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Fine Organic Industries IPO Review

Fine Organic Industries Limited

Specialty chemicals maker, Fine Organic Industries IPO is set to raise Rs. 600 crore at a price band of Rs. 780-783 per share. The Fine Organic Industries IPO is a pure offer for sale and see the company’s promoters sell 7.66 million shares.

Fine Organic Industries IPO: Details
Issue Period Wed June 20, – Friday June 22, 2018
Issue Details OFS of  7,664,994 Equity Shares
Issue Size (Rs. Cr) Rs.600 Cr
Price Band Rs.780 – 783
Bid Lot 19 Equity Shares 
Issue Structure :  
QIB 50% of the Net offer 
NIB 15% of the Net offer
Retail 35% of the Net offer
BRLMs JM Financial, Edelweiss Financial 
Registrar Karvy Computershare Pvt. Ltd.

About Fine Organic Industries Limited 
  • Fine Organic is one of the largest manufacturer of oleochemical based additives in the country.
  • Fine Organic Industries Limited produces a wide range of specialty plant derived oleochemicals based additives used in the food, plastic, cosmetics, paint, ink, coatings and other specialty applications in various industries.
  • Fine Organic primarily manufacture 3 types of Food Additives, namely, Anti-Fungal Agents/Preservatives, Emulsifiers and Other Specialty Additives. In Plastics Additives, Fine Organic manufacture a large variety of plastic additives: polyolefins additives; tyrenics/elastomer/ thermoplastic elastomer compound additives; engineering plastic processing additives; foamed plastic product additives; polyvinyl chloride (PVC) processing additives and  thermosets/composite product additives.
  • Fine Organic currently has 3 production facilities:
    • Ambernath (Maharashtra) 
    • Badlapur (Maharashtra) 
    • At Dombivli (Maharashtra) 
  • The ‘Fine Organics’ brand is over 44 years  old and  is widely recognized . As at March 31, 2018, Fine Organic had a range of 387 products sold under the ‘Fine Organics’ brand, used in the (a) Plastic Industry and (b) Food Industry and others (Cosmetics, Printing Inks, Coated Papers, Lube Additives, Wires and Cables, Coatings and Other Specialty Applications) industries.
  • Fine Organic is the first company to introduce slip additives in India and they are the largest producer of slip additives in the world.
  • In the 12 months ended March 31, 2018, Fine Organic had 631 direct customers and 127 distributors (who sold their product to more than 5,000 customers). Their direct customers are multinational, regional and local players manufacturing consumer products and petrochemical companies and polymer producers globally.
  • Fine Organic Industries Limited  has an extensive distribution network in India and worldwide, enabling their products to be sold in 69 countries.
Fine Organic Industries Limited : Financials
Rs. In Crore
Particulars 9m FY18 FY 17 FY 16 FY 14 FY13
Revenue from Operations 590.43 814.94 686.01 635.93 567.2
Revenue Growth (%) 18.79% 7.88% 12.12%
EBITDA 113.04 149.85 155.46 112.95 114.83
EBITDA Margin (%)  19.15% 18.39% 22.66% 17.76% 20.25%
Profit Before Tax 95.4 121.57 117.59 82.68 94.57
Net Profit 60.94 78.36 76.48 53.19 61.75
NPM 10.32% 9.62% 11.15% 8.36% 10.89%
Equity Share Capital 15.33 4.83 4.83 4.83
Reserves  336.17 313.13 234.86 202.45
Net worth  351.5 317.96 239.69 207.28
Short Term Borrowings 28.55 40.26 72.87 65.59
EPS (Rs.) 19.88 25.56 24.95 18.35
RONW(%) 17.34 24.65% 31.91% 25.66%
NAV (Rs.) 114.65 103.7 78.18 71.52
Face Value 5
IPO Price 783
PE (Annualized FY18) 29.55
PE – (FY17) 30.63
CAGR Sales 3 Yrs 12.84%
CAGR Net Profit 3 Yrs 8.26%
Market Cap 2400.68
Market cap / Sales 2.95
Fine Organic Industries IPO: Pros
  • Fine Organics Industries is the largest manufacturer of oleo chemical-based additives in India and a strong player globally in this industry.
  • The sectors in which company operates are likely to witness steady growth.
  • Present installed capacity of Fine Organic Industries Limited  stands at 64,300 tonne (FY18E). Fine Organic Industries Limited  has plans to almost double the installed base by incremental capacity addition of ~67,000 tonne over 2-year period (FY18-20E)
  • The company has developed in-house process design expertise to construct its production facilities.
  • The company is currently planning to set up an additional production facility in Ambernath with a planned installed capacity of 32,000 tonne per annum, which it expects to commence operations in the fourth quarter of Fiscal 2019. In addition, the company is planning to set up a new production facility in Leipzig, Germany with a planned initial installed capacity of 10,000 tonnes per annum, which it expect to commence operations in the third quarter of Fiscal 2020. This facility will be owned and operated by a joint venture company
  • Company has marque clients spread over all geographies. 
Fine Organic Industries IPO: Risks
  • Raw material price forms substantial cost of raw material and is subject to variations
  • Exchange Rate Risks
  • Competition from large Foreign players.
Fine Organic Industries  IPO: Assessment
  • The manufacturing plant-based additives from base oleochemicals is a highly specialized process and this industry enjoys premium margins with only a few players dominating the industry globally. Proprietary technology to manufacture these specialty additives is available with only a few global players and Fine Organic Industries Limited is one of the leading players that developed proprietary technologies to manufacture these green additives.
  • Fine Organic Industries Limited  has strong R&D Capabilities and has specialized business model with relatively high entry barriers.
  • The Company’s brand ‘Fine Organics’ brand has a legacy of over 44 years and is widely recognized.
  • Fine Organic Industries Limited has strong balance sheet with Net Debt: Equity at 0.1x.
  • Fine Organic Industries Limited enjoys RoE of 25% and has positive operating cash flow.
  • At post issue P/E of around 29-30, the company’s valuations are just reasonable.  The Fine Organic Industries IPO looks OK for medium to long term and company has strong product and technological prowess .  Not an exact peer but similar company Galaxy Surfactants is trading at a PE of 29 though it did give listing gains at one time. I intend to apply in the IPO only if there is substantial response to the IPO in the run up to the IPO. 

Standard disclaimer:  I am not a SEBI registered analyst and above analysis is for educational purpose only. I may have vested interest in every stock I discuss and my views may be biased. Please do your own due diligence as stock market investments have high degree of inherent risk. 

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