Vinati Organics (NSE:VINATIORGA) Q2 2027 Earnings Call

0:00 Ladies and gentlemen, good day, and welcome to Vinati Organics Q2 FY twenty twenty seven Earnings Conference Call hosted by Nuwama Wealth Management. As a reminder, all participant lines will be in the listen only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. Also note that this conference call is scheduled for thirty minutes. I now hand the conference over to mister Archit Joshi from Nuama Wealth Management Limited. Thank you, and over to you, sir. Thank you, Sagar. Good afternoon good afternoon, everybody. Wishing everybody a very happy Diwali. At NuvaMa Institutional Equities, we are pleased to host the 2Q of five twenty seven earnings conference call of Vinati Organics Limited. We are joined by Mr. Vinati Sarath Shuklaja, Managing Director Mr. Vilshan Sakuja, CFO and Mr. Rajitri Chiriwala, DGM Corporate Finance.

1:03 Without further ado, I would like to hand over the call to Mr. Vilshan Sakuja for his opening remarks, and then we can take the question and answers. Thank you and over to you, sir. Thanks. Good afternoon, friends, and thank you for joining us for the Q2 FY twenty twenty '7 results conference call. I will begin with an overview of our financial performance for the quarter and half year ended 09/30/2026. On a stand alone basis, on Y o Y basis in Q2 FY 'twenty seven, net income, including other income increased by 21 from $5.62 crore in Q2 to FY 'twenty six to INR $70.07 crore. However, EBITDA declined by 27% from INR 195 crore in Q2 FY 'twenty six to INR 142 crore.

1:48 Profit after tax also declined by 33% from INR 129 to 87 crore. On Q on Q basis, in Q2 FY 'twenty seven, net income, including other income, declined by 4% from INR $70.07 crore in Q1 FY 'twenty seven to INR $6.81 crore. For H1 net income, including other income, increased by 25% from INR $11.12 to INR $13.87. However, EBITDA declined by 10% from INR $3.68 crore in H1 FY twenty twenty six to INR $3.33 crore in H1 FY twenty twenty seven, while five pack declined by 15% from INR $2.42 crore to $2.10 crore. On a consolidated basis, Y o Y basis in Q2 FY twenty twenty seven, net income including other income increased by 23% arising from INR $5.66 crore in Q2 FY twenty twenty six to INR $6.93 crore.

2:44 However, EBITDA declined by 24% from 183 crore in Q2 FY twenty twenty six to 138 crore. On Q on Q basis, in Q2 FY twenty twenty seven, net income including other income declined by 2% from INR $70.04 in Q1 FY twenty twenty seven to INR $6.93 crores. For H1, net income, including other income increased by 25% from INR $11.15 crores to INR $13.98 crores. However, EBITDA declined by 9% from INR $3.50 crores in H1 FY twenty twenty six to INR $3.18 crores in H1 FY twenty twenty seven, while PAT declined by 15% from INR $2.19 crores to 187 crores. Now moving to the operational performance, our business is facing challenges on account of prevailing market conditions, especially ongoing war in The Middle East, which has led to an increase in the raw material prices, energy prices as well as the logistic cost.

3:40 Even though the increase in raw material prices have largely been passed on to our customers, the logistics and energy costs could not be passed entirely. This led to increase in the top line, but adversely impacted our bottom line. The logistics rates have started cooling in Q3 and we expect further reduction in Q4, which will positively impact the Q3 and Q4 profitability. Moving to our major product categories, demand for ATBS did not pick up as anticipated during the beginning of FY, owing to the destocking by customers, which impacted our ability to meet half year target. We expect volume recovery in H2. The Rabihutyric Chemicals segment delivered stable performance and we anticipate better performance in H2 supported by improving demand conditions.

4:28 Our antioxidant business delivered strong performance in H1 despite a challenging market environment. We expect this segment to maintain momentum in H2 supported by market expansion. IB reported strong performance during H1 and we expect the performance to continue in H2. IBB delivered strong performance in H1 in terms of volume as well as pricing. We expect similar performance in H2. Overall, we expect to end FY 2027 with 20% to 25% improvement in top line over the previous year going to the improvement in volumes as well as pricing. Under BOPL, few projects require process reengineering, which is under process. After completion, we expect BOPL to contribute meaningfully to the top line and the bottom line of the consolidated entity. Turning to the capital expenditure, our investment strategy remains closely aligned with our long term growth objective.

5:21 In view of this, we have announced a CapEx plan of 500 CR to develop and commercialize new specialty chemicals with application of fragrances, personal care, water treatment solution, oil field and others, with scope for further expansion into adjacent product segment based on the market growth and opportunities. This CapEx will be entirely funded through internal growth and is expected to commercialize in two years. In addition to this, we are also planning for additional CapEx of 500 CR. We are currently working on a land acquisition for the same and we'll be able to provide more clarity in next couple of months. This additional CapEx too may be funded through internal approvals. Thank you. I now welcome your questions for the Q and A session. Over to Thank you. Thank you very much. We will now begin with the question and answer session.

6:25 Your first question comes from the line of Rohit Nagraj with three sixty one Capital. Go ahead. Sir, just one question on the INR500 crores new CapEx. So you can just elaborate in terms of which chemistry platforms are we working on, whether it is aligned to the current chemistries forward integration or so? And whether these products are tested in our pilot facility so that it goes into commercial without any peeping problems? Thank you.

7:12 Yes. Thank you for this question. These products are related to our existing products. There is some sort of integration, some sort of adjacencies, whether backward, forward, or horizontal. We have been testing these products over the last one year. So we are quite confident of implementing it, and hence, we have announced it. Sure. And just one clarification. The project will come after two years. What is the kind of revenue scale up that we are looking at and the margin profile for these products? Yeah. So usually, the active turnover one can expect in this one is to one or maybe slightly higher, maybe 1.2, 1.1 and a half since they are, you know, related to our chemistries.

8:06 But ROI or, you know, on this expense, one... It can be in the range of 15 to 20%. Sure. Thanks a lot. All the best, and Diwali wishes to the entire team. Thank you. Thank you. Your next question comes from the line of Neelesh Kogi with HDFC Securities. Yes. Good morning. Yes. Yeah. Thanks. Just first question on the sales mix. Manuk, can you tell us the sales mix for sales mix product wise for this quarter and if possible for h one FY twenty seven? If I come to the product mix, if I say this ATBS that has contributed approximately 27%, 28% to the top line.

8:55 And if I talk about the IBB, it is in the range of 12% to 15%, but is in the range of 16% to 20% and AO again is in the range of 15% to around 17% overall. Okay. Okay. Thanks. And you mentioned that because of destocking, ATBS demand was not as per your expectation for H1. But can you tell us what kind of demand growth in ATBS you expect for this year? Yeah. In fact, we are seeing a meaningful improvement in volumes with q three itself looking strong with a... With an uptick in demand for ATBS. So we definitely see... Are going to see some recovery through the second half.

9:47 Okay. But we usually... What we have observed that when there is a good oil and gas prices in international market, we see significant improvement our demands. So why this is not there in this... Any any reason? See in second half. You will see in second half. Okay. And may I... Around the VREL Organics, when do you expect MEHQ and other products commissioning? So when we have actually started manufacturing MEHQ at a lower, you know, volume, which we are self consuming to make BHAs. The expansion of MEHQ, you know, the debottlenecking is taking slightly longer than expected, so we can offer it commercially.

10:35 But we expect starting April commercial sales. Okay. Okay. And it will take another two years to ramp up to Optimum utilization? Any any guidance on that? I think I think one year because now we've already started customers' evaluations and, you know, we are already getting our products tested and qualified. So once that is over and then simultaneously, our plant will start, so it shouldn't be... It should be another one year of it, I think. Yeah. And just last question. In opening remarks, sir mentioned that 20% y o y growth in top line. But on the operating profit level, can you guide us? Earlier, your guidance was in the range of a 25 to 30%.

11:22 So looking at the current situation and the h one business, can you guide us on the margin? Yeah. I I think we will end the year maybe around 24% EBITDA margin. Is that correct, Mr. Bhushan? Yes, ma'am. Yes, 24%, 25%. Thank you. Next question comes from Nausha Chaudhry with Aditya Birla Mutual Funds. Please go ahead. Hi. Thank you for the opportunity. On the CapEx announcement, if I heard it correctly, apart from the press release of INR 500 crore rupees of specialty CapEx, you touched upon additional INR 500 crore rupees of investment, which for which we are starting for land.

12:13 If I heard it correctly, what exactly would this project be? And by when we can, you know, expect more clarity on this piece of acquisition? Yeah. I think it was mentioned in the opening remarks that you will get more clarity on this investment over the next six months when both the land acquisition as well as the pilot trials are completed. And economics of this project would be It's similar similar similar. 15, 20% ROI, asset turnover, maybe slightly higher, one and a half times. And if I look at your gross block addition in last four years, on a base of thousand, we have added 1,500 in last four years.

13:03 And then the blocks are also coming in the additional thousand crore rupees of plan we have. So what, you know, gives us confidence in terms of getting the ROI of 15, 20% from these assets. And if you can, you know, elaborate a bit more how are you thinking about these investments versus getting a a desired ROI? Yeah. So, you know, these investor... Investments are in products that are related to our existing products. We have actually been spending a lot of time and effort in the pilot trials, in the r and d this time. We feel fairly confident.

13:50 We have also learned from our mistakes of the past regarding prod... Product... Project executions. We are better positioned now as to which which agencies we need to hire and which agencies we need to give the assignment to. So, hence, we feel fairly confident, and hence, it has taken us so long to announce this. And we are still not announcing, you know, fully announcing the next 500. You know? It may not happen also. So we'll wait for six months before we confirm that one. So does that mean the the new project commissioning and scale up would be much smoother versus what we have experienced in the previous project? Well, we hope so, and we plan to do the... You know, be... Do do that.

14:40 We... This time, we are going with a little more, you know, how do I say, a little more confident supply of technology and process engineers. Understood. And are we behind in terms of the stabilization of VOPL? And by when we we can, you know, expect the ramp up of this plan? Yeah. Ramp up will start in April. And how much time will it take to get to the One year. Year. Okay. And the technical and teaching issues which we had, are we behind of all those problems, or do we still have Yeah. Yeah. Now our product is qualified. We are using it to make DHA. We are also commercially making the other products, but it'll just take another four months to, you know, reach capacity... Optimum capacity.

15:33 Oh, okay. Okay. Alright, ma'am. Thank you. All the best. Thank you. The next question comes from the line of Abhijit Akhila with KIE. Please go ahead. Yes. Good afternoon, and thank you for taking my questions. The first one was just to clarify that the sales mix shared on the call a little bit earlier was for the first half of the year or was it for the second quarter? It was for the first half. First half. EBITDA margin guidance for FY 'twenty seven, you mentioned 24%, but for FY 'twenty eight, should we expect that we should get back closer to the 26%, 27% we normally aspire to? You can say the worst is now behind us. And as far as the product of ATBS, ma'am just said in the third and fourth quarter and next year would be of a better volume along with the prices. So we are expecting means 25%, 26% of EBITDA margin is financial year also.

16:30 Yes. Sorry, just to clarify, you said 262525% to 26%. 25% to 26 Okay. And just the last thing from my side, regarding these new products, the 500 crore CapEx you've announced already, what exactly is the competitive landscape like for these products? Are there local producers in India of these? Or are you to be the first one? And is it all import substitution, or is it also an export opportunity that you're targeting? Well, for some of them, we will be the only producer in India. But for one segment, we will be the second producer or third maybe. Yeah. And is it all domestic sales only or exports as well? No. It is domestic and export both. Mostly export, actually.

17:18 I would say 65, 70% is export. Right. In terms of realizations per kilogram, I mean, what sort of range would these products lie in on average? That's a very good question. You know, daily... I would say the average would be $33 per kg. There... There's a wide range starting from, you know, maybe 2 to 4.5, but you can average it at around 3. Okay. And we can sort of aim to maintain the similar EBITDA margin profile even with those products, 25% of them? They are all slightly more specialty products, most of them, not all, but yeah. Right. And sorry, just one last thing, what sort of market share would we be aspiring to in these segments at the global level? Would it be very large or will be a relatively smaller new entrant?

18:08 Depends. As in there are three major, you know, different product segments. I think in two of them, we will be fairly large. In one, there are... The other one, there are other product players also. Okay. Got it. Thank you so much, and wish you all the best. Thank you. Your next question comes from the line of Surya Narayan Patra with Philip Capital India Private Limited. Please go ahead. Yeah. Thanks for the opportunity, ma'am. My first question is about the new product line that we are adding or new products that we are introducing. Generally, if I see a historical business, because of the cost leadership globally, so this business used to kind of maintain kind of a profit leadership, cost leadership, and volume leadership accordingly.

19:02 So now, recently, what was the new project that we have talked about? Let's say, MEHQ, BHA, and all that. So that is a very, very competitive space. And China is a kind of a major play also there. And now we are talking about three more product areas. It's a kind of a new business, new product, new projects. So what are the kind of a strengths that we are thinking about the new product pipeline, whether it is Chinese competition is there for those product or we are confident about our cost leadership. What strength based on what strength that we are thinking about playing this new product or new projects going ahead?

19:55 I think one, like I said, we are looking at, you know, adjacencies to which will give us some cost leadership. We are also confident of being the only Indian player in some of them. Like I said, there... Some of them are also high margin products, meaning there are very few players in that globally. And, hence, we are getting into it because we have access to the technology. Okay. And, also, if you can talk about the applications of these three new products, sir,? They are into various applications starting from fragrances, personal care, water treatment, oil field, as well as resins.

20:48 Okay. Okay. My second question is about, let's say, the margin profile or the margin what we have reported for the quarter. This is looking like the lowest ever kind of margin performance what we have seen. Why so, ma'am, kind of what change that we have seen in this... So how different the scenario and environment or the kind of product mix that we have seen for this quarter that the margin profile has come down to such a low level in the history that we would not have seen it? Ghulshan, do you want to answer this? In this particular Q2, there is a shift of this ATBS from second quarter to third quarter that has led to that reduction of margin to 21% in this quarter. This was the only reason.

21:37 And second, as far as the increase in raw material cost is concerned, we are able to pass on through to our customers, increase in logistics and our cost. That has not been fully passed on to the customers. And second, a shift of ATBS that sales from quarter two to quarter three and quarter four. That has led only to the reduction of quarter two margin, nothing more direct. Now the worst is behind us. We can say this thing only. Okay. Just one clarification about the product mix, what you have said for the first half. So what is the revenue mix from the butalson also? I just told her it's in the range of 15 to 17%. So that you talk about in a o. Right?

22:22 See, it's in sale. It's not a o... I talked about 50 to 17% for bid also in the same reason I told you. It's around 70% to 80% in start of the conference call. Okay. Okay. And just last one point from my side, again, reiterating the point of a MEHQ. How do you see this... See, in fact, this space, the the entire chem... Chemistry value chain of this space is setting a significant competition, the larger capacities, larger volumes that what we are witnessing also getting added in China. So given that background, what expectations that you are still building out of this product? See, we are supposed to kind of see about 100 crore kind of revenue out of MHBHA kind of a value chain this year itself.

23:16 Now we are kind of delaying to next year. So what is the challenge? It it is... Whether it is a kind of a competition or it is a kind of issue at the manufacturing level or what that we are trying to sorting out? Ma'am? I think this year we'll cross 100 crores in VOPF for this FY, mister Bhushan? '26, '27, it will be in the range of around 75 to 100 c a, not more than that. It will not it will not cost 100 c a in this in this this final. Okay. But that is that is mostly because of our our problems, our production. No, It is it is internal because we are working on that engineering process, and that is going to take some time. And Yeah.

24:05 This will get streamlined by April or May of the next financial year. We can say by April of next financial year. And and VOPL has a product. We have five products. Right? It has MEHQ, Gacol, Anizol, Metformin, methoxyacetophenol, and also isoamylene based products, tertiary amyl alcohol as well as PTAP, which has just started. So the revenue from those will start coming from January or rather December. Okay. Sure, ma'am. Yeah. Thank you. Thank you for answering all the questions. Wish you all the best. Thank you. Your next question comes from the line of Prasad Vagmeiri with Union Mutual Fund. Please go ahead. Hello? Am I audible?

24:51 Yes. Hi. Yeah. So so, ma'am, my first question is on the the that could be could be expected in this 500 crore CapEx. Are these different to what we are entering... We are into currently, or is it just a forward integration of the economics that are there in our current business? Well, they are related to our products. One could say most of the processes we are familiar with. However, these are dedicated plans. There will be some different technology, different processes also involved, but nothing that is very different from what Vinati Organics does.

25:38 There will also be synergy with our existing product segments in terms of the end use. Some of them serve similar customers, and hence, we are focusing on these. And this is how we have shortlisted these products. Okay, ma'am. And, ma'am, my second question was on the MHQ side. So considering the... Whatever the competitive landscape that is there in terms of MHQ market, how are we looking to scale up this product over next two two to three years? I think... I don't think any issue still has a strong demand because it is used ultimately as an inhibitor in polymers.

26:26 And overall, the... You know, these industries polymer applications are growing. This... I think what you're talking about is a temporary downturn. It is still a high margin product if you look at the gross margins on MEHQ itself. Having said that, our whole plan, you know, out of 3,000 crores or 4,000 crores that we will be at in the next two to three years, any excess, just 100 crores of it. Okay, ma'am. Thank you. Thank you. Ladies and gentlemen, we take this as a last question for today. I now hand the conference over to Vinati, ma'am, for closing comments. Over to you, ma'am. Thank you, everyone, for participating.

27:12 And, you know, in spite of this quarter, quarter, how it has turned out, we believe it is important to look at the underlying performance and the opportunities ahead. We are seeing encouraging, like mentioned, we are seeing encouraging volume trends. Several of our businesses continue to perform well, whether it is IBD, isobutylene, butylphenols, as well as antioxidants. Hence, we are investing in new specialty chemical opportunities that can expand our platform and further grow it grow it. Our focus remains on profitable growth, disciplined capital allocation, and long term value creation. Thank you. Thank you. You. Ladies and gentlemen, on behalf of Vinati Organics, that concludes this conference. Thank you, everyone, for joining us, and you may now disconnect your line.