CARE reaffirms its rating on bank facilities of Vinati Organics; revises outlook to 'positive'

Vinati Organics said that CARE Rating has reaffirmed its ratings on the bank facilities of the company.

The rating agency has reaffirmed its rating on the long-term bank facilities of the company at "CARE AA while revising the outlook on the same to 'positive' from 'stable'.

CARE Rating has reaffirmed the rating of Vinati's short-term bank facilities at "CARE A1+.

The agency said that the ratings assigned to the bank facilities of Vinati Organics (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 the medium term as the manufacturing processes are not easy to replicate and the same acts as entry barrier for new entrants.

The ratings also factor in the improvement in sales reported by VOL in FY22 (refers to the period April 1 to March 31) on the back of strong demand for ATBS (contributing to around 50% of the total sales for VOL). Furthermore, during the year FY21, VOL commenced commercial production of a new product, viz., butyl phenol, which contributed to around 12% to the total revenue of the company in FY22.

VOL is currently undertaking capex of around Rs 580 crore (around Rs 300 crore in VOL for ATBS capacity expansion and around Rs 280 crore in Veeral Organics (VOPL; 100% subsidiary of VOL) which will enable it to manufacture additional derivatives 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 to around 30% in FY22 (PY: 38%) owing to rising raw-material prices, higher freight cost due to shortage of containers and higher power and fuel costs due to significant jump in coal and gas prices. 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 changing product 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.

Vinati Organics is one of India's leading manufacturers and exporters of specialty organic intermediaries, monomers, and polymers.

The company's consolidated net profit rose 25.05% to Rs 101.19 crore on a 31.05% increase in revenue to Rs 506.32 crore in Q1 FY23 over Q1 FY22.

The scrip shed 0.51% to end at Rs 2061 on the BSE today.

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