 6,268 7,845 11,162 13,776 Capital work-in-progress 393 389 948 948 948 948
Employee cost 1,155 1,308 1,411 1,776 2,527 3,061 Investments 2,058 874 138 138 138 138
Other expenses 1,855 1,835 1,822 2,220 3,054 3,699 Loans 73 75 81 105 149 181
EBITDA 2,184 2,635 3,035 3,848 5,581 7,015 Other financial assets 23 101 101 33 46 56
Depreciation & amortization 275 370 416 479 809 1,019 Non-current tax assets (Net) 107 1,149 308 308 308 308
EBIT 1,908 2,265 2,619 3,369 4,772 5,996 Other non-current assets 196 96 43 134 190 231
Interest expense 8 20 1 1 1 1 Total non-current assets 7,465 8,449 7,028 10,660 12,526 13,148
Other income 344 333 803 646 550 671 Inventories 1,119 1,579 1,803 2,109 2,885 3,495
PBT 2,244 2,578 3,421 4,015 5,322 6,666 Investments 1,883 675 845 845 845 845
Trade receivables 1,727 2,185 2,841 2,920 4,039 4,892
Tax 770 -1,436 855 1,004 1,330 1,600
Cash and cash equivalents 159 1,767 1,318 1,196 1,527 3,825
Minority interest 0 0 0 0 0 0
Bank balances other than above 211 1,070 4,120 4,120 4,120 4,120
PAT 1,491 4,086 2,652 3,098 4,078 5,170 Loans 48 45 27 63 89 108
EPS (INR) 30.2 82.6 53.6 62.6 82.4 104.5 Other financial assets 29 59 43 82 117 142
Other current assets 431 455 949 635 903 1,094
Cash Flow Statement (INR Mn) FY19 FY20 FY21 FY22E FY23E FY 24E Total current assets 5,607 7,836 11,946 11,964 14,521 18,174
Operating Cash Flow 902 1,566 2,199 4,302 4,464 6,056 TOTAL ASSETS 13,072 16,285 18,974 22,629 27,052 31,669
Investing Cash Flow (243) 851 (2,371) (3,351) (1,967) (817) Equity share capital 99 99 99 99 99 99
Financing Cash Flow (683) (809) (450) (70) (835) (1,342) Other equity 10,626 14,023 16,240 18,780 22,124 25,611
Total equity 10,724 14,122 16,339 18,879 22,223 25,710
Net Inc/Dec in cash equivalents (25) 1,609 (449) (122) 331 2,297
Borrowings 0 0 0 500 400 300
Opening Balance 184 159 1,767 1,318 1,196 1,527 Provisions 86 103 118 143 204 247
Adjustments 0 0 0 0 0 0 Deferred tax liabilities (Net) 348 0 208 208 208 208
Closing Balance Cash & Cash Other non-current liabilities 145 135 135 189 268 325
159 1,767 1,318 1,196 1,527 3,825 Total non-current liabilities 579 391 616 1,195 1,235 1,235
Equiv.
Borrowings 41 14 25 19 19 19
Key Ratio FY19 FY20 FY21 FY22E FY23E FY24E Trade payables 713 981 1,074 1,372 1,953 2,415
EBITDA Margins (%) 21.9% 24.8% 25.8% 26% 26.5% 27.5% Other financial liabilities 250 355 384 495 705 853
Net Profit Margin (%) 15% 38.5% 22.6% 20.9% 19.36% 20.27% Contract liabilities 35 21 30 29 41 50
RoE (%) 13.9% 28.9% 16.2% 16.4% 18.4% 19.8% Provisions 24 28 31 39 56 68
RoCE (%) 20.9% 18.4% 20.9% 20.7% 23.5% 25.2% Current tax liabilities (Net) 361 0 81 81 81 81
RoA (%) 11.4% 25.1% 14% 13.7% 15.1% 16.32% Other current liabilities 345 373 394 519 739 895
Debt/Equity 0.0x 0.0x 0.0x 0.0x 0.0x 0.0x Total current liabilities 1,769 1,772 2,019 2,550 3,589 4,377
Total liabilities 2,348 2,164 2,635 3,745 4,824 5,612
TOTAL EQUITY AND LIABILITIES 13,072 16,285 18,974 22,629 27,052 31,699
Source: KRChoksey Research, Company Research
KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
is also available on Bloomberg KRCS www.krchoksey.com
Thomson Reuters, Factset and Capital IQVinati Organics Ltd
Portfolio transformation – Next phase of growth
CMP Target Potential Upside Market Cap (INR Mn) Recommendation Sector
INR 1,928 INR 2,349 21.8% 1,97,419 BUY Specialty Chemicals
MARKET DATA Vinati Organics Ltd. (VOL) is a leading manufacturer of specialty chemical and organic intermediaries with a
sustained market presence spanning over 35 countries in the world. Since its inception in 1989, the company has
Shares Outs (Mn) 103
evolved from being a single product manufacturer to having an integrated business model, offering a wide range of
Equity Cap (INR Mn) 103 products to some of the largest industrial and chemical companies across US, Europe and Asia. VOL is the global
Mkt Cap (INR Mn) 1,97,419 market leader in manufacturing of ATBS and IBB, with a dominant market share of 65%. Further, it is the leading
52 Wk H/L (INR) 2,130/1,080 manufacturer of IB, HPMTBE and Butyl Phenols in India. The company has two manufacturing plants in
Maharashtra, at Mahad in Raigad and Lote in Ratnagiri district.
Volume Avg (3m K) 126.1
Face Value (INR) 1 Product Basket Name of product Application & end usage
Bloomberg Code VO IN Equity • Construction, water treatment, textiles,
• 2-Acrylamido 2-Methylapropane Sulphonic Acid (ATBS)
Data as on st
1 October 2021 adhesives and paint & paper coatings
Specialty • Sodium Salt of 2-Acrylamido-2- Methyl propane Sulphonic • Construction, water treatment, textiles,
SHARE PRICE PERFORMANCE Acid (NAATBS) adhesives and paint & paper coatings
monomers
340 • N-Tertiary Butyl Acrylamide (TBA) • Personal care, paper, metal
190 • N-Tertiary Octyl Acrylamide (TOA) • Adhesives, personal care, anti-scalants
40
• Iso Butyl Benzene (IBB) • Pharmaceuticals
Sep-19
Mar-21
Mar-20
Sep-20
Mar-19
Sep-21
Sep-18
Specialty
• Normal Butylbenzene (NBB) • Specialty solvents
aromatics
VINATI ORGANICS SENSEX • C 10 Aromatic Solvent • Paint & coatings , agro-chemicals
• IsoButylene (IB) • Pharmaceuticals
SHARE HOLDING PATTERN (%)
• Methanol • Agro-chemicals
Particulars Jun-21 Mar-21 Dec-20
• Specialty solvents, paints & coatings,
Promoters 74.06 74.06 74.06 Other specialty • High Purity- Methyl Tertiary Butyl Ether (HP- MTBE)
agro-chemicals
FIIs 4.39 3.50 3.66 products
• Tertiary-Butylamine • Rubber, crop protection
DIIs 6.82 7.29 6.66
• Para Tertiary Butyl Benzoic Acid (PTBBA) • Personal care, PVC stabilisers
Others 14.73 7.29 6.66
Total 14.73 15.15 15.62 • Methyl 4-Tertiary Butyl Benzoate (PTBMB) • Alkyd resins
Source: Bloomberg Source: Company, KRChoksey Research
KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
is also available on Bloomberg KRCS www.krchoksey.com
Thomson Reuters, Factset and Capital IQATBS capacity addition and recovery in global end-user demand will drive
growth
• Over the years VOL’s revenue were skewed towards ATBS, which • VOL’s ATBS biz majorly caters to Oil & gas segment (`30% of the
contributed around 50-60% of VOL’s total revenue. segmental revenue). Strong volume growth from Oil and gas business
(due to increase in the oil prices) followed by growing need for water
• VOL has consistently been adding the capacity over the years and in
treatment business made the ATBS segment contribute higher and
FY21 it has completed its ATBS capacity expansion from 26ktpa to
helped the topline grow 67% YoY in Q1FY22.
40ktpa (~35% of the existing global capacity).
• VOL exports nearly 95% of the ATBS it manufactures. Management is
• The company’s strong monopoly position (~65% global market share)
seeing a strong upswing in ATBS demand due to recovery in the North
should not impact its realizations.
American and European market with stabilization in the global
• ATBS is a high-margin segment, blended margins stood at 40.2% in FY20 economy.
and management expects 20-25% growth in the global ATBS market
• VOL’s key clients for ATBS are global majors like BASF, Dow Chemicals,
going forward.
SNF etc. Also, globally, VOL is the only backward integrated player in
• At present, there are three big players in the global ATBS market, the ATBS as it manufactures IB in-house.
largest being VOL. The second is a Chinese company, which has not
expanded its capacity in the last 5-6 years and has no expansion plans in
near future. The third one is a Japanese company having ~6ktpa ATBS capacity addition to add growth in Revenue
manufacturing capacity and has not expanded its capacity in the last 10 9.39
73% 50%
years. 7.32
6.54
ATBS Capacity Expansion 5.86
6.01
4 28%
22%
Year Installed Capacity (tpa)
-10%
2002 1,000 -32%
2006 3,600 FY19 FY20 FY21 FY22E FY23E FY24E
2009 12,000
ATBS Revenue (INR Bn) Growth %
2013 26,000 Source: Company, KRChoksey Research
2020 40,000
• We believe, since ATBS is a high-margin segment, capacity addition in
Source: Company, KRChoksey Research this space is positive from a longer-term perspective. We expect ATBS
revenue to clock 32.7% CAGR over FY21-24E .
KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
is also available on Bloomberg KRCS www.krchoksey.com
Thomson Reuters, Factset and Capital IQDouble-digit growth momentum to continue in IBB segment over
FY22E-23E
• VOL is the leading raw material supplier globally for IBB and has ~65% IBB Revenue to clock 12.72% CAGR over FY19-24E
global market share.
45% 3.46
• IBB is the major raw material for manufacturing Ibuprofen and
35% 2.74
accounts for around 25% of the raw material cost.
2.39 26%
• The global market for Ibuprofen is expected to reach 45,223 MT by 2.14 2.14 28%
2022. 1.65
• Major players in the IBB market are VOL, IOL Chemicals and SI Group
with 65%, 23% and 9% market share respectively. -10%
-23%
Global Market Share of IBB
FY19 FY20 FY21 FY22E FY23E FY24E
Others
3% IOL IBB Revenue (INR Bn) Growth %
Chemicals
Source: Industry Reports, KRChoksey Research
23%
SI Group • Revenue contribution came in at ~15% in Q1FY22. During the quarter IBB
9% sales slowed down due to low demand for Ibuprofen. This happened
VOL because of NPPA’s decision for one time price hike in Ibuprofen which
65% is used as first line of treatment.
• Management has also guided for double-digit volume growth in IBB
for next 2 years. Ibuprofen has second priority after Paracetamol to get
Source: Industry Reports, KRChoksey Research
rid of fever, body pain etc and hence we believe IBB’s growth
momentum could sustain going forward, supported by strong demand
for Ibuprofen.
• Ibuprofen requires 99.5% IBB purity and VOL has achieved 99.7% purity
level in IBB. • VOL being the largest supplier of IBB, the company is well placed to
capitalize on the increased demand for Ibuprofen which requires the
• VOL’s plants are running at surplus capacity and the company doesn't
raw material IBB. We expect IBB revenue to clock 12.72% CAGR over
plan on carrying out any expansion for IBB at present.
FY19-24E as its growth momentum could sustain going forward,
supported by strong demand for Ibuprofen.
KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
is also available on Bloomberg KRCS www.krchoksey.com
Thomson Reuters, Factset and Capital IQEntry into derivatives and new product launches to augur well
(BP+Veeral) Revenue (INR Bn) 7.4 EBITDA Margin to stabilise around 39% level
10.4
37% 39%
5 38% 39%
36%
40% 7.69
5.29 5.75
4.31 4.16
2.5
1.1
FY19 FY20 FY21 FY22E FY23E FY24E
FY21 FY22E FY23E FY24E
FY21 FY22E FY23E FY24E EBITDA (INR Bn) EBITDA Margin (%)
Source: Company, KRChoksey Research Source: Company, KRChoksey Research
• VOL has adopted forward integration strategy as a part of its • Management has guided for its increasing focus towards
future growth plan. antioxidants(AO), import substitution (expects AOs to contribute
25% to total sales in next 2–3 years), coupled with its own BP
• It acquired Veeral Additives (manufacturer of phenolic anti-oxidant)
production.
during Q4FY21. The integration of Veeral Additives will help to boost
VOL’s revenue stream over FY21-24E. • Though phenol prices have shot up with end product prices remaining
low of BP business, management remains optimistic about the
• It can grow considerably over the years and is well placed to
margins improving in the coming quarters.
capitalize the demand with its BP value chain. VOL’s BP plant has a
peak annual revenue potential of ~INR 4-4.5bn. During the quarter • Veeral Additives is expected to consume 40-50% of Butyl Phenol
higher utilisation for butyl phenol also supported the revenue internally helping margins.
growth.
• Apart from this it also expects to launch few new BPs and IB
• The global market for BP is very big (400ktpa) and VOL has only derivatives which will show increasing contribution in the topline.
35ktpa of manufacturing capacity.
• We expect the combined revenue of BP+Veeral to clock a CAGR of
• Currently, major imports of these products are being done from 88.88% over FY21-FY24E and contribute substantially to VOL’s overall
Korea, Singapore, Switzerland, China and Russia. Hence there is a revenue stream.
huge import substitution opportunity in this space as currently the
demand is in excess of 30ktpa.
KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
is also available on Bloomberg KRCS www.krchoksey.com
Thomson Reuters, Factset and Capital IQHigh Valuation on account of market leadership
We believe its high margin ATBS business is going to remain the growth driver over next few years due to its brownfield expansion with its forward
integration strategy as a part of its future growth plan.
Key business growth drivers:
• ATBS is a high-margin segment, capacity addition in this space is positive from a longer-term perspective.
• Its entry into AO is also seeing a huge demand from the domestic market. We expects AOs to contribute 25% to total sales in next 2–3 years.
• Veeral Additives is expected to consume 40-50% of Butyl Phenol internally helping margins.
• Apart from this it also expects to launch few new BPs and IB derivatives which will show increasing contribution in the topline.
VOL TTM PE and average PE trend
90 Considering the above positives at CMP, the stock is trading at 26.89x
FY24 EPS respectively. VOL commands higher valuation compared to its
60 peers from the long term perspective due to its continuous focus
towards newer product development and forward integration. We
30
remain positive as it will sustain growth potential and value the stock at
a target P/E multiple of 34x its FY24E EPS of INR 69.10, which yields a
price of INR 2,349 per share. We initiate coverage on the shares of
0 Vinati Organics with a “BUY” rating and a target price of INR 2,349 per
Apr-21
Oct-19
Oct-18
Apr-20
Oct-21
Oct-20
Apr-19
share, giving an upside potential of 21.8% over the CMP.
PE Average PE
Source: Company, Factset, KRChoksey Research
Key Risks and concerns:
• Delay in commissioning of ongoing expansions, while weakness in ATBS continues.
• Slowdown in IBB sales due to lower demand for ibuprofen.
• Major reliance on single customer.
KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
is also available on Bloomberg KRCS www.krchoksey.com
Thomson Reuters, Factset and Capital IQYou can also read
