Fine Organic Industries Ltd - IPO Note - Angel Broking

Fine Organic Industries Ltd (FOIL) is the largest manufacturer of oleochemical based additives in India and a strong player globally. FOIL produces a wide range of specialty plant derived oleochemical-based additives used in food, plastic, cosmetics, paint, ink, coatings and other specialty application in various industries. As at March 31, 2018, company had a range of 387 different products sold under the 'Fine Organics' brand.

Largest producer of Oleochemical-based additives in India: FOIL commands largest market share in Oleochimcal-based additives in India and is also one of the sixth and fifth global players in food and plastic additive industry respectively. FOIL is the first company to introduce slip additives in India, which gives the company a first-mover advantage.

Specialized business model with high entry barriers: FOIL manufactures specialty chemicals (derived from derivatives of vegetable oils) that require specialized skills, processes and equipments in order to match the quality of standard in the countries in which they are sold, as set by various regulations, industry bodies and by customers. This provides FOIL a significant advantage and restricts to new entrants, hence curtails competition.

Diversified and long-term association of customer base: With presence of extensive distribution network in India and worldwide, FOIL has been able to sell its products in 69 countries. FOIL's customer base comprises of direct customers and distributors. With the help of distributors, the company has been selling its product to more than 5,000 customers; few of the customers are engaged with the company for more than a decade.

Capacity addition to aid top-line growth going ahead: FOIL currently has 64,300 t.p.a. installed capacity and intends to almost double the same in the next 3-4 years through own and JVs in India and overseas. Current installed capacity is near to fully utilization level.

Outlook & valuation: In terms of valuation, pre-issue works out to 22x of 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% and (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.

Source : Equity Bulls

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