Ayaz Motiwala of Amala Emerging Asia Fund presented his investment thesis on Vinati Organics (India: VO) at Asian Investing Summit 2021.

Thesis summary:

Vinati Organics is a specialty chemicals company in India, with a business philosophy based on developing products with clean and green chemistry. Vinati is the leading player globally in Acrylamido Methylpropane Sulfonic Acid (ATBS), which accounts for more than one-half of revenue, and a leading player in Isobutyl Benzene (IBB), which accounts for one-quarter of revenue.

The business is run by a first-generation entrepreneur whose team is focused on launching products that have a unique chemical process, which gives Vinati a long-term cost advantage and the potential to become a leading global player. The company’s product development capability is supported by captive research and industry partnerships with leading Indian and international players in the field of specialty chemistry.

Vinati has been a good allocator of capital, as demonstrated by ROE consistently in excess of 25% over the last decade even as the asset base has expanded more than ten-fold. During this period, the company has compounded revenue at 16% while operating profit and net profit have compounded at 24%.

Vinati continues to grow in existing products. ATBS capacity has recently been expanded from 25,000 tonnes per annum to 40,000 tonnes per annum. It has launched a range of Butyl Phenols using in-house manufactured Isobutylene (IB) at an investment of Rs. 2.5 billion. These actions and the recent acquisition of manufacturer Anti Oxidants (a downstream product using Vinati’s existing products) are the key drivers of revenue growth in the medium term.

Ayaz expects revenue and profit to compound in excess of 20% over the next three to four years while the company maintains solid profitability.

The shares recently traded at 9x revenue and 32x earnings based on Ayaz’s FY23 estimates. Ayaz believes the company has a room to surprise on the upside if it is able to rapidly scale up the antioxidants opportunity. The founder and his family own 74% of shares outstanding, close to the highest level allowed for a public company in India.

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About the instructor:

Ayaz Motiwala is an investment professional with two and half decades of experience. He currently manages The Amala Emerging Asia Fund as part of Nivalis Partners Hong Kong. Ayaz is also the co-founder of QRC Investment Advisors LLP which is a SEBI licenced portfolio management services company based out of Mumbai, India. Previously, he served as an advisor to Motiwala Capital, a registered investment advisor founded by his brother Adib Motiwala in Dallas, Texas. Ayaz’s previous experience includes roles with Samena Capital, a special situations fund based in Hong Kong, as well as Highbridge Capital Management HK, where he ran a portfolio for India and ASEAN markets while also contributing ideas to the Asia Opportunities Fund.

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