Vinati Organics likely to give a triangle breakout
The Q3FY21 results of Vinati Organics Ltd were weak with a 6 per cent miss in the operating profit at Rs 72 crore, which is down by 13.1 per cent on a YoY basis. This can be attributed to the higher cost and weak revenue mix, where its ATBS share dropped to 38 per cent against 56 per cent in Q3FY20 and even speciality products declined to 6 per cent as against 17 per cent in Q3FY20. Having said, the management has guided for strong revenue growth of 20 per cent in FY22 and FY23 each as its key ATBS segment has recovered to the pre-COVID level and is likely to ramp-up utilisation at Butylphenol Plant. Thus, a strong 29 per cent profit after tax (PAT) compounded annual growth rate (CAGR) is expected over FY21E to FY23E. Further, its amalgamation of Veeral Additives Pvt Ltd, (subject to NCLT approval) is moving in the right direction as it provides entry into antioxidants, which is a forward integration for Vinati Organics. Moreover, it is expected to provide Vinati Organics with an incremental revenue opportunity of Rs 300 crore. Though fundamentally, the stock looks promising, let’s look at its technical aspects as well.
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Key takeaways:
1. Vinati Organics looks promising fundamentally.
2. Technically, the stock is likely to give a triangle breakout with increased volumes.
3. On a weekly basis, the immediate support and resistance levels are Rs 1,214 and Rs 1,450, respectively.
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If we look at the chart of Vinati Organics on the weekly timeframe, then we can see that since mid-September 2019, the stock was trying to breach the level of Rs 1,197. However, stock resisted. Again, at the end of January 2020, it tried to breach that level but witnessed a heavy sell-off to close near that week’s low. Further, it also resisted the same level at the end of August 2020 and finally gave a breakout in mid-September 2020. However, post giving a breakout; it immediately witnessed a pullback, which respected 38.2 per cent Fibonacci level at Rs 1,089 level. Fibonacci levels are calculated by connecting the swing low at Rs 649 level in March 2020 to the swing high of Rs 1,355 level in September 2020. However, from September 2020 to January 2021, the stock was consolidating in a range to form a triangle-like price pattern before giving a breakout from this price pattern.
The above is the technical chart of Vinati Organics Limited on a weekly timeframe. As we can see, the stock is witnessing a breakout from a triangle-like consolidation pattern with increased volumes. Having said, this pattern would be considered only if the breakout candle sustains today on a closing basis.
Therefore, this is likely to give an investment opportunity to breakout traders. However, it is recommended to adhere to strict stop-losses. On the other hand, pullback traders can wait for a pullback at Rs 1,300 levels before diving into a trade.
On the weekly basis, immediate resistance is placed at Rs 1,450 level while support is placed at Rs 1,214 level.
The stock is currently trading at Rs 1,430. At the start of the week, the stock opened at Rs 1,224 and made a low of Rs 1,214 and a high of Rs 1,450.