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Tuesday, 19 December 2017

FCL Fineotex Chemical : Multibagger in making, Micro Cap

FCL: Fineotex Chemical Ltd, Specialty Chemicals
CMP: 42.7, P/E 26, P/Bv 4.55 ROE 16+ M.Cap  480 cr Div Yld% 0.23



PEERS


 * Median among the Peers

About Company: 

Fineotex Chemical Limited (FCL) was incorporated as a private limited company under the Companies Act 1956, on January 30, 2004 in the State of Maharashtra and its constitution
was changed to a public limited company vide a new certificate of incorporation dated October 19, 2007. It is promoted by the members of the Tibrewala family, the company is in the business of manufacturing specialty chemicals and enzymes. The registered and corporate office of the company is situated at 42 and 43 Manorama Chambers, S.V. Road, Bandra West Mumbai 400 050.
The company has acquired the business of Fineotex Chemical Industries, a proprietorship concern of Surendra Kumar Tibrewala, which was set up in the year 1995 at Mahape, MIDC in Navi Mumbai. Fineotex Chemical Industries was engaged in the manufacturing of specialty chemicals for Textile and Garment Industry (right from Pre-treatment Chemicals to finishing products), Leather Industry, Agrochemical Industry, Paper Industry, Paint Industry, Construction chemicals, Wood and Sticker Industry etc. It also manufactured various value added specialty chemicals and enzymes.
The company acquired the business of Fineotex Chemical Industries by executing the deed of Assignment dated April 1, 2007 for a lump sum cash consideration of Rs 3 crore only and acquired all assets and liabilities related to the business. Pursuant to this deed of assignment, the proprietor of Fineotex Chemical Industries was allotted 30, 00,000 equity shares of Rs 10 each of Fineotex Chemical Limited.
The company proposes to set up a manufacturing facility for the production of specialty chemicals and enzymes with a capacity of 13,125 MT/annum in and around Khopoli in Maharashtra and to set up a sales office at Mumbai. Setting up this project would be a step towards expansion of current business i.e. manufacturing of specialty chemicals and enzymes for construction, textile and garments, leather and water treatment industry. This expansion would help us tap the potential of the increasing demand of the specialty chemicals in the above industries.

Business area of the company

The company manufactures specialty chemicals consumed by textile and garment industry, leather, construction, adhesives paper, water treatment, agrochemicals, paint and other industries. The company’s existing plant is located at A - 699 and A - 700, TTC Industrial Area, Mahape, Navi Mumbai, District Thane. Its products have an established international market in countries like Bangladesh, Indonesia, Bulgaria, Pakistan, Colombia, Singapore, etc. Also, the company’s products are sold in Indian cities like Mumbai, Balotra Bhilwara, Delhi, Ludhiana, Tirupur, Karur, Erode, etc.

Milestones
  • 1995: Incorporation of Fineotex Chemical Industries (FCI)
  • 2003: FCI received ISO 9001:2000 from JAS-ANZ Certification
  • 2003: Registered Trademark for ‘FINEOTEX’
  • 2004: Incorporation of Fineotex Chemical Private Limited
  • 2007: Acquisition of business of Fineotex Chemical Industries by Fineotex Chemical Private Limited
  • 2007: Converted to Public Limited Company
  • 2007: FCL received ISO 9001:2000 from JAS-ANZ Certification

 Positive:

  1. Sales Growth: TTM 7%, 3 Yrs 12%, 5 Yrs 18%, 10 Yrs 11%
  2. PAT Growth: TTM 16%, 3 Yrs 40%,5 Yrs 25%, 10 Yrs 17%
  3. ROE% : TTM 16%, 3 Yrs 16%, 5 Yrs 14%, 10 Yrs 14%
  4. QoQ sale growth @ 5% (Sep 17) 
  5. QoQ PAT growth @ 25% (Sep17)
  6. Operating margins are highest at 27% 
  7. Stock is at 26 PE which is median among peers
  8. Company is a regular dividend paying with div. yield of  0.23%
  9. Company is regular tax payer
  10. Promoter holding is very good at 72.36% with zero pledge shares.
  11. Promoter increasing the stake gradually
  12. Reserves are highest at 73 cr.
  13. Fixed assets increased by 60% from 2015 to 2017 which shows active capacity expansion
  14. Return on Capital employed is very good at 33% and in uptrend
  15. Return on Assets is very good at 19% and in uptrend
  16. Debt to equity is very less at almost ZERO only (Debt decreasing YoY even there is increase in assets)
  17. Interest coverage ratio is Huge at 85.84 and highest historically
  18. Market Cap to sales is at little higher side at 2.97 which is a sign of undervalued 
  19. Given multi-year breakout recently

Negative:

  1. Market cap to sales is little higher for a Micro cap so will take time for immediate stock price appreciation
  2. Only for patience investors, who can keep a track of company earnings
  3. Stock P/e and P/bv is although at median but little higher for a micro cap company
  4. Company increasing share capital YoY although the same is using for expansion but ratio proportionality is good

 Goods : 

  • The Company manufactures over 400 specialty chemicals and enzymes to Textile, Garment, Construction, Leather, Agrochemicals, Adhesive and Water Treatment.
  • The  Company  has  a  global  presence  across  33  counties  and  caters to  well  known  companies  in  India  and  overseas.  The  Company  has received Star Export House recognition with its increase in exports.  
  • FCL acquired Manya Steels Private Limited is the only Indian subsidiary. It was acquired for diversification. The Company would commence commercial operations in the future. 
  • Majority  of  revenues  are  coming  from  the  Textile  segment,  we undertake manufacturing of entire range of products for Pre treatment, Dyeing,  Printing  and  Finishing  process.  
  • The main competitive advantage includes: •    High Entry Barriers •    Sticky Customer Profile •    Customer doesn’t focus on pricing but on reliability & technical superiority .•    The Fineotex brand is well established since 3 decades and knownfor its superior quality •    Network of 68 distributors pan-India, offering higher returns to them to ensure better market share •    Products catering to the entire value chain in textile manufacturing process •    Products are unique & efficient concentrated products with low dosage, transport and storage costs.
  • Outlook - A large domestic demand for textiles, growth in branded apparel, strengthin  exports  and  opportunities  for  technical  specialty  textiles,  togetherprovide a large and growing market for textile specialty chemicals.
  • Company launched its new innovative product for mosquitoes which is approved and non toxic completely
 

Bads: 

  • Company do not foresee any major shifts in the near future. Due to the commoditization of  existing  textile  chemicals,  major  players  as  well  as  a  few  scaled  up Indian  players
  • As company is very confident about their new product AQUASTRIKE, its receipt and competetive advantage to be obsereved
  • Company looking for diversification in complete offset, need to observe the efficiency
  • Less competitive advantage on their core products of Textile sector 






Conclusion:

By considering the company strong financials,  Its cash surplus, efforts for diversification, promoters confidence in increasing share YoY, new innovative products, threats and opportunities, FCL Fineotex Chemicals looking like a Potential Multi bagger for Long-Term Perspective.

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