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Muted earnings persist due to margin pressure

• Fine Organics (FINEORG) reported a muted operating performance with an EBITDA decline of 12% YoY. Gross margin contracted 320bp YoY to 40.4%, while employee and other expenses increased 60bp YoY each to 6.8% and 12.7%, respectively. Utility expenses inched up, primarily due to higher per-unit rates and elevated production volumes.
• FINEORG has been expanding its global reach by entering new geographies and strengthening its strategic partnerships. The company focuses on four strategic growth pillars: 1) new application development, 2) global expansion, 3) innovation, and 4) capacity building.
• We raise our earnings estimates by 16%/21% for FY26/FY27 due to betterthan-expected numbers and consolidation of subsidiaries.
• We estimate a revenue/EBITDA/PAT CAGR of 10%/8%/7% over FY26/FY27. FINEORG currently trades at ~33x FY27E EPS and ~25x FY27E EV/EBITDA. We value the stock at 30x FY27E EPS to arrive at our TP of INR4,380. Reiterate SELL.

Lower gross margin and higher other expenses drag operating performance

• FINEORG reported revenue of INR5.9b in 1QFY26, up 7% YoY, due to elevated production volumes.
• Exports/domestic revenue grew 9%/5% to INR3.3b/INR2.6b YoY in 1Q.
• Gross margin stood at 40.4% (down 320bp YoY), while EBITDA margin contracted 440bp YoY to 21% in 1QFY26, primarily due to higher per-unit rates and an increase in utility expenses. Raw material and freight costs remained stable.
• EBITDA stood at INR1.2b, down 12% YoY, and PAT dipped 1% YoY to INR1.1b in 1QFY26

Highlights from the management presentation

• FINEORG incorporated Fine Organics Americas LLC in the US to focus on specialty chemicals by investing USD11m (~INR96m) during the quarter.
• In Jul’25, the company acquired ~159.9 acres of land in Jonesville, Union County, South Carolina, for future expansion and manufacturing capabilities.
• Insurance update: Operations at the Badlapur facility were temporarily disrupted, and assets were damaged due to a fire on 18th Jan’24 at a neighboring plant. During 1QFY26, the insurance provider settled INR70m as final compensation for business interruption losses. The asset damage claim remains under assessment, with an interim payment of INR18m received to date.

Valuation and view

• The company remains focused on strengthening its global presence through investments in overseas subsidiaries, capacity expansion in the US for future expansion, and manufacturing capabilities. These initiatives are expected to support long-term growth.
• The long-term prospects for FINEORG remain robust, as the company operates within the oleochemicals industry and has consistently driven growth through R&D innovations over the years. However, we anticipate that its performance may be adversely affected in the near to medium term by the following factors: 1) longer-than-expected delays in the commissioning of new capacities for expansion; 2) existing plants operating at close to optimum utilization with no potential of debottlenecking; and 3) further delays in the ramp-up of the Thailand JV.
• We estimate a revenue/EBITDA/PAT CAGR of 10%/8%/7% over FY26/FY27. FINEORG currently trades at ~33x FY27E EPS and ~25x FY27E EV/EBITDA. We value the stock at 30x FY27E EPS to arrive at our TP of INR4,380. Reiterate SELL

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