Recommendation From Miscellaneous Sector

Recommendation From Miscellaneous Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.

FINE ORGANIC INDUSTRIES : A ‘FORMULA’ FOR PROFIT

HERE IS WHY
☛Good growth prospects.
☛Strong return ratio.
☛Near-term expansion plans.
 

Fine Organic Industries Limited is the largest manufacturer of oleochemical-based additives in India and a key producer globally. Its manufacturing facilities are located at Ambernath, Badlapur and Dombivali. The additives are especially designed to impart functionality in the end product. Therefore, these are widely accepted and used in food, plastic, cosmetics, coatings and other specialty applications across numerous industries. Fine Organic Industries is one of the six global players in the specialty food emulsifiers. It is one of the five global players in the polymer additives industry and one of the leading players to develop proprietary technology to manufacture green additives.

The financial performance for FY 2019-20 reported a slight de-growth in revenues owing to the lockdown. During the year, the company successfully commenced production at its third facility at Ambernath. It has another expansion project at Patalganga. Construction activities have already begun and are moving on track as planned. This facility will be dedicated to food additives for exports and growing domestic markets and will add to the top-line going forward. With the forced lockdowns, people are stocking up groceries. Hence, the company enhanced its focus on food emulsifiers for biscuits and bakery products, which witnessed a larger off-take during the pandemic.

This will add to its revenue in the coming 1-2 quarters. The global oleochemicals market is valued at USD 22 billion in 2020 and is expected to reach USD 31.9 billion by 2025. The product finds application in numerous major fields including polymers, pharmaceutical and personal care, soaps and detergents, food and beverages, and others. Global plant-sourced food emulsifiers market is expected to reach USD 2,495.1 million by 2023 at a CAGR of 5.4 per cent during 2018-2023. The major factors driving the demand for food emulsifiers market are rise in consumption of processed foods and increasing population with a rising level of urbanisation.

The company has shown good growth in the last few years and that too with improving profit margins. The revenue is almost equally distributed with 55 per cent exports and 45 per cent domestic. The company has also improved the debt to equity proportion with its DE ratio reducing from 0.25x in FY16 to –0.13x in FY20. Negative DE implies a net cash position greater than debt. For the quarter ended June 2020, the company’s gross sales decreased 4.22 per cent to Rs 240.02 crore in Q1FY21 from Rs 250.59 crore in Q1FY20. Total expenditure for Q1FY21 stood at Rs 187.55 crore as against Rs 189.96 crore in Q1FY20, showing a decrease of 1.27 per cent. 

PBIDT, excluding other income, showed a decrease of 13.47 per cent to Rs 52.47 crore in Q1FY21 from Rs 60.63 crore in the same quarter last year. PBIDT margin, excluding other income, for Q1FY21 stood at 21.86 per cent as against 24.20 per cent in the same quarter last year. PAT for Q1FY21 stood at Rs 29.16 crore as against Rs 39.87 crore in the same quarter last year, showing a decrease of 26 per cent. PAT margin for Q1FY21 stood at 12.15 per cent as against 15.91 per cent in the same quarter last year. ROCE for FY20 stood at 31.48 per cent. The stock is trading at PE of 52x. By virtue of these factors, our recommendation to readerinvestors is to BUY this stock.

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