Fine Organic Industries, a largest manufacturer of oleochemical - based additives in India and a strong player globally in this industry, is coming out with its initial public offering (IPO) for subscription on June 20, with the price band of Rs 780-783 per share.
The public issue comprises of offer for sale of 76,64,994 equity shares by the promoter group selling shareholders.
The offer will close on June 22. Bids can be made for a minimum lot of 19 equity shares and in multiples of 19 equity shares thereafter.
Fine Organics is a producer of specialty additives for foods, plastics, rubbers, paints, inks, cosmetics, coatings, textile auxiliaries, lubes and several other specialty applications.
The equity shares are proposed to be listed on BSE and NSE. The book running lead managers to the offer are JM Financial Limited and Edelweiss Financial Services Limited while Karvy Computershare Private Limited is the registrar to the offer.
As at March 31, 2018, Fine Organic had a range of 387 products sold under the Fine Organics brand, used in the plastic industry and food industry and others industries.
Brokerage: Choice Broking | Rating: 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 is 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.
Brokerage: Ajcon Global | Rating: Subscribe
Fine Organic is the first company to introduce slip additives in India and they are the largest producer of slip additives in the world.
Fine Organic currently has 3 production facilities, at Ambernath, Badlapur and Dombivli (Maharashtra).
As at December 31, 2017, these 3 facilities have a combined installed capacity of approximately 64,300 tonnes p.a. Each of their current manufacturing facilities has the ability to manufacture their wide range of products, which provides them with the necessary flexibility to cater to changing demands in the market, thereby avoiding dependence on any one major product category.
Brokerage: HDFC Securities
The company's direct customers are multinational, regional and local players manufacturing consumer products and petrochemical companies and polymer producers globally. Its plastics additives and specialty additives are also used in the packaging of foods and other fast moving consumer goods.
The company has a dedicated research and development centre located in Mahape, Navi Mumbai. Its R&D activities are focused on improving production processes, improving the quality of its present products, creating new additives and creating downstream products.
Brokerage: Arihant Capital | Rating: 3 Star
The company is currently planning to set up an additional production facility in Ambernath (Third Ambernath facility) with a planned installed capacity of 32,000 tonnes per annum. It is expected to commence operations in the fourth quarter of fiscal year 2019.
The listing of equity shares will enhance its brand name and provide liquidity to the existing shareholders.
The issue has been offered at a price band of Rs 780-783 per equity share. At the upper price band of Rs 783, the stock is available at price-to-earnings
multiple of 27.5(x) of FY18 annualized EPS. Considering its business model and competitive edge, we have a 3-star rating on the issue.
The company is planning to add 52k tonnes/year capacity over next two years taking total capacity to 116.3k tonnes by FY20E end. Company in 9MFY18 derived 44% revenue from India and rest 56% from exports markets.
The higher depreciation/employee costs due to capex may impact its profitability until it begins to see operating leverage. The valuation at 30x of annualized FY18E EPS appears to be rich compared to its peer group average in the specialty chemical sector (27x FY18).
Brokerage: HEM Securities | Rating: 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 on issue.
Brokerage: SPA Securities | Rating: Subscribe
Fine Organic Industries is one of the six global players in the food additives industry and one of five global players in the plastic additive industry.
Ongoing expansion plan is expected to drive revenue in medium to longer term. At the upper price band of Rs 783, it is available at MCap/sales of 3.0x and P/E of 30x on FY18 annualized EPS. We advise subscribe on issue for long-term perspective.