Chemicals

Fineotex Chemical Ltd – Customizable products an advantage for this stock?

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(A) About

Fineotex Chemical Ltd - logo

Incorporated in 1979, it is engaged in the business of manufacturing auxiliaries and specialty chemicals for multiple sectors such as textile, home care, hygiene, mining, garment, water treatment, leather, construction, paint, agrochemicals and adhesives.

(B) Journey

Fineotex Chemical Ltd - Journey

(C) Board Members of Fineotex Chemical Ltd

(i) Mr. Surendrakumar Tibrewala - Chairman & Managing Director

Mr. Surendrakumar Tibrewala is the chairman & managing director in the company. He is 66 years old.

He is a B. Com and a Law Graduate and has four decades of experience in the Company’s business. Moreover he has over four decades of experience in the Company’s business. He was instrumental in growing the business from scratch to one of the leading companies in this sector. Moreover he continues to contribute strategically to guide the Company on its growth path.

For FY22Remuneration received Rs 0.95 Cr which is 0.25% of Net Sales and 1.67% of Net Profit.

(ii) Mr. Sanjay Tibrewala - Executive Director & CFO

Sanjay Tibrewala is the executive director of the company. He is the son of Surendrakumar Tibrewala and is 41 years old.

Moreover he is a B. Com and has completed higher studies in Textile processing. Sanjay Tibrewala has associated with the Company’s business for the last 22 years. His missionary zeal has helped the Company to develop new products which have received acceptance in domestic as well as international markets. The Company’s products have a growing acceptance internationally and has helped the Company achieve the Star Exporter credentials.

For FY22Remuneration received Rs 0.95 Cr which is 0.25% of Net Sales and 1.67% of Net Profit.

(iii) Mrs. Aarti Jhunjhunwala - Executive Director

Aarti Jhunjhunwala is the executive director of the company. She is the daughter of Surendrakumar Tibrewala and is of 39 years of age.

moreover she has completed his education in Masters in Accounts and Taxation. She has a rich and varied experience in International Business.

For FY22Remuneration received Rs 0.43 Cr which is 0.11% of Net Sales and 0.76% of Net Profit.

(D) Shareholding Pattern of Fineotex Chemical Ltd

Fineotex Chemical Ltd - Shareholding
Fineotex Chemical Ltd - Promoter shareholding
Fineotex Chemical Ltd -  Public shareholding

(E) Product Segment of Fineotex Chemical Ltd

Fineotex Chemical Ltd - Segment

(i) Specialty Textile Chemical

In specialty textile company provides chemicals in whole value chain from weaving, pre-treatment, dyeing, printing to finishing processes. All these textile chemicals are produce as per the European technology since 1979.

Fineotex Chemical Ltd -  Specialty textile chemical

Fineotex + Biotex together offer tailored solutions across the textile value chain with a focus on higher realizations.

(ii) Cleaning & Hygiene Chemical

It offers customize solution for:

  • Housekeeping, Kitchen Care and Disinfectants
  • Public Health and Hygiene
Fineotex Chemical Ltd - Cleaning & Hygiene

Its plant has also approved and certified by the Food & Drugs Administration (Maharashtra State) department. Moreover the license granted for production of disinfectant/antimicrobial hygiene and cleaning products ensuring safety and effectiveness.

(iii) Drilling Specialty Chemicals

Customized solutions for Oil and Gas

  • Significant potential for offering effective products used for drilling in oil exploratory processes.
  • Sizable orders from a leading oil and gas company in India.

(iv) Other Specialty Chemicals

  • It offers non toxic eco-friendly solution designed with European technology in Malaysia by Biotex.
  • Moreover its products are approved by Ministry of Health Malaysia, Singapore PUB, European Union, NSF and relevant authorities in Vietnam and Cambodia.
  • A unique ‘Mosquito Life Cycle Controller’ product under development by Biotex.

(F) Strategic Partnerships

(i) Eurodye-CTC

  • Collaboration with Eurodye-CTC, Belgium to commercialize specialty chemicals for the Indian market.
  • Which also helps them to facilitates an efficient production system and distribution network across the Indian textile market.
  • Meanwhile global certified products of Eurodye-CTC will find a huge demand from Indian companies.

(ii) Health Guard

  • Strategic collaboration with Health Guard, Australia also to become the exclusive global marketing and sales channel partner with joint operations from Malaysia.
  • Health Guard will concentrate on developing cutting-edge solutions, that will be market and channelized across the world by Fineotex-Biotex.

(iii) Sasmira

  • Company is also setting up a state of art Research & Development center in collaboration with Sasmira Institute, one of India's premier textile institutes.
  • Company is also focusing on new sustainable solutions and chemicals to reduce water, time and energy consumption for the textile wet process industry.

(G) Revenue Mix of Fineotex Chemical Ltd

(i) Geographical wise Revenue

Fineotex Chemical Ltd - Geographical wise revenue

Company's 58% of the revenue comes from India while 42% comes from rest of the world. Further, its 90%-95% revenue comes from specialty textile chemical while rest comes from other segments.

(H) Manufacturing Capacity

Fineotex Chemical Ltd - Manufacturing capacity

(I) Cost Structure

Fineotex Chemical Ltd - cost structure

(J) Financials of Fineotex Chemical Ltd

(i) Financial Trend

Fineotex Chemical Ltd - Financial trend

The company’s revenue grew at a CAGR of 14.41% while its PAT grew at a CAGR of 21.51%.

In FY22 PBITDT margins increase from 18.57% in FY21 to 19.34% in FY22. Management believe that it will be kept between 15%-20%. Its ROE & ROCE increase in past decade while its debt to equity decrease.

(ii) Du Pont Analysis

Fineotex Chemical Ltd - Du pont analysis

Company is continuously improving its PAT margins in last 10 years. Meanwhile the Assets to equity increase from 1.28 to 1.30 as it has increase its debt to equity from 0.02 to 0.01 from FY21 to FY22.

(K) Management Discussion & Concall

Outlook

  • Company Health & Hygiene has seen excellent growth prospects with better than industry revenue growth.
  • Moreover company has launched its new facility in Ambernath, on the outskirts of Mumbai in Nov,2021 with a capex of Rs 27Cr.
  • Company has seen a rising demand for super specialty finishing products post COVID.
  • Further company has seen a rising demand from end-user industries such as food processing personal care and home care which is driving development of different segments in India's specialty chemical market.
  • Company has also diversified into the oil drilling industry and will create additional facilities at Ambernath, company intends to introduce new products in this category in the coming years.

Q1 FY23 Highlights

  • In Q1FY23 its revenue increase by 115% YoY to Rs. 135.8 Cr.
  • Moreover its EBITDA increase by 167% YoY to Rs. 26.2 Cr, while EBITDA margins stands at 19%.
  • In Q1FY23 total volume increase by 25% to 13,500 Ton while in Q4FY22 it was 10,500 Ton.
  • Apart from providing value added products, it also provide high-end customized solution to its key clientele.
  • The new capacity of 21000T will be commissioned in September.
  • Company's top 10 products contribute to 18% of the revenue while top 10 customers contribute to 25% of the revenue in the standalone number.
  • Moreover company is focusing on increasing their wallet share.

Competitive Advantage

Customized solution provider

  • It is not a capex driven business but more of a solution driven.
  • Its business is more about a competitive USP, in which company understand the customers requirement and set their products as they wanted it to be, so there is a lot of technical services involved in that.
  • Company has all solution available as every customer is different. They have different products lines for cotton, for polyester as every product is unique and can not be used on other material.
  • Company has products based on machines used by the customer like what kind of process they are using (continuous process or batch wise products).
  • Moreover company has the ability to cater to demanding customer requirements and customization.

(L) Strength & Weakness

Strengths

(i) Established position in the specialty textile chemicals market and reputed clientele

With more than four decades of industry experience of the promoters, healthy relationship with reputed customers and suppliers and diversified product line and customer base should continue to support the business. Company has a good standing not only in the domestic market but has also increased its global footprint, with presence in around 70 countries. Exports formed 42% of the revenue in fiscal 2022. 

(ii) Healthy operating efficiency

The capacities for the company are fungible across segments and products. The company is moving towards a balanced end user profile from the now textile concentrated end user. The company earlier had a sales volume ratio of 90:10 of textile vs non textile segment, in Q4 fiscal 2022 the ratio was at 60:40 and the company aims to sustain the ratio going forward. Home and hygiene segment is expected to benefit the company with better accruals and lower working capital cycle.

(iii) Strong financial risk profile

Over the past few years, debt free capital structure and healthy debt protection metrics have kept the financial risk profile healthy. The company is a term debt free company with gearing remaining below 0.4 time and expected to remain less than 0.5 times also going forward. Over the medium term, debt protection metrics are also expected to remain strong with healthy operating performance and interest coverage of more than 20 times.

Weaknesses

(i) Exposure to volatility in raw material prices and to intense market competition

Raw materials are derivative of petrochemical products, and their prices are therefore exposed to volatility in crude oil and other raw material prices. Additionally, 20% of the raw material requirement is imported which is however offset by export earnings to cover the exchange fluctuation. Though with formula-based pricing and favorable product-mix, exposure to such volatility is mitigated. Also, with the cost pass through ability of the company, FCL has been able to maintain its operating margin at 17.9% to 21.3% over the last five years.

(ii) Moderate albeit improving scale of operations

The company was incorporated in 2004, however, scale of operations remains moderate. Revenue growth has picked up in the past few years, driven by strong product portfolio, increasing network of more than 100 dealers in domestic as well as international market and foray into new business segment.

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References:  Annual Reports, News Publications, Investor Presentations, Corporate Announcements, Management Discussions, Analyst Meets & Management Interviews, Industry Publications.

Disclaimer: The report only represents the personal opinions and views of the author. No part of the report should be considered a recommendation for buying/selling any stock. Thus, the report & references mentioned are only for the information of the readers about the industry stated.

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