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Fine Organic IPO in progress: Should you subscribe?

JM Financial and Edelweiss Financial Services are the book running lead managers of the issue. Karvy Computershare is the registrar of the issue.


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Fine Organic IPO in progress: Should you subscribe?
Fine Organic IPO in progress: Should you subscribe?

Fine Organic Industries on Wednesday launched its initial public offering (IPO) in a price band of Rs 780 to Rs 783 per equity share to raise around Rs 600 crore. The chemicals firm will sell 25% stake or 76,64,994 equity shares of face value of Rs 5 each. The issue will close on June 22.

JM Financial and Edelweiss Financial Services are the book running lead managers of the issue. Karvy Computershare is the registrar of the issue.

The 48-year old company held entirely by the promoters family had filed draft papers with markets regulator Sebi to float the IPO in February.

The firm has three manufacturing facilities in the suburbs of the megapolis, including Ambernath, Dombivli and Badlapur, with a total installed capacity of about 64,300 tonnes per annum.

he company clocked net revenue of Rs 581 crore for the nine-months period ended December 2018. It has launched 387 products and exports accounts for 65 per cent of the total revenue.

The firm is the largest manufacturer of oleochemical-based additives in India and one of the few large players in global oleochemical-based additives industry.

 Its earnings before interest, tax, depreciation and amortisation (EBITDA) margins were 18.54%, 22.11%, 18.43% and 17.78% for fiscals 2015, 2016, 2017 and the nine months ended December 31, 2017, respectively.

The firm's profit after tax margins (profit for the period as a percentage of revenue from operations) were 9.28%, 11.55%, 9.84% and 9.97% for fiscals 2015, 2016, 2017 and the nine months ended December 31, 2017, respectively.

Fine Organic Industries is producing a wide range of specialty plant derived oleochemicals-based additives used in the food, plastic, cosmetics, paint, ink, coatings and other specialty application in various industries.

This company had a range of 387 different products sold under the 'Fine Organics' brand.

Angel Broking: Neutral

In terms of valuation, pre-issue works out to 22 times annualized FY18 EPS of Rs 35 (at the upper end of the issue price band). We believe FOIL is strategically placed owing to

(a) Market leadership in Slip additive

(b) Maintaining healthy operating margin in the range of 18-22%

(c) Diversified client base along with geography mix.

However, due to lack of immediate triggers in revenue growth owing to near to utilization level of current capacity and no major capacity additions in near future, we have a NEUTRAL view on the issue.

HEM Securities: Subscribe

The high barriers to entry enable the company to obtain higher EBITDA and profit margins for its products compared to other manufacturing industries where barriers to entry are lower.

The company is bringing the issue at p/e multiple of approximately 30 on annualized 9MFY18 EPS at price band of Rs 780-783/share. However looking after the current market volatility & valuations of issue, we recommend long-term subscribe to the issue.

Choice Broking: Subscribe with caution

There are no comparable listed companies in India that engage in the same line of business as of Fine Organics. However, few listed entities are considered at the proxy peers for the company. At the higher price band of Rs 783 per share, its share is valued at a P/E multiple of 30.6x (to its restated FY17 EPS of Rs 25.6).

The company has reported a solid financial performance over FY15-17. During the period, it reported a 13.2% CAGR rise in the total operating revenue to Rs 8,149.4 mn in FY17. Reported PAT increased by 21.4% CAGR with average PAT margin of 9.7% during the period.

On valuation front, at higher price band, the company is demanding a P/E valuation of 30.6x as against the peer average of 24.2x. With respect to FY18E and FY19E EPS too, it is asking a premium valuation. Thus, the issue seems to be fully priced. We assign a subscribe with caution rating to the issue with long term investment horizon.

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