Shares of chemicals firm Vinati Organics have given steller returns to its long-term investors surging over 4 times in the last 5 years. The stock has jumped from ₹510 in Sept 2017 to currently trade around ₹2,240, soaring 340 percent in this period.
In the last 1 year, the stock has risen 25 percent and added 13 percent in 2022 so far. Of the 8 months in 2022, the scrip has given positive returns in 4 - March, April, July and August, while negative returns in the remaining 4 months.
Vinati Organics Limited, a specialty chemical company, manufactures and sells specialty chemicals and organic intermediaries in India and internationally.
In the June quarter, the net profit of Vinati Organics rose 25.05 percent to ₹101.19 crore as against ₹80.92 crore during the previous quarter ended June 2021. Its sales rose 31 percent to ₹506.32 crore in the quarter ended June 2022 as against ₹386.37 crore in the year-ago period.
Meanwhile, in FY22, the firm's revenue increased by 69 percent YoY to ₹1,620 crore, aided by strong growth in volume as well as price hikes taken in FY22 due to an increase in input costs. Its gross profit rose 33 percent YoY to ₹750 crore in FY22, while gross margin contracted by 13 percentage points due to unprecedented raw material cost inflation and a surge in crude oil prices due to a lower base in FY21.
In a recent report, brokerage house Motilal Oswal noted that the COVID-led disruptions resulted in higher operating costs due to higher freight costs on account of the shortage of containers and higher power and fuel costs.
The brokerage maintains a 'buy' rating on the stock with a target price of ₹2,953 per share.
It noted that Vinati's long-term relationships with its clients and its focus on R&D expertise have helped amplify value for all its stakeholders, despite industry cycles and macro headwinds. The management is confident that a niche product portfolio, expansion in its existing capacities, and foray into new products will enable it to keep the revenue momentum strong, although macro challenges still remain.
Meanwhile, HDFC Securities has a SELL recommendation on Vinati Organics with a discounted cash flow-based target price of ₹1,765 driven by a shift in the revenue mix towards lower-margin iso butyl benzene (IBB), butyl phenol, and other products as compared to Acrylamido Tertiary Butyl Sulfonic (ATBS), which has a higher margin.
It also believes that the current valuation is contextually high at ~36x FY24E EPS. Q1 EBITDA was below estimates due to higher-than-anticipated raw material costs, offset by higher-than-expected other income.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.