Not Setting Up A US Subsidiary To Avoid Tariffs: Vinati Organics On Reciprocal Tariffs Impact

Summary

In this interview, Viti Sara Mutreja, Managing Director of Vinti Organics, discusses the company's response to U.S. tariffs and its decision to establish a U.S. subsidiary for better local distribution. While Vinti Organics exports 20% of its revenue to the U.S., Mutreja clarifies that the subsidiary will not bypass tariffs but will help with warehousing and customization. The conversation covers tariff impacts, competitive pressures, and future growth prospects, including the company's optimism for the upcoming quarters due to strong demand and strategic expansions. The company also faces competitive challenges, particularly from China in certain product categories.

Takeaways

• 😀 Vinti Organics has set up a wholly-owned subsidiary in the US, driven by the large market and customer demand for a local warehouse, not as a response to new US tariffs.
• 😀 The US is a key market for Vinti Organics, contributing about 20% to its total revenue, with approximately 36% of its exports going to the US.
• 😀 Despite the tariffs, Vinti Organics has maintained a competitive edge, especially for products like IBB and adbs, as there is no local manufacturing in the US for these chemicals.
• 😀 The US tariffs on imports from China by 10% should make Vinti Organics' products more competitive in the US market.
• 😀 Vinti Organics' subsidiary in the US is primarily for distribution, warehousing, and potential small-scale customization, not for manufacturing, and will not circumvent tariffs.
• 😀 The current US tariffs on Vinti's products are around 7.5%, which is the basic custom duty imposed, depending on the product.
• 😀 Vinti Organics does not foresee a significant impact from any reciprocal tariff increases from India, as they import a lot of raw materials from other countries like Korea and China.
• 😀 Vinti is optimistic about future growth, forecasting a 15% to 20% revenue and EBITDA growth over the next 2-3 years, driven by product demand and ongoing capacity expansions.
• 😀 The company is not overly concerned about competition, though it faces some pressure from Chinese exports, particularly in antioxidants, where dumping is a concern.
• 😀 Vinti Organics has requested a 20% anti-dumping duty on Chinese antioxidants to protect the local market and ensure fair competition in India.
• 😀 Freight rates have come down in recent months, and Vinti Organics passes on the cost benefits of such fluctuations to their customers.

Q & A

Why did Vinti Organics decide to set up a subsidiary in the US?

Vinti Organics set up a subsidiary in the US primarily to better serve its customers by providing a local warehouse and distribution, which is essential given the size of the US market and the demand from customers for easier access to products.

How does the new US subsidiary affect Vinti Organics’ tariff exposure?

The US subsidiary does not make Vinti Organics' products tariff-free. The subsidiary is primarily for better customer service, including warehousing and potential product customization. The tariffs are still in play, and transfer pricing will be involved.

What role do tariffs currently play in Vinti Organics’ exports to the US?

Tariffs mainly affect products that have local manufacturing in the US. However, for Vinti's top products like IBB and ATBS, there are no US manufacturers, so the company already has a competitive advantage, especially with Chinese tariffs in place.

What is the blended tariff rate that Vinti Organics faces on its products in the US market?

The blended tariff rate for Vinti Organics' products being exported to the US is approximately 7.5%, depending on the product.

How does the 10% increase in US tariffs on Chinese imports affect Vinti Organics?

The increase in US tariffs on Chinese imports potentially makes Vinti Organics more competitive by 10%, as it would narrow the price gap between Vinti's products and Chinese imports, though other factors could also contribute to positive market performance.

Does Vinti Organics manufacture its products in the US?

No, Vinti Organics does not manufacture products in the US. Even with the new subsidiary, the focus is on warehousing and possibly some minor product customization, not on full-scale manufacturing.

How does Vinti Organics handle potential changes in the tariff situation between India and the US?

Vinti Organics is not overly concerned about any immediate significant changes to the tariff situation. They do not foresee major impacts on their products, as they are less reliant on raw materials from the US and deal with other countries like Korea and China for imports.

What is Vinti Organics' outlook for the next couple of years in terms of revenue growth and profitability?

Vinti Organics expects about 15-20% revenue and EBITDA growth over the next 2-3 years, driven by strong demand and the ongoing expansion of their product portfolio and capacity.

What steps is Vinti Organics taking to address competitive pressures, particularly from China?

Vinti Organics is facing competition from Chinese antioxidants being dumped into the Indian market. They have applied for an anti-dumping duty of around 20% to safeguard their position and mitigate the impact of this competition.

How have global freight rates impacted Vinti Organics’ business operations?

Global freight rates have recently come down, and Vinti Organics passes on any fluctuations in freight costs or raw material prices to customers, ensuring that these changes do not significantly affect their operations.