Meet the multibagger: This midcap stock turned Rs 10,000 to over Rs 65,00,000 in 15 years
Analysts believe that the company is on the cusp of a strong earnings growth cycle
The chemical sector has produced several gems which have delivered multibagger returns to investors in the past 15 years. Vinati Organics is one of them.
Shares of the company have rallied 65,888% to Rs 1,418 on February 19, 2021 from Rs 2.15 on February 17, 2006. The rise in share price indicates that an investment of Rs 10,000 in the company would have now fetched around Rs 66 lakh.
Analysts believe that the company is on the cusp of a strong earnings growth cycle. Brokerage Sharekhan has ‘Buy’ rating on Vinati Organics with a price target of Rs 1,750.
“We maintain our FY2021-FY2022 earnings estimates but have increased our FY2023 earnings estimate as we now assume higher volume/margin for ATBS (2-Acrylamindo 2-Methylpropane Sulfonic Acid) segment. Improving near to medium-term earnings growth visibility given the revival in ATBS demand and sustained long term high double-digit growth potential (led by the development of new products and massive export opportunities) warrants higher valuation multiple for Vinati Organics,” the brokerage said.
Vinati Organics was established in 1989 to manufacture specialty organic chemicals. At present, the company enjoys global leadership in two specialty chemicals, with a market share of 70% in IBB (isobutyl benzene) and 80% in ATBS. The company’s products are also exported to customers in countries across Europe, America, and Asia.
Cost leadership and scale economies in IBB and technological entry barrier in ATBS are among competitive edge for the company in niche specialty chemicals. The company started with a small capacity of 1,000 TPA and gradually expanded to 26,000 TPA today for its ATBS production, capturing 60% of the market share. The company also commands more than 65% market share in the world for IBB. With consistent investments in technology and capacities, the company is the largest producer of IBB in the world with a capacity of 16,000 TPA.
Among the key risks, market watchers believe that lower demand due to economic slowdown and a delay in the completion of expansion projects might affect revenue growth. Higher raw material prices and a delay in the ability to pass on price hikes adequately and adverse forex fluctuations might affect margins.
ICICIdirect has set a price target of Rs 1,610 for Vinati Organics, while Geojit Financial Services has ‘Accumulate’ call on the company with a target of Rs 1,539.
“We continue to maintain a positive outlook on Vinati Organics, given its investment in new capacities for the introduction of new products, leveraging growth opportunities in the existing product portfolio, strong balance sheet and healthy RoE and ROCE of 24% and 24% (average last 5years). The integration of VAPL is likely to add more synergies to its existing portfolio,” Geojit Financial Services said.