• Aditya Battu

#1 Fine Organics - Mid Cap, Speciality Chemicals

Updated: Sep 28, 2020


Why is this stock important?

  • A mid cap stock operating in a niche industry with few global players

  • Has been consistently outperforming the markets by delivering over ~147% returns for the two year period from Jun'2018 - Jun'2020

  • Stock prices have already reached pre-covid levels, indicating that the impact of Covid on this company has been low and investors are positive about this company


Read on to find out more about this company...



1. OVERVIEW


Fine organics is one of the largest manufacturers of oleochemical based (derived from vegetable oils) speciality additives for applications in food, plastics, cosmetics, textiles, paints, inks, rubber, coatings, etc.


Type of Industry: Speciality Chemicals


Presence: Global(55% revenue from exports)

  • One of the six global players in the speciality food emulsifiers

  • One of the five global players in the polymers additives industry



2. INDUSTRY FACTS


Market Size:

  • Global speciality oleochemicals market was valued at US $19.1 billion in 2018 & expected to grow at a CAGR of 7.7% to reach US $36.2 billion by 2027

  • Indian oleochemicals market is projected to cross US $2.6 billion by 2025


Industry Analysis (Using Porters 5 forces):

  1. Supplier power (Power of raw material suppliers to control prices) - Medium

  2. Buyer power (Power of buyers to shift from fine organics to other players) - Low

  3. Threat of new entrants (Threat from other companies to enter this industry) - Low

  4. Threat of substitutes (Products can be replaced by other substitutes) - Low

  5. Existing competition (Competition between existing players in the industry) - Medium




What’s driving demand:

  • Increasing demand due to shift from petrochemical additives (petroleum-derived chemicals) to environment friendly oleochemical additives (derived from vegetables, animal oils & fats)

  • Products catered to a variety of high growth industries (food, polymer, auto, pharma, cosmetics, etc.)


Major players: There are a few large Global players currently operating in this industry




3. COMPANY FACTS



Market Cap : 6100 Cr (as on July 2020)


Raw Materials: Vegetable oils, out of which 20-25% ( mostly palm and palm kernel oil ) are imported


Products portfolio: Diverse portfolio of 400+ products used across various industries



Manufacturing capacity:

  • Installed capacity with over 100,000 tonnes per annum capacity, owned and sub-leased, with in house design, engineering, new product development and R&D facilities

  • Proposed expansion in future: 20,000 TPA

  • Plants located in close proximity to Nhava Sheva Port - Ideal for exports


End-users:

  • Polymer & plastic additives: Packaging, construction, consumer durables and automotive industries

  • Food additives: Bakery, dairy, frozen desserts, confectionery, convenience foods makers

  • Other additives: Automotive lubricants, Roads & Highway infra, cosmetics, pharma, coating, rubber industries



4. FINANCIAL PERFORMANCE:


  • Revenue: Growing at an average of 11% every year ( FY'15 - FY'20 )


  • EBIDTA: Growing at an average of 16% every year (FY'15 - FY'20) with healthy margins


  • PAT (Profit after Tax): Growing at an average of 25% every year (FY'15 - FY'20)


  • Return on Equity: The company has been able to deliver consistent returns (~28%) using the shareholders money over the past 5 years


  • Return on Capital Employed ( RoCE ): Has been efficiently been able to deploy capital in delivering consistent returns ( ~28% )


  • Debt to Equity ratio: The company‘s financial leverage is well maintained with decreasing debt to equity ratios over the years, which stands at 0.15x for the latest financial year ( FY'20 )


  • Market performance: Fine Organics two year period returns are at a staggering 147% as compared to 0.54% of Sensex



  • Peer - Peer comparison: Fine Organics has consistently outperformed its other peers in the speciality chemicals industry in India for the past 2 years

Note: None of the major comparable competitors of Fine Organics are in India. The above are just some of the major players in the entire speciality chemicals industry in India



5. ROAD AHEAD


The company looks to be well placed to deliver good growth in the future with:

  • Increasing and diversified product portfolio, which currently stands at 400+ products

  • Focus on diversification into higher margin products

  • Diversified 700+ customer base with long term relationships with big customers

  • Extensive distribution network in India and worldwide, delivering to over 70+ countries

  • Entering new markets outside India

  • Proposed expansion with new plants, both in India and globally

  • Increased focus on eco-friendly and sustainable products

  • Covid impact on this company appears to be on the lower side due to the essential nature of most of the products, as is evident from the stock price, which has returned to pre-covid levels



Links for references of Industry Statistics & Company financials used in this article : 1, 2, 3, 4, 5


If there is anything specific you'd like to know about the company or any other thoughts/view points you would like to share, do let us know in the comments and we will try to address it.

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