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Nirmal Bang Feb'24

Fine Organics Results analysed

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22 views8 pages

Nirmal Bang Feb'24

Fine Organics Results analysed

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Rajat
Copyright
© © All Rights Reserved
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Institutional Equities

Fine Organic Industries (FINEORG)


BUY
Chemicals | NBIE Conference Update
CMP: Rs4,360 | Target Price (TP): Rs6,000 | Upside: 38% February 20, 2024

Please vote for us in the Institutional Investor


Overseas recovery a quarter away poll – Click Here
-------------------------------------------------------------------
Key Points
Est Change No change
 We recently interacted with the management of FINEORG in order to TP Change No change
better understand region-wise demand trends, potential impact of the Red Rating Change No change
Sea situation and update on the upcoming expansion in Maharashtra.
Company Data and Valuation Summary
 The management expects at least one quarter of pain in the US and
Reuters: FINO.BO
Europe markets due to subdued demand in the respective segment(s).
Bloomberg: FINEORG IN Equity
Considering the near-term demand outlook, we believe that capacity
Mkt Cap (Rsbn/US$bn): 133.0 / 1.7
shortage is not really very bad news. However, timely commissioning of
5,165 / 4,040
Initiating Coverage

52 Wk H / L (Rs):
Maharashtra SEZ capacity is the key.
ADTV-3M (mn) (Rs/US$): 245.9 / 2.8
 FINEORG remains our top BUY idea (please refer our Oleochemicals Stock performance (%) 1M/6M/1yr: (5.3) / (4.0) / (10.1)
sector thematic report). Maintain BUY (40x PE on Dec’25E). Nifty 50 performance (%) 1M/6M/1yr: 0.4 / 11.8 / 24.1

Domestic demand strong; at least 1 more quarter of pain for US & Shareholding 1QFY24 2QFY24 3QFY24
Europe: Underlying demand in the domestic market is satisfactory and is Promoters 75.0 75.0 75.0
expected to partially offset the softness in overseas markets. The DIIs 12.2 12.2 11.9
management indicated that domestic demand is primarily driven by the Foods FIIs 3.8 3.8 3.6
segment; but, other areas such as Cosmetics, Paints & Coatings, etc. are also Others 9.0 9.1 9.6
catching up. Overseas markets, which dominated growth in FY23 (~68% Pro pledge 0.0 0.0 0.0
revenue share), are now struggling due to weak macroeconomic environment Financial and Valuation Summary
in the US and Europe. Exports’ revenue share declined to ~49% (revenue Particulars (Rsmn) FY23 FY24E FY25E FY26E
declined by ~55% YoY) in 3QFY24. Net Sales 30,231 20,460 21,468 24,678
Growth YoY% 61.1 -32.3 4.9 15.0
Update on expansion: The management indicated that Thailand JV capacity
Gross margin % 41.0 41.9 41.8 41.8
is ready for commissioning post 2 pending approvals. As far as expansion in
EBITDA 8,311 5,106 5,572 6,404
Maharashtra SEZ is concerned, the management expects final go-ahead for
EBITDA margin % 27.5 25.0 26.0 26.0
land allotment in Mar’24. Post completion of EC, the new capacity spread over Adj PAT 6,181 3,889 4,120 4,773
30 acres can take 18-24 months for commissioning. Since SEZ facility is Growth YoY% 138.1 -37.1 5.9 15.8
expected to focus mainly on export demand, some products from the existing Adj. EPS 201.6 126.9 134.4 155.7
facilities might get shifted there. RoCE (pre-tax)% 60.6 26.4 24.1 23.2
RoCE% 44.5 19.8 17.2 16.6
Update on competition: On our question regarding competition getting
RoE% 49.4 22.9 20.4 20.1
aggressive, the management highlighted that each company has its own
P/E 21.6 34.4 32.4 28.0
niche and overall opportunity is very big for all the players. We highlight that EV/EBITDA 15.5 24.1 21.5 18.5
Croda has announced an Rs5bn capex in Dahej. Palsgaard has incorporated P/BV 8.7 7.2 6.1 5.2
a new subsidiary in India during 2023. Riken Vitamin is planning to start its Source: Bloomberg, Company, Nirmal Bang Institutional
new application lab in the US during CY24. Equities Research

3QFY24 performance update: FINEORG’s 3QFY24 operating performance Key Links –

came broadly in line with our estimates. Overall volume reduction was mainly 3QFY24 Presentation
on account of weakness in the US and European markets whereas the rest
of the export geographies have been holding up well for FINEORG. Gross
margin improvement of 938bps/42bps YoY/QoQ was a function of mix change
and lower RM prices. The management indicated that majority of capacities Please refer to the disclaimer towards the end of the
(except Patalganga) were running at optimum utilisation levels. document.

Abhishek Navalgund
Research Analyst
[email protected]
+91-22-6273-8089
Institutional Equities
Exhibit 1: Mix shifting in favor of domestic portfolio during FY24 due to slowdown in the US
and Europe

100%
45% 43% 46% 357% 48% 42% 45% 45% 38% 46% 47% 48% 37% 42% 43% 38% 30% 30% 30% 40% 46% 50% 51%
90%
80%
70%
70% 70% 70%
60%
62% 63% 62%
58% 58% 57% 60%
50% 55% 57% 54% 434% 55% 55% 54% 53% 52% 54%
52% 50% 49%
40%
30%
20%
10%
0%

1QFY23

3QFY23

1QFY24

3QFY24
1QFY19

2QFY19

3QFY19

4QFY19

1QFY20

2QFY20

3QFY20

4QFY20

1QFY21

2QFY21

3QFY21

4QFY21

1QFY22

2QFY22

3QFY22

4QFY22

2QFY23

4QFY23

2QFY24
Export Share Domestic Share

Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 2: Decline in exports since 4QFY23

200%
155.0%
150% 125.8% 132.4%
100.3%
100% 71.0% 68.6%
51.4%
50% 7.5% 24.6% 52.6% 69.6%
-4.3% 4.6% 3.2% 14.2% -6.7% 45.1% 50.8% 39.5% 48.2% -6.7%
37.9%
0% 18.5% 12.2%
9.8%
8.0% -0.9% 15.1% -1.9%
1.1% 6.6% 2.3%
-24.2%
-50% -43.5%
-58.0% -55.2%
-89.0%
-100%

-150%

3QFY24
1QFY20

2QFY20

3QFY20

4QFY20

1QFY21

2QFY21

3QFY21

4QFY21

1QFY22

2QFY22

3QFY22

4QFY22

1QFY23

2QFY23

3QFY23

4QFY23

1QFY24

2QFY24
Export Growth Domestic Growth

Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 3: Gross Margin & EBITDA margin quarterly trend

50%
45%
40%
35%
30%
25%
20%
15%
10%
4QFY20

1QFY24
1QFY19

2QFY19

3QFY19

4QFY19

1QFY20

2QFY20

3QFY20

1QFY21

2QFY21

3QFY21

4QFY21

1QFY22

2QFY22

3QFY22

4QFY22

1QFY23

2QFY23

3QFY23

4QFY23

2QFY24

3QFY24

Gross Margin EBITDA Margin

Source: Company, Nirmal Bang Institutional Equities Research

2 Fine Organic Industries


Institutional Equities
Exhibit 4: Raw material price movement

Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 5: Change in earnings estimates


Consolidated Old Estimates New estimates Change (%)
(Rsmn) FY24E FY25E FY26E FY24E FY25E FY26E FY24E FY25E FY26E
Revenue 20,460 21,468 24,678 20,460 21,468 24,678 - - -
EBITDA 5,106 5,572 6,404 5,106 5,572 6,404 - - -
EBITDA margin 25.0% 26.0% 26.0% 25.0% 26.0% 26.0% - - -
APAT 3,889 4,120 4,773 3,889 4,120 4,773 - - -
Source: Nirmal Bang Institutional Equities Research

3 Fine Organic Industries


Institutional Equities
Exhibit 6: Significant increase in FCF generation in Exhibit 7: Average ROCE (post-tax)
FY23 (nearly equal to cumulative FCF of last 9 years)

(Rs mn) (%)


4,853
5,000 25% 25%
4,198 24%
4,042 25%
4,000 24%
24%
3,000
2,408 23%
2,086 22%
1,952 23%
2,000
22% 22%
1,126
752 22%
1,000
21%
21%
-
FY14-16 FY17-19 FY20-22 FY23 20%
Avg FY14-16 Avg FY17-19 Avg FY20-22 Avg FY23-26E
OCF FCF

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 8: Revenue growth - we are building in ~7% Exhibit 9: EBITDA growth - we are building in ~15%
CAGR over FY22-FY26E CAGR over FY22-FY26E
(Rsmn) (%) (Rsmn) (%)
35,000 80 9,000 128.0 140
65.6
61.1 70 8,000 120
30,000 60
7,000 82.9 100
50
25,000 80
40 6,000
20,000 30 60
15.0 5,000
9.2 20 40
4.9 4,000 14.9
15,000 10 9.1
20
0 3,000
10,000 0
-10
2,000 -38.6 -20
5,000 -32.3 -20 -17.1
-30 1,000 -40
- -40 - -60
FY21 FY22 FY23 FY24E FY25E FY26E FY21 FY22 FY23 FY24E FY25E FY26E
Revenue Growth YoY (%) EBITDA Growth YoY (%)

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 10: APAT growth we are building in ~16% CAGR Exhibit 11: ROIC trend – expect average ROICs to be in
over FY22-FY26E excess of 40% over next 2 years
(Rsmn) (%) 75.0%
7,000 180
138.1 62.9%
6,000 150 65.0%
115.8
120
5,000 55.0%
90
4,000 44.9%
43.1%
60 45.0%
37.6%
3,000 15.8 35.7%
5.9 30 35.0% 31.3%
2,000 28.3% 27.1%
-27.0 0 25.7%
23.8%
-37.1 25.0% 22.4% 22.2% 21.4%
1,000 -30
- -60 15.0%
FY25E
FY15
FY14

FY16

FY17

FY18

FY19

FY20

FY21

FY22

FY23

FY24E

FY26E

FY21 FY22 FY23 FY24E FY25E FY26E

PAT Growth YoY (%)

Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

4 Fine Organic Industries


Institutional Equities
Financials
 Exhibit 12: Income statement Exhibit 13: Cash flow
Y/E March (Rsmn) FY22 FY23 FY24E FY25E FY26E Y/E March (Rsmn) FY22 FY23 FY24E FY25E FY26E
Net Sales 18,763 30,231 20,460 21,468 24,678 PBT 3,515 8,410 5,190 5,791 6,666
Growth YoY% 65.6 61.1 -32.3 4.9 15.0 Depreciation 399 479 558 643 833
COGS 11,879 17,842 11,893 12,484 14,354 Interest 37 46 26 26 26
Gross margin % 36.7 41.0 41.9 41.8 41.8 Other adjustments -294 -573 -667 -888 -1,121
Staff costs 893 1,053 1,006 1,052 1,207 Change in Working capital -2,166 -1,227 3,012 111 -465
Other expenses 2,346 3,025 2,455 2,360 2,713 Tax paid -825 -2,281 -1,300 -1,671 -1,893
EBITDA 3,645 8,311 5,106 5,572 6,404 Operating cash flow 666 4,853 6,818 4,011 4,046
Growth YoY% 82.9 128.0 -38.6 9.1 14.9 Capex -606 -811 -800 -1,000 -3,000
EBITDA margin % 19.4 27.5 25.0 26.0 26.0 Free cash flow 60 4,042 6,018 3,011 1,046
Depreciation 399 479 558 643 833 Other investing activities 43 -36 667 888 1,121
EBIT 3,246 7,832 4,549 4,929 5,571 Investing cash flow -563 -847 -133 -112 -1,879
Interest 51 46 26 26 26 Issuance of share capital - - - - -
Other income 331 642 667 888 1,121 Movement of Debt -306 -357 - - -
PBT (bei) 3,515 8,410 5,190 5,791 6,666 Dividend paid (incl DDT) -337 -276 -778 -824 -955
PBT 3,515 8,410 5,190 5,791 6,666 Other financing activities -38 -54 55 -26 -26
ETR 26.1 26.5 25.1 28.9 28.4 Financing cash flow -682 -687 -722 -850 -981
PAT 2,597 6,181 3,889 4,120 4,773 Net change in cash flow -579 3,319 5,963 3,050 1,186
Adj PAT 2,596 6,181 3,889 4,120 4,773 Opening C&CE 2,590 2,257 5,148 11,111 14,161
Growth YoY% 115.8 138.1 -37.1 5.9 15.8 Closing C&CE 2,257 5,148 11,111 14,161 15,347
Source: Company, Nirmal Bang Institutional Equities Research Source: Company, Nirmal Bang Institutional Equities Research

Exhibit 14: Balance sheet Exhibit 15: Key ratios


Y/E March (Rsmn) FY22 FY23 FY24E FY25E FY26E Y/E March FY22 FY23 FY24E FY25E FY26E
Share Capital 153 153 153 153 153 Per share (Rs)
Reserves & Surplus 9,439 15,259 18,371 21,667 25,485 Adj EPS 84.7 201.6 126.9 134.4 155.7
Net worth 9,592 15,412 18,524 21,820 25,638 Book value 312.9 502.7 604.2 711.7 836.2
MI - - - - - DPS 11.0 9.0 25.4 26.9 31.1
Long term debt 251 - - - - Valuation (x)
P/Sales 7.1 4.4 6.5 6.2 5.4
Short term debt 334 272 272 272 272
EV/sales 7.0 4.3 6.0 5.6 4.8
Total debt 585 272 272 272 272
EV/EBITDA 36.2 15.5 24.1 21.5 18.5
Other non-current liabilities 9 8 8 8 8 P/E 51.5 21.6 34.4 32.4 28.0
Total Equity & Liabilities 10,186 15,693 18,804 22,100 25,918 P/BV 13.9 8.7 7.2 6.1 5.2
Gross block 5,159 5,469 6,269 7,269 10,269 Return ratios (%)
Accumulated depreciation 2,866 3,329 3,886 4,529 5,362 RoCE 26.1 44.5 19.8 17.2 16.6
Net Block 2,293 2,140 2,383 2,740 4,907 RoCE (pre-tax) 35.3 60.6 26.4 24.1 23.2
RoE 30.7 49.4 22.9 20.4 20.1
CWIP 141 404 404 404 404
Profitability ratios (%)
Intangible and others - - - - -
Gross margin 36.7 41.0 41.9 41.8 41.8
Other non-current assets 744 935 935 935 935 EBITDA margin 19.4 27.5 25.0 26.0 26.0
Investments 306 388 388 388 388 PAT margin 13.6 20.0 18.4 18.4 18.5
Trade receivables 3,014 3,506 3,094 2,954 3,397 Liquidity ratios (%)
Inventories 2,356 4,450 1,305 1,371 1,576 Current ratio 3.5 5.4 7.9 9.1 9.2
Cash & Cash equivalents 2,326 5,230 11,111 14,161 15,347 Quick ratio 2.6 3.7 7.2 8.5 8.5
Other current assets 1,184 1,012 1,012 1,012 1,012 Solvency ratio (%)
Debt to Equity ratio 0.1 0.0 0.0 0.0 0.0
Total current assets 8,879 14,198 16,523 19,497 21,332
Net Debt to Equity Ratio -0.2 -0.3 -0.6 -0.6 -0.6
Trade payables 1,536 1,758 1,350 1,418 1,630
Turnover ratios
Other current liabilities 642 615 479 447 418 Fixed asset turnover ratio (x) 8.8 13.6 9.0 8.4 6.5
Total current liabilities 2,178 2,373 1,829 1,864 2,048 Debtor days 45 39 59 51 47
Total Assets 10,186 15,693 18,804 22,100 25,918 Inventory days 35 41 51 23 22
Source: Company, Nirmal Bang Institutional Equities Research Creditor days 24 20 28 24 23
Net Working capital days 56 61 82 51 46
Source: Company, Nirmal Bang Institutional Equities Research

5 Fine Organic Industries


Institutional Equities
Rating track
Date Rating Market price (Rs) Target price (Rs)
1 April 2021 Buy 2,290 2,700
30 May 2021 Buy 3,003 3,500
19 August 2021 Buy 2,837 3,500
23 September 2021 Buy 3,161 3,700
18 November 2021 Buy 3,567 4,100
15 February 2022 Buy 3,734 4,300
31 May 2022 Accumulate 4,968 4,800
13 August 2022 Accumulate 6,204 6,000
19 September 2022 Accumulate 7,000 6,800
13 November 2022 Accumulate 6,200 6,800
13 February 2023 Buy 4,613 5,500
25 May 2023 Buy 4,462 5,300
27 July 2023 Buy 4,460 5,300
6 November 2023 Buy 4,242 5,000
27 December 2023 Buy 4,838 6,000
6 February 2024 Buy 4,506 6,000
20 February 2024 Buy 4,360 6,000

Rating Chart
272

8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
-
Jul-21

Jul-22

Jul-23
Mar-22

Mar-23
Dec-21
Feb-22

Dec-22
Feb-23

Dec-23
Feb-24
Sep-21

Sep-22
Apr-21

Oct-22

Sep-23
May-21

Oct-21

May-22

May-23

Oct-23

Covered Not Covered

6 Fine Organic Industries


Institutional Equities
DISCLOSURES
This Report is published by Nirmal Bang Equities Private Limited (hereinafter referred to as “NBEPL”) for private circulation.
NBEPL is a registered Research Analyst under SEBI (Research Analyst) Regulations, 2014 having Registration no.
INH000001436. NBEPL is also a registered Stock Broker with National Stock Exchange of India Limited and BSE Limited
in cash and derivatives segments.

NBEPL has other business divisions with independent research teams separated by Chinese walls, and therefore may, at
times, have different or contrary views on stocks and markets.

NBEPL or its associates have not been debarred / suspended by SEBI or any other regulatory authority for accessing /
dealing in securities Market. NBEPL, its associates or analyst or his relatives do not hold any financial interest in the subject
company. NBEPL or its associates or Analyst do not have any conflict or material conflict of interest at the time of publication
of the research report with the subject company. NBEPL or its associates or Analyst or his relatives do not hold beneficial
ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of
this research report.

NBEPL or its associates / analyst has not received any compensation / managed or co-managed public offering of securities
of the company covered by Analyst during the past twelve months. NBEPL or its associates have not received any
compensation or other benefits from the company covered by Analyst or third party in connection with the research report.
Analyst has not served as an officer, director or employee of Subject Company and NBEPL / analyst has not been engaged
in market making activity of the subject company.

Analyst Certification: I, Abhishek Navalgund, research analyst the author of this report, hereby certify that the views
expressed in this research report accurately reflects my/our personal views about the subject securities, issuers, products,
sectors or industries. It is also certified that no part of the compensation of the analyst was, is, or will be directly or indirectly
related to the inclusion of specific recommendations or views in this research. The analyst is principally responsible for the
preparation of this research report and has taken reasonable care to achieve and maintain independence and objectivity
in making any recommendations.

7 Fine Organic Industries


Institutional Equities
Disclaimer
Stock Ratings Absolute Returns
BUY > 15%
ACCUMULATE -5% to15%
SELL < -5%
This report is for the personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. NBEPL is
not soliciting any action based upon it. Nothing in this research shall be construed as a solicitation to buy or sell any security or product, or to engage in
or refrain from engaging in any such transaction. In preparing this research, we did not take into account the investment objectives, financial situation and
particular needs of the reader.
This research has been prepared for the general use of the clients of NBEPL and must not be copied, either in whole or in part, or distributed or
redistributed to any other person in any form. If you are not the intended recipient you must not use or disclose the information in this research in any way.
Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. NBEPL will not treat recipients as
customers by virtue of their receiving this report. This report is not directed or intended for distribution to or use by any person or entity resident in a
state, country or any jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject
NBEPL & its group companies to registration or licensing requirements within such jurisdictions.
The report is based on the information obtained from sources believed to be reliable, but we do not make any representation or warranty that it is
accurate, complete or up-to-date and it should not be relied upon as such. We accept no obligation to correct or update the information or opinions in it. NBEPL
or any of its affiliates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the
information contained in this report. NBEPL or any of its affiliates or employees do not provide, at any time, any express or implied warranty of any kind,
regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-
infringement. The recipients of this report should rely on their own investigations.
This information is subject to change without any prior notice. NBEPL reserves its absolute discretion and right to make or refrain from making modifications
and alterations to this statement from time to time. Nevertheless, NBEPL is committed to providing independent and transparent recommendations to its
clients, and would be happy to provide information in response to specific client queries.
Before making an investment decision on the basis of this research, the reader needs to consider, with or without the assistance of an adviser, whether the
advice is appropriate in light of their particular investment needs, objectives and financial circumstances. There are risks involved in securities trading. The
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Team Details:

Name Email Id Direct Line


Rahul Arora CEO [email protected] -

Krishnan Sambamoorthy Head of Research [email protected] +91 22 6273 8210

Dealing
Ravi Jagtiani Dealing Desk [email protected] +91 22 6273 8230, +91 22 6636 8833

Michael Pillai Dealing Desk [email protected] +91 22 6273 8102/8103, +91 22 6636 8830

Nirmal Bang Equities Pvt. Ltd.


Correspondence Address
B-2, 301/302, Marathon Innova,
Nr. Peninsula Corporate Park,
Lower Parel (W), Mumbai-400013.
Board No. : 91 22 6273 8000/1; Fax. : 022 6273 8010

8 Fine Organic Industries

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