IPO Analysis: Fine Organic Industries

IPO Rating - 48 (Invest with limited exposure)**

About the Issue

IPO Opens on: June 20, 2018

IPO Closes on: June 22, 2018

Face Value: Rs. 5 per equity share

Issue Price Band: Rs. 780 – Rs. 783 per equity share

Issue Type: Book Built Issue IPO

Market Lot: 19 shares

Issue Size: 7,664,994 equity shares of Rs. 5 aggregating up to Rs. 600 crore

Listing Exchange: BSE, NSE

Leading Managers: JM Financials and Edelweiss Capital

Purpose of the Issue

- To achieve the benefits of listing equity shares on the stock exchanges and to carry out the sale of up to 76,64,994 offered shares by the selling shareholders, i.e., divestment of 25 per cent promoter stake.

- To enhance the company’s brand name and provide liquidity to the existing shareholders. The company will not receive any proceeds from the offer and all the proceeds less the offer-related expenses, will go to the selling shareholders.

Company Background

Fine Organic Industries Limited is the largest manufacturer of oleochemical based additives in India and a strong player in the global market in this industry. The company's products include a wide range of speciality plant-derived oleochemical-based additives which are used in the various industries such as plastic, paint, cosmetic, coatings and ink. The company has three manufacturing facilities with a combined installed capacity of around 64,300 tonnes per annum.

It is the first company to introduce slip additives in India and is the largest producer of slip additives in the world. Its direct customers are multinational, regional and local players manufacturing consumer products, such as Hindustan Unilever and Parle Products and petrochemical companies and polymer producers, globally. The plastics additives and speciality additives are also used in the packaging of foods and other fast-moving consumer goods.

The company’s revenue mix for 9MFY18 comprises Plastics Additives (72 per cent) and Food & Other Additives (28 per cent). Further, its geographical revenue mix comprises of Exports (62 per cent) and Domestic (38 per cent).

As at March 31, 2018, the company had a range of total 387 different products sold under the banner, Fine Organics.

Financials



On a consolidated basis, the revenue from operations for the company increased at 13.2 per cent CAGR over FY15-17 and its PAT grew at 21.4 per cent CAGR over the same period. The company’s revenue grew to Rs. 814.94 crore in FY17 from Rs. 686.01 crore in FY16, registering an increase of 19 per cent. Its EBITDA remains same at Rs 145.4 crore in FY17. Its PAT registered marginal increase from Rs. 76.48 crore to Rs. 78.36 crore, up by 2 per cent.

Expansion Plans

The company is planning to set up an additional facility in Ambernath with a planned installed capacity of 32,000 TPA. This is likely to commence operations from Q4FY19E. The company is also planning to set up a new production facility in Germany with a planned initial installed capacity of 10,000 TPA and likely to commence from Q3FY20E. This facility will be owned and operated through a 50:50 JV. Overall, the company has proposed expansion by around 4 per cent from 64,3000 TPA to 67,000 TPA.

Valuation

For FY17, the company’s EPS stood at Rs. 25.56. Considering the upper price band of Rs. 783, the company’s P/E works out to 30.6x. No listed companies are engaged in the same business line, hence the company cannot be compared with peers.

Our View

Fine Organic Industries Limited is the largest manufacturer of oleochemical based additives in India and is a strong global player in this industry. The company has seen good growth over the last two years in terms of top line as well as bottom line. Also, its diversified portfolio and specialised business model with high entry barriers put the company in a strong position. Also, the company's domestic, as well as global expansion plans, provide good visibility for the coming years.

However, the company imports around 25 per cent of its raw material. So, any fluctuation in currency may affect the company’s profitability. Also, the company has not yet obtained possession of the land in Ambernath on which it is planning to set up the new facility. Considering all these aspects, investors can subscribe to the IPO with limited exposure and with a long-term perspective.



**40 or lower – Avoid Investment, 41 to 45 – Risky, 46 to 50 – Invest with limited exposure, 51 to 55 – Investment recommended, 56 & above – Excellent Investment

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