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* Last month saw Indian market outperforming world market post clarity on election result. Though the election result was not on expected lines but same government and policies are continuing. The outperformance is mainly driven by under performance in pre-election period. Indian market gained 3.7% from 1st Jan to 31st May whereas US market (S&P 500) gained 10.6% in the same period. Thereafter from 1st Jun till date Indian market gained 7.2% whereas US market gained 3.9%. If we see Indian market till date starting from 1st Jan it has moved up by 11.1% where as US market in this period has moved up by 14.9%, so still Indian market is under performing from year to date perspective.

* Last month few of central banks started cutting interest rate where in ECB and Canada Central bank cut the rate. The expectation for rate cut in September meeting by FED is over 60% and there after RBI can also follow suit. US rate cut will start happening without US economy going into recession which was earlier anticipated.

* In July month again there is a bigger event in India wherein Budget will be announced. The President, in recent address to parliament has indicated that the budget will accelerate the reform process. The Budget may be giving road map for next 5 year focus area for growth. Considering the outcome of the recent election wherein existing BJP government was not able to get majority, there could be larger steps for rural economy or pro populist steps.

* July month will also see outcome of Q1 corporate result wherein we may see some disruption on account of election and excessive heat wave in the month of May. Also progress of rainfall will have impact on some of the sectors.

* In all considering the recent run up in last month but still underperforming the US market, forthcoming budget and corporate result; we expect market to see volatility. We expect Nifty to be in the range of 23300-24300 in the July series. Need to be more careful in small cap stock as Q1 is generally a soft quarter and we saw disruption in May month which could have impact on their Q1 performance.

Incorporated in 2004, Fineotex Chemical Ltd is a specialty chemicals producer and mainly caters to segments such as – i) Textile chemicals and ii) Cleaning & hygiene. Recently, it has forayed into drilling specialty chemicals for oil & gas. It has established strategic partnerships with EuroDye, HealthGuard, and Sasmira to further enhance its market presence and offer customized technical solutions through its dedicated focus on R&D.

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%.

* While the industry players have faced challenges in terms of optimizing or sustaining operating leverage due to various macro events such as Ukrain – Russia war, Red sea issue, etc., Fineotex has been able to generate growth in both volume as well as in value terms. 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.

Efficient operational capabilities with sustained return ratios

* Company mainly focuses on sustainable products and it has received ESG badge 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. With this, 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 phase I expansion is expected to be completed by FY25 end which will add 20K MTPA and further phase II expansion of 20K MTPA is planned. It is in advanced stage of an international acquisition for which it has already raised funds worth Rs. 120 cr in May’24.

Peer Analysis

In terms of topline growth between FY20-24, Fineotex has grown ahead of many leading players. High revenue growth of Rossari Biotech is on account of inorganic growth. It has also outperformed in terms of profitability with 26.1% of EBITDA margin in FY24 compared to 14.9% of average of peer performance. Additionally, it has delivered healthy return ratios when compared with its peers. Despite its healthy financial performance, Fineotex is valued at the similar valuation when compared with its peers. We expect re-rating of the stock on account of its strong growth drivers.

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