FINEORGANICS -VERY FINE CHEMICAL CO.

FOIL is in the oleo chem based additives bussiness with majority of additives sales coming from food (30%) & plastic(40%) segment, together contributing 70% to d overall revenues & rest being contributed by additives like paints, rubber, cosmetics etc.

Founded in 1970, by Mr. Ramesh Shah, a Mumbai-based businessman with experience in chem. trading and Mr. Prakash Kamat, a skilled technocrat from Institution of Chemical Technology.

 Promoter hold 75% stake & only 3.48% (10.65 lacs shares) are available for Retail shareholders.

Co. claims to be d largest organised player of Oleo-chem based green additives in India.

             -Among top 6 global players in the specialty food emulsifiers

             -1 of d 5 global players in d polymer additives industry

             -They also claim to develop proprietary tech. to mfg green additives.

 

PRODUCTS

They mfg additives which are naturally derived from oleochemicals other than synthetically derived from petrochemicals. They have around 400+ product profile which has doubled in last few years.

 

So, what these additives are & why they are important?

 Since plastic & food Additives are major contributor to the revenue lets talk about Plastic Additives first.

 

PLASTIC ADDITIVES - Plastics products are made from polymers & these polymers are mixed with a complex blend materials called plastic additives.

They mfg wide range of additives for polyolefins, polyolefin compounds masterbatches, styrenics compounds, engineering plastics, rigid PVC products.

So basically they are required in mostly all d plastic products that we use n see in our daily life’s.

Uses of these additives are:- 

The packaging sector is the major user of plastic additive (26%) followed by consumer goods (21%) & construction & auto industry, with 20% each.

Global market size of plastic is around $30bn (2021E)whereas Indian mkt size is around 9000crs growing with a CAGR of 8-10%.

FOOD ADDITIVES

Are substances added to food which affect its characteristics. They are used to preserve,flavour, blend, thicken etc.

Food additives are strictly regulated and monitored by governments to ensure the health of people therefore there is a entry barrier into this segment.

GLOBAL MKT SIZE – $2.4bn(2023E) INDIAN MARKET SIZE – 1100 crs (2023)

Acc. To mgt they were having 90% mkt share in food additives segment. Inc shift of consumer to packaged food due to covid might lead to increased demand for their products too.

Other industries serves are as shown below:

RAW MATERIAL PROCUREMENT

Co. procures raw materials from domestic and international markets & uses a mix of spot contracts and fixed-price agreements of up to six months

- 45% of purchases are through the top two suppliers only.

-28% of raw materials are imported.

 

ENTRY BARRIERS

There is a high entry barrier as customers don’t easily shift to other players offering at lower prices, Quality is the main parameter & it takes months or years to get approval from the customers.New players don't come in due to complex tech. & resources requirements.

COMPETITORS – Its major competitors are global players like THE KERRY GROUP, DANISCO ETC.

CAPACITY- it has total capacity of 101,300 MTPA at 

• Ambernath1(49500 MTPA) 
• Ambernath 2 (5000 MTPA)
• Badlapur (6400 MTPA)and 
• Dombivali (8400MTPA)
• Ambernath3( 32000 MTPA)

EXPANSION – By FY22 they will reach around 131300 MTPA which is nearly double of FY19 CAP-69300 MTPA. Mgt expects to reach optimum utilization in next 4yrs.

 

REVENUE CONTRIBUTION – EXPORTS- 55% DOMESTIC-45%

Major Countries of export arE

 i)North &South America -20-25%

 ii) EUROPE - 20-22%

 iii)  Middle East & Africa 30-40%

    iv) Asia 20-25% (INCLUDING CHINA)

 

  They derives 50% of rev through annual contract, while rest 50% comes from short- term contracts (about 3months) through distributors.

   

BALANCE SHEET

They have got quite strong balance sheet with NET DEBT FREE. Cash+ INV - 243crs

Debt- 125crs (4.8% int. cost)

Net asset - 217crs vs 78crs (+178%)⬆ 

WC DAYS - 75

P&L

GP margins are stable around 40% with some fluctuations due to raw mat price volatility

In 2017 all oleochem co's faced margin pressure to inc in palm oil prices. Over the years margins hv steadily improved due to operating leverage benifits.

Ratios

One thing which stands out is d return ratios

ROCE - 32% (FY19)

FY20 ROCE WILL BE LOW DUE RECENT EXP. 

ROE - 26%

 

Whats amazing is its NET FIXED ASSET TURN. NEARLY 10X at peak capacity.

Don't think it being high due to high realization as prod doesn't seem to be commodity at all.

Valuations - Doesn't look cheap But given the strengths of Bussiness model of co. it will not be available cheap High Entry Barriers Good Return Ratios Healthy cash Generations. Low float. Mgt pedigree