Fine Organic Industries IPO Note (May apply)

Fine Organics is the largest manufacturer of oleo chemical-based additives in India and a strong player globally in this industry.

It is one of six global players in the food additives industry and one of five global players in the plastic additives industry

Further, company is expanding its product range into segments to offer high growth potential and also planning to diversify by manufacturing and distributing premixes for bakery and confectionary products and pan release agents. This facility is expected to commence operations by Q1 FY19.

Moreover, on the upper price band of Rs 783 with annualized EPS of 9M FY18, P/E works out at 28.26 xs.

Fine Organics business looks attractive but high valuation at current level fails to infuse optimism in company, hence recommend NEUTRAL on issue.

THE OFFER

• Issue Open: 20 June 2018 to 22 June 2018
• Issue Type: Book Built Issue IPO
• Issue Size: Offer for Sale of 7,664,994 Equity Shares @ 5 aggregating up to Rs 600.17Cr
• Face Value: Rs 5 per Equity Share
• Issue Price: Rs 780 - Rs 783 per Equity Share
• Market Lot: 19 Shares
• Minimum Order Quantity: 19 Shares
• Listing At: NSE, BSE

CAPITAL STRUCTURE

The share capital of Company, is set forth below (Amount in Rs except share data)

Authorized Share Capital:-

40,000,000Equity Shares @5 Aggregate values 200,000,000

Issued, subscribed and paid up capital before the Issue:-

30,659,976Equity Shares @5 Aggregate value 153,299,880

Present Issue:-

Offer for Sale of 7,664,994 Equity Shares @ 5 aggregating up to Rs 600.17 Cr

OBJECT OF THE OFFER

• To achieve the benefits of listing Equity Shares and to carry out the sale of up to 7,664,994 Offered Shares by the Selling Shareholders.
• The Company will not receive any proceeds from the Offer and all the proceeds from the Offer will go to the Selling Shareholders.

COMPANY OVERVIEW

Fine Organics Industries is the largest manufacturer of oleo chemical-based additives in India and a strong player globally in this industry.

It produces a wide range of specialty plant derived oleo chemicals-based additives.

As on March 31 2018, the company had a range of 387 different products and used in the plastic industry, food industry and other (cosmetics, printing inks, coated papers, lube additives, wires and cables, coatings and other specialty applications) industries.

It is the first company to introduce slip additives in India and is the largest producer of slip additives in the world.

In the 12 months ended March 31, 2018, it had 631 direct customers (i.e., end-users of products) and 127 distributors (who sold products to more than 5,000 customers) from 69 countries.

PLANS LINED UP

• The company currently has 3 production facilities- Ambernath Badlapur and Dombivli in Maharashtra having a combined installed capacity of approx 64,300 tonne per annum as on December 31, 2017.
• 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 4th 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 tonne per annum, which it expect to commence operations in the 3rd quarter of Fiscal 2020. This facility will be owned and operated by a JV company.
• The company is also planning in the development of 2 additional production facilities: one in Patalganga (Maharashtra) with a planned initial installed capacity of approximately 10,000 tonne per annum and the other one in Ambernath (Maharashtra) for which it is awaiting possession of the land and has yet to decide on the planned initial installed capacity.

ROAD MAP AHEAD

Company objectives are to expand their market share and aim to accomplish this through the following strategies:

• Expand Total Installed Production Capacity and Product Range
• Expand into Manufacturing Premixes for Bakery and Confectionary Products and Pan Release Agents.
• Increase Sales of Higher-Margin Downstream Products.
• Global Expansion
• Continuing Focus on R&D

STRENGTHS

• Largest Producer of Oleo chemical-based Additives in India and One of the Few Large Players in the Oleo chemical based Additives Industry in the World.
• Diversified Product Portfolio Catering to a Variety of High Growth Industries.
• Specialized Business Model with High Entry Barriers.
• Flexible and Strategically Located Production Facilities with In-house Development Capabilities.
• Strong R&D Capability with a Focus on Innovation.
• Diversified Customer Base with Long Term Relationships with Marquee Customers

FINANCIAL PERFORMANCE

Total Revenues stood Rs 587.0cr, Rs 789.6cr and Rs 659.7cr in nine months period ended December 31, 2017, Fiscal 2017 and Fiscal 2016 respectively.

EBITDA was Rs 104.3cr, Rs 145.5cr and Rs 145.8cr, in nine months period ended December 31, 2017, Fiscal 2017 and Fiscal 2016 respectively.

PAT was Rs 62.5cr, Rs 79.4cr and Rs 76.9cr, in nine months period ended December 31, 2017, Fiscal 2017 and Fiscal 2016 respectively.

PAT margins were 11.55%, 9.84% and 9.97% for Fiscals 2016 and 2017 and the nine months ended December 31, 2017, respectively.

RISK FOR THE BUSINESS

• Company does not have long-term agreements with most of customers.
• Increases in the cost of raw materials as a percentage of revenue from operations could have adverse effect on financial condition.
• If products fail to meet customers’ quality standards, it could have a material adverse effect on business.
• Fluctuations of the Rupee against other currencies could adversely affect financial condition and results of operations.
• Company is dependent on two suppliers for key raw materials, and any disruption in supply could have a material adverse effect on business.
• Company has had negative cash flows in the past and it is possible that company may experience negative cash flows in the future.