Investment Pick For Diwali 2024 : Fineotex Chemical Ltd For Target Rs. 483 By Nirmal Bang Ltd
Incorporated in 2004, Fineotex Chemical Ltd (FCL) is a specialty chemicals producer and mainly caters to segments such as – i) Textile chemicals, ii) Cleaning & hygiene and iii) drilling specialty chemicals for oil & gas.
Outperformed overall industry in terms of volumes and profitability
* The company has delivered healthy volume growth of ~25% for FY24. Company’s textiles chemicals segment witnessed 20% volume growth while cleaning and hygiene segment saw volume growth of ~25%. Company’s revenue has grown at 24% CAGR between FY22- 24 and operating margins improved from the 19.3% in FY22 to 26.1% levels in FY24. While the entire industry faced challenges in terms of operational capabilities due to various macro events, Fineotex has been able to generate growth in both volume as well as in value terms. International revenue contribution maintained at 22% of FY24 revenue.
Efficient operational capabilities with sustained return ratios
* FCL mainly focuses on sustainable products (ESG badge holder from Dun & Bradstreet). This recognition highlights company’s commitment towards sustainability. Change in product mix, new product launches, cost saving measures along with improved working capital cycle has helped Fineotex deliver healthy financials with sustained margins. It has generated healthy return ratios i.e. ROCE at 34.3% and ROE at 29.9% for FY24.
Expansion through organic as well as inorganic route is expected to drive business growth
* Fineotex is expanding its capacity in a phased manner where i) phase I is expected to be completed by Mar’25 which will add 20K MTPA, ii) phase II expansion of 20K MTPA is planned. In Q1FY25, it has successfully raised funds worth Rs. 343 cr to support its long term growth by way of organic and inorganic route. We have modeled topline growth at 20% CAGR between FY24-26E with operating margins in the range of 27-28%. Based on this, the stock is currently trading at 30x / 24x to FY25E / FY26E EPS. We assign 30x to FY26E EPS to arrive at a target of Rs. 483/share with an upside of 25% over the CMP.
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SEBI Registration number is INH000001766
