Vinati Organics Limited (VOL)

Incorporated in 1989, VOL is one of India’s leading manufacturers and exporters of specialty organic intermediaries, monomers, and polymers. VOL is one of the world’s leading manufacturer of isobutyl benzene (IBB) and 2-Acrylamido 2- Methylpropane Sulfonic Acid (ATBS) and have market share of 65%. Manufacturing processes of these specialty chemicals are not easy to replicate and same acts as entry barrier for new entrants (moat).

IBB finds application in manufacturing of Ibuprofen (a non-steroidal anti-inflammatory drug) while ATBS is a specialty monomer which finds multiple applications in operations, such as industrial water treatment, oil field recovery, construction chemicals, hydrogels for medical applications, personal care products, emulsion polymers, detergents, textile print pastes, adhesives and sealants, thickeners and paper coatings. 

Products portfolio of VOL are - 

• Specialty Monomers:  Act like building blocks, useful in designing unique polymer structures. They contain a low to high range of molecular weight and are low in volatility.  
• Specialty Aromatics: These colorless liquids with a characteristic smell are important chemical precursors which can be converted into many of the intermediates and polymers needed to produce an extensive range of everyday products.
• Other Specialty Products: Specialty chemicals are used as ingredients in finished products and to improve manufacturing processes. They are also called Performance Chemicals due to their vital role in enhancing the quality of various products. It has a unique positioning in the chemical industry as they are manufactured and sold based on their performance or function, unlike commodity chemicals which are strictly based on their chemical composition.
• Miscellaneous polymers: A polymer is a substance or material consisting of very large molecules, or macro molecules, composed of many repeating sub-units. Due to their broad spectrum of properties, both synthetic and natural polymers play essential and ubiquitous roles in everyday life

Downstream sectors using VOL products are Water treatment, Emulsions and Paints, Construction, Pharmaceutical, Agrochemical, Mining, Paper, Leather, Oil Drilling, Personal Care

Key Growth Drivers for VOL are - 

• Among the major segments of the Indian specialty chemicals market, the Water treatment chemical segment is expected to experience the fastest y-o-y growth where monomer like ATBS is used
• Due to busy work schedules, people lack the time to cook and prefer consumption of processed and packaged foods. Edible oils and colors find application in the food processing market and due to the growing consumption of processed and packaged food, demand for these chemicals are constantly growing
• Improvement in the standard of living as a result of globalization and an increase in the per capita income are driving growth in the premium home care and personal care segments
• The downturn of the Chinese chemical market in the past few years has established export opportunities for Indian manufacturers
• The World Bank stipulated that farmers globally will have to improve their yield by at least 50% by 2050 to sustain the current population growth. This demand has consequently created key opportunities for producers of specialty chemicals

Key Risks (other than general operational risks) for VOL are - 

• Product concentrations risk owing to higher dependence on two of its key products although, the same is expected to reduce with the Butyl Phenol plant becoming operational
• Exposure to raw material volatility and foreign currency fluctuations
• With an alarming rate of climate change and unprecedented levels of pollution, it is vital for organizations to reduce the impact of their operations on the environment. Given the nature of the company’s business, it is pivotal for the Company to introduce eco-friendly products that have a minimal impact on the ecosystem

The chemical industry has been an integral part of the global economic landscape for many centuries. The industry has evolved to become a bastion of productivity and demands of chemical products are expected to grow significantly.  The monomer manufactured by VOL are high in demand and have already captured more than 50% of the market.  For the company, diversifying on new chemical products shouldn't be difficult as existing setup can be used to speed up and manufacture on the similar line.  The company is almost debt free, history is good, outlook of specialty chemical industry looks in future, overall the company looks good from long term investment purpose.

NSE:VINATIORGA; BSE:524200