The performance of Vinati Organics is driven by a shift in the revenue mix towards lower-margin iso butyl benzene (IBB) and butyl phenol as compared to ATBS, which has a higher margin. In the absence of a new product pipeline, HDFC Securities believes the current valuation is high at ~37x FY23E EPS. Q1 EBITDA/PAT were 18/8% below our estimates, owing to significantly higher-than-anticipated raw material cost and higher-than-expected finance cost, but the same was offset by higher-than-anticipated other income.

Financial performance: Q1 revenue grew 38/67% QoQ/YoY to INR 3,864mn whereas EBITDA grew 2/5% QoQ/YoY to INR 1,015mn. EBITDA margin fell by 916/1,569bps QoQ/YoY to 26.3% (35.4/42.0/36.9% in Q4FY21/Q1FY21/FY21), on account of significantly higher phenol, toluene and acrylonitrile prices, and higher freight costs, owing to logistical disruptions in the quarter.

ATBS: Demand for ATBS has been robust due to pent-up demand, and increased demand by the oil and gas industry that forms 25-30% of its global demand. Other end-user industries such as water treatment and personal care are reviving too, adding to ATBS' demand. It contributed 50% to the Q1 topline (47% in Q4). ATBS segment witnessed ~20% YoY volume growth in Q1. The new capacity is currently running at a 70% utilisation rate and is expected to run at full capacity in three years.

Iso butyl benzene (IBB): Revenue contribution came in at ~15% in Q1, given reduced demand for Ibuprofen. The plants are running at surplus capacity and the company doesn't plan on carrying out any expansion for IBB.

Butyl phenol: The butyl phenol segment clocked in an Rs 0.4bn revenue in Q1, and is expected to clock in Rs ~2bn in FY22. Butyl phenol is gaining good traction. The margins of this segment were adversely impacted in Q1 due to elevated phenol prices.