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Resilient operating performance amid macro uncertainty Earnings above our estimate

* Fine Organic Industries (FINEORG) posted a strong operating performance, with an EBITDA growth of 42% YoY, primarily due to gross margin expansion of 500bp YoY to 45.4%.

* While Fine Organic Industries continues to strengthen its global footprint through geographic expansion and strategic partnerships, near-term operating performance is likely to reflect evolving demand conditions, macroeconomic uncertainties, supply chain dynamics, raw material costs, and capacity availability across its manufacturing facilities.

* Backed by a strong 1QFY27, we raise our earnings estimates for FY27/FY28 by 11% each. FINEORG currently trades at ~31.3x FY28E EPS and ~23.5x FY28E EV/EBITDA. We value the stock at 28x FY28E EPS to arrive at our TP of INR4,510. Reiterate Sell.

Strong earnings growth despite elevated input costs

* FINEORG reported revenue of INR6.9b in 1QFY27, rising 18% YoY. Overall demand remained stable during the quarter, with export and domestic markets showing improved performance.

* Export revenue grew 26% YoY to INR4.1b, while domestic revenue grew 7% YoY to INR2.8b.

* Gross margin stood at 45.4% (up 500bp YoY), while EBITDA margin expanded 430bp YoY to 25.3% in 1QFY27.

* Raw material prices remained elevated in 1QFY27 compared to FY26, while the sequential increase over 4QFY26 was marginal.

* EBITDA stood at INR1.8b, up 42% YoY for the quarter.

* Utility costs mounted in 1QFY27 compared to FY26, primarily due to higher fuel prices resulting from the ongoing West Asian geopolitical crisis.

* Adj. PAT grew 23% YoY to INR1.4b in 1QFY27 (est. of INR1.1b)

Valuation and view

* The company remains focused on strengthening its global presence through investments in overseas subsidiaries, expanding US capacity for future growth, enhancing manufacturing capabilities, incorporating a wholly owned subsidiary in Dubai to establish a local presence in GCC countries, and expanding its presence in Malaysia with the acquisition of Oleofine Organics.

* We anticipate FINEORG's performance to be hit 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 for debottlenecking

3) the macroeconomic environment.

* Backed by a strong 1QFY27, we raise our earnings estimates for FY27/FY28 by 11% each. FINEORG currently trades at ~31.3x FY28E EPS and ~23.5x FY28E EV/EBITDA. We value the stock at 28x FY28E EPS to arrive at our TP of INR4,510. Reiterate Sell.

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