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Published on 21/06/2018 3:57:53 PM | Source: SPA Securities Ltd

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Fine Organics Industries Ltd (FOIL) is the largest manufacture of oleochemical-based additive in India and a strong global player, sells around 387 different products under the brand "Fine Organics", And the first and largest producer of slip additives in India. These specialty chemical based products are widely used in food, plastic, cosmetics, paints, ink, coatings and other specialty application in various industries. Currently, the company is having a strong consumer based operations in 69 countries with ~631 direct customers, ~127 distributors. It has three production facilities in (Ambernath, Badlapur and Dombivili) Maharashtra with the combines installed capacity of 64,300 TPA and also having JV with (Olefin Organics, a partnership firm and a promoter group entity) to manufacture the products with installed capacity of ~5000 TPA.

Investment Rationale

FOIL is the largest producers of oleochemical-based additives in India and one of the few largest payer in global.

FOIL is one of the six global players in the food additives industry and one of five global players in the plastic additive industry. Company is having a strong brand presence with the name of "Fine Organic" over 44 years, which is widely recognized in the major competitive markets of its own. Although company is operating from past 15 years but the Fine Organic brand has been in use by Promoters Group entities since 1973.

Diversified Product Portfolio Catering to a Variety of High Growth Industries

FOIL has wide range of 387 products sold under the 'Fine Organics' brand, used in the (a) plastic industry and (b) food industry and others (cosmetics, printing inks, coated papers, lube additives, wires and cables, coatings and other specialty applications) industries.

Specialized Business Model with High Entry Barriers.

Multiple entry barriers such as product formulations, process technology and customer stickiness are exist. FOIL's product requires specialized skills, process and equipment to manufacture, which is highly complex process.

Future Expansion and development

FOIL is planning to set up additional production facility in Ambernath (32,000 TPA), which is expected to commence by Q4FY19. German Facility is a JV with 50% equity interest (10,000 TPA) is expected to commence by Q3FY20. Company also in preliminary stages of planning the development of two additional production facilities: one in Patalganga (10,000 TPA) and one in Ambernath (waiting for land possession and capacity yet to decide). Company has set up a new production facility in Patalganga (10,000 TPA) with the Joint Venture of Fine Zeelandia Private Limited to manufacture and distribute premixes for bakery and confectionary products. And this is expected to commence by Q1FY19.

Outlook & Valuation

Revenue/EBITDA/PAT of FOIL has grown at a CAGR of 11.1%/10.5%/ 8.3% from FY14 to FY17. FOIL possess consistency in margins, healthy balance sheet with Net Debt: Equity at -0.1x, average NWC days ~52 days and robust return ratios profile (FY18 RoE at 21%). Ongoing expansion plan is expected to drive revenue in medium to longer term. At the upper price band of INR 783, FOIL is available at MCap/sales of ~3.0x and P/E of ~30x on FY18 annualized EPS. We advise SUBSCRIBE on FOIL for long-term perspective.

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