Analyzing growth opportunities for Fineotex Chemical Limited

Fineotex Chemical Limited focuses on capitalising on emerging opportunities through development of newer range of products which should serve ever-changing customer needs.
Focus of the company remains on reinforcing its established market leader position through making investments in technology, infrastructure, manufacturing and product development.

Fineotex Chemical Limited

Founded in 1979, Fineotex Group has evolved into specialty chemicals manufacturer, catering to a range of sectors including textile, home care, hygiene, mining, garment, water treatment, etc. The company is equipped with latest and finest technology, and it keeps itself updated with help of its own in-house state-of-art R&D. Across its process, it has strict tests and quality controls, enabling the company to differentiate its products with help of customization and high-quality control level. Collectively, all these factors help the company in delivering superior performance.

Business model of Fineotex Chemical Limited

Fineotex Chemical Limited manufactures more than 450 specialty chemicals and enzymes. State-of-art manufacturing plants which are located in Navi Mumbai (India) and Selangor (Malaysia) are fungible throughout product range. New plant which is situated in Ambernath, Mumbai is expected to enhance capacities from 1,04,000 MT per annum, catering to the company’s clientele throughout critical international textile hubs.

The company’s subsidiary Biotex, in Malaysia, oversees its research and development initiatives, and makes sure that Fineotex continues to evolve and adapt. It continues to look for new avenues of expansion and provides most innovative and sustainable solutions for its clients.

Track record of management

Mr. Surendrakumar Tibrewala: He is Chairman and Managing Director of Fineotex Chemical Limited. He has done commerce and is a law graduate. With experience spanning across 4 decades in Chemicals & Enzymes for a range of industries such as Textiles & Garments, Construction, Water Treatment, etc., he has played a critical role in growing business from scratch to a leading company in sector. He played a significant role in managing the company’s growth and success.

Mr. Sanjay Tibrewala: He is executive director of Fineotex Chemical Limited and is associated with the company’s business for more than 2 decades. Because of his rich experience, the company achieved significant milestones and saw recognition both nationally and internationally. Because of his strategic planning and execution, he was able to expand product portfolio and market reach of the company.

Mrs. Aarti Jhunjhunwala: She has done Masters in Accounts and Taxation and has been in family business for numerous years. She has vast knowledge of products and market in which the company carries out operations. Strong industry knowledge, customer-centric approach and leadership capabilities collectively supported the company’s growth and success. Over past several years, she has been instrumental in the company’s growth, and has been handling several functions like business development, sales, branding, strategy, etc.

Financial performance of Fineotex Chemical Limited

In 1Q24, Fineotex Chemical Limited saw PAT coming at INR2,613 lakhs in comparison to INR2,031 lakhs in 1Q22, exhibiting a rise of 28.66% on year-over-year basis. Operational EBITDA of the company came in at INR3,153 lakhs in 1Q24 in comparison to INR2,624 lakhs, up by 20.16%. The company used its fundamental strength in textile chemical industry to make an entry into cleaning and hygiene industry. Several chemical compounds which are used in textile specialty segment have potential applications in cleaning and hygiene segment too.

This expansion enables the company to diversify business and revenue streams while, at same time, leveraging core competencies.

In FY23, the company saw a strong year-on-year revenue growth of 40.4%, touching INR5,170 million. Strong demand for its products and services in market was a critical driver of this success. Additionally, its EBITDA came in at INR1,126 million, exhibiting a significant year-on-year growth of 58.1%. Growth was supported by strategic endeavours, sound measures relating to cost control, and strong dedication to operational excellence. Since the company has maintained EBITDA margin of 21.8%, it has proven its capacity to generate profitable outcomes and deliver value for stakeholders.  

During FY23, the company saw strong progress in production and sales. Increase in production exhibited growth of 81.96% in comparison to prior year’s production of 30,612 MT. Similarly, sales volume saw substantial increase, resulting in a growth rate of 84.77% in comparison to prior year’s sales of 29,910 MT.

Future prospects of Fineotex Chemical Limited

Since Fineotex Chemical Limited continues to hold strong market position, the company is likely to achieve healthy and sound revenue and EBITDA growth over next 2-3 years. Its extensive experience and expertise should help it in establishing reputable brand name and gain competitive edge in market. Given its diversified product portfolio including textile chemicals, polymers, and enzymes, the company addresses a range of industries, which helps in mitigating risks related with relying on single sector for revenue generation.

Additionally, Fineotex Chemical Limited has well-developed distribution network and a broad customer base, both domestically and internationally. Collectively, all these strengths should help it achieve consistent revenue growth and improved financial performance. The company tends to benefit from experienced management team, as its top management has a strong track record of successfully navigating industry and supporting the company’s growth.

Fineotex Chemical Limited operates in industry which has a range of growth opportunities. Since there is a growing demand for specialty chemicals in India and in overseas markets, the company can enter overseas markets and build its international footprint. Plans are there to capitalize on this demand as it intends to make investments in R&D to expand product portfolio. Moreover, given its significant focus on sustainability and eco-friendly products, it has an opportunity to position itself as a leader in offering environmentally conscious solutions to customers.

Industry analysis

Indian chemicals industry is expected to touch US$304 billion by 2025. This means that industry should be able to compound at ~9.3% between 2023-2025. Chemical industry should make a contribution of US$383 billion to India’s GDP by 2030. Higher demand from end-user industries including food processing, personal care, and home care should support development of numerous segments in India’s specialty chemicals market.

India’s specialty chemicals companies might expand capacities to address increased demand from both domestic and international markets.

Experts believe that an investment of ~INR8 lakh crore (US$107.38 billion) should be seen in Indian chemicals and petrochemicals sector by 2025. Specialty chemicals make up for ~22% of total India’s chemicals and petrochemicals market. Demand for specialty chemicals should rise, and India has a strong global position in chemical exports and imports. India ranks 14^th in exports and 8^th in imports (excluding pharmaceuticals). Chemicals industry in India spans over ~80,000 commercial products, contributing to strong overall market size. Specialty chemicals sector should reach a market size of US$40 billion by 2025.

Risks

Fineotex Chemical Limited’s business operations can get impacted due to economic slowdowns and geopolitical factors. These factors can impact overall demand for specialty chemicals, which can result in reduced sales and potential revenue decline for Fineotex Chemical Limited. Additionally, trade disputes, regulatory changes, and political instability can adversely impact global markets and impact its international operations, including supply chain and customer base. However, the company is debt free and it can overcome and manage such situations.

Potential risk of technological obsolescence as a result of rapid advancements and evolving customer preferences is another risk faced by the company. This can make products and manufacturing processes outdated and less desirable. As a result, it can pose challenges for the companies to remain innovative and adapt to dynamic trends of market.

Shareholding pattern of Fineotex Chemical Limited

Promoters of the company hold ~65.04% at end of June 2023. This exhibits an increase in holding from 65% in December 2022. Increase in holdings of promoters indicate confidence of management in growth opportunities of the company. Therefore, this increase is a big positive. It means that management’s expectations are aligned with expectations of shareholders.

FIIs hold ~0.75% and DIIs hold ~3.65% in Fineotex Chemical Limited in end of June 2023. Remaining ~30.56% is being held by public shareholders.

Valuation and investment rationale

Stock of Fineotex Chemical Limited currently trades at ~36.8x in comparison to sectoral average of ~44.5x, exhibiting that the company’s stock is trading at a much lower valuation. This hints that investors should consider going long on this stock for long term.    

Growth in stock price is expected to be supported by strong market position, healthy operating efficiency, and strong financial risk profile. India’s economy continues to grow steadily because of strong domestic demand, higher investment activity, and buoyant private consumption. This growth, and India’s vast consumer market and affordable labor, should attract global brands and trading partners. As a result, the company expects significant opportunities for long-term growth and transformation. Indian home care market has been pegged at ~INR35,000 crores and this should grow at a good pace over upcoming 5 years.

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