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Fineotex Chemical Ltd

Current Market price on the date of publishing this report-: 243 Rs

Introduction

Founded in 1979 by Tibrewala family, Fineotex Group has evolved into a specialty chemicals manufacturer that caters to multiple sectors such as textile, home care, hygiene, mining, garment, water treatment, leather, construction, paint, agrochemicals and adhesives.

Fineotex Chemical Ltd with ISO 9001:2000 certification, produces specialty chemicals and enzymes for a range of industries. The business produces and sells specialty chemicals and enzymes for a variety of industries, including textile and apparel, construction, leather, water treatment, paint, adhesives, and others. Their production facilities are located in Navi Mumbai’s Mahape area.

The company has a vast variety of products and provides a comprehensive spectrum of speciality chemicals used in Fabrics & Garments Processing, namely Pre-treatment, Printing, Dyeing, and Finishing. In addition, they provide speciality performance chemicals to the leather, agrochemicals, construction, water treatment, wood, sticker, and adhesive industries, among others.

The company uses cutting-edge technology and keeps up with in-house R&D at its Mahape section, which includes two laboratories. Their goods are well-known in different countries such as Bangladesh, Indonesia, Bulgaria, Pakistan, Colombia, and Singapore. Their products are also sold in Indian cities such as Mumbai, Balotra Bhilwara, Delhi, Ludhiana, Tirupur, Karur, Erode, and others.

The company’s cutting-edge production units in Navi Mumbai (India) and Selangor (Malaysia) are interchangeable throughout the full product line. Its new factory in Ambernath, Mumbai, would increase capacity from 1,04,000 MT per annum to serve clients in important worldwide textile centres.

Today Fineotex Chemical Limited is a leading manufacturer of over 470+ specialty chemicals and enzymes having presence in 70+ countries all over the globe with 100+ dealers in Indian as well as in international market and with accreditations such as Bluesign, ZDHC & Star export House.

Within the past nine months, the company has received certification as a Great Place to Work and has been added to the Nifty Microcap Index and Morgan Stanley CI Small Cap Index.

Strategic Partnerships & Subsidiaries

Fineotex has partnered with HealthGuard, an Australian firm, to become their exclusive worldwide marketing and sales channel partner. With combined operations in Malaysia, HealthGuard will concentrate on creating anti-microbial and anti-viral solutions for the textile, detergent, leather, and related sectors. Fineotex-Biotex will be in charge of marketing and channelling these cutting-edge technologies over the world, delivering sustainable and long-lasting metal-free chemical solutions. This collaboration will allow the companies to offer a diverse selection of products across numerous industries while also promoting market sustainability.

Fineotex has teamed with Eurodye-CTC, a Belgian company, to deliver to the Indian market specialised pre-treatment and dying solutions for cotton-synthetic and woollen textiles. The globally approved, ecologically sensitive products of Eurodye-CTC are projected to be in great demand in India. This agreement allows Fineotex to deliver sustainable solutions to its consumers while also increasing its market position.

Fineotex and Sasmira Institute have collaborated to build a research and development facility for sustainable chemical solutions in the textile wet processing sector. The partnership seeks to cut water, time, and energy usage while offering students with hands-on experience that will help the industry in the long run.

Biotex

Biotex, a subsidiary of Fineotex established in Malaysia, is a speciality chemicals company that offers sustainable textile solutions. The company’s product line spans over 50 categories and includes high-end, super-specialty textile chemical applications. Biotex is concentrating on increasing the revenue share of its flagship product, the ‘Mosquito Life Cycle Controller,’ an eco-friendly, non-toxic solution for mosquito epidemics that is predominantly utilised in poor nations.

Biotex has a high-profile international client base in the textile and auxiliary industries, as well as a strong brand recall in foreign markets. The company is well-known for its finishing solutions in textile production, and it has significant R&D skills that allow it to innovate and create new products. Biotex is dedicated to offering sustainable and effective textile industry solutions while extending its product line and expanding its international footprint.

Business Products

Textile Chemicals

Fineotex produces specialty textile chemicals for the full textile value chain, including pre-treatment, dyeing, printing, and finishing. Since 1979, all of these textile compounds have been manufactured using European technology.

Fineotex is a publicly traded multinational firm that is recognised as a world-class producer of speciality textile chemicals and sustainable solutions.

Fineotex’s operations are located in Navi Mumbai and Selangor, Malaysia, and it produces 43,000 tonnes of textile chemicals and specialty chemicals, serving over 60 countries and being acknowledged as one of the fastest growing textile chemicals companies throughout the years.

Textile chemicals are chemicals that are used to prepare, treat, and finish textiles and yarns. These compounds allow for the regulation of a number of manufacturing factors such as stability, strength, waterproofing, lustre, and colorfastness. Depending on the cloth and the intended result, different textile chemical procedures utilise different agents.

Textile chemicals are required to get the desired results while producing and dyeing materials. Textile chemicals are vital components of sound production processes ranging from flame retardants to scouring agents and defoamers to softeners.

The top ten clients provide just 27% of the business in textiles, while the top ten goods contribute only 18%. With 470 product lines encompassing a wide range of chemistries such as phosphonation, sulfonation, polymerization, esterification, and so on, the firm is well diversified in terms of both client and product chemistry.

These Textile chemicals are used for various products as well as in various different process such as

Pre Treatment process – Textile pre treatment is the series of cleaning operations.

The pre treatment process is normally carried out on Cottons, Polyster, Nylon and Denims. Further more into each type of fabrics the processes can be as under such as for cotton it can used as

• Desizing Agent
• Mercerising Agent
• Wetting and Penetrating Agents
• Sequestering Agents
• Demineralising Agents
• Wetting agents cum Detergents
• Silicone Defoamers
• Non-Silicate Peroxide Stabiliser
• Neutralizer
• Anti-Back Staining Agent
• Core Alkali Neutraliser
• Stain Remover
• Scouring Agent
• Polyester Weight Reducing Catalyst

Dyeing Process – Dyeing is the process of adding color to textile products like fibers, yarns & fabrics.

The dyeing process consists of the further subprocesses such as

• Sequestering Agents
• Levelling Agents
• Anticrease Lubricants
• Soda Ash Substitute
• Washing Off Agents

Printing Process – Textile printing is the process of applying colour to fabric in definite patterns or designs.

Finishing Process – In textile manufacturing, finishing is the process that converts the knitted cloth. This includes

Stiffeners, Softeners – Cationic, Silicone Softeners, Wax Finishing Agents, Antistatic Agent, Water Repellents and Soil Resisting Agent, Polyurethane Finishing Agent, Anticrease Resins, Anti-Pilling, Cum Antislip Agent, Enzymatic Bio Polishing Agent, Yarn Lubricants, Other Finishing Auxiliary.

Enzymes – An economical neutral cellulase enzyme product for textile biofinishing for cellulosic fabric and denim garments.

Oil and Gas

Product line includes Water Based Drilling Fluid Chemicals such as Clay / Shale Inhibitors, Lubricant, Speciality Chemicals, Spotting Fluid and Loss Circulation Additive.

While Oil Based Drilling Fluid Chemicals includes Speciality Oil Based Drilling Fluid Chemicals.

Cleaning and Hygiene

Under this section the products portfolio includes

Disinfection – Hand disinfectants, gentle wash products, multi-surface disinfectants, surface disinfectants for fogging and fumigation, hand sanitizers, vegetable and non-vegetable disinfectant cleaners, and sanitizing tablets

Housekeeping- Air fresheners, carpet cleaners, carpet shampoos, deodorizers, floor cleaners, furniture maintainers, glass cleaners, hygienic bathroom cleaners, hygienic hard surface cleaners, multi-surface cleaners, surface cleaners cum disinfectants, toilet bowl cleaners, toilet seat disinfectants, and washroom cleaners.

Kitchen Care – Dishwash detergents, automatic dishwash neutralizers, drain cleaners, heavy-duty floor cleaners, kitchen multipurpose cleaners, manual dishwash liquids, oven and grill cleaners, and stainless steel polishes.

Laundry products

Clients

Fineotex has received a large order for speciality performance chemicals from a big FMCG firm, demonstrating the quality of its goods and the faith consumers have placed in them. Their Ambernath plant expansion has increased their utilisation capacity to approximately 1,04,000 tonnes per year, highlighting the efforts of their staff and the continuous support of shareholders.

Capex

Fineotex has raised its manufacturing capacity by 2.5 times in the previous 14 months and plans to boost it by 35-40% more. Before considering any additional capacity increase, the company recently installed a new manufacturing capacity of 21,000 and intends to attain an ideal utilisation rate of 80-85%. The company intends to attain 85% utilisation capacity with the addition of new plant and machinery and will prepare for further expansion appropriately. Fineotex intends to generate between 18k and 20k tonnes every quarter in the future.

In November, the company commissioned a state-of-the-art manufacturing facility with a production capacity of 36,000 metric tons in Ambernath. Through efficient process management, they have further increased the capacity to 40,000 metric tons.

Financials

For Q3FY23

• Net Sales stood at Rs 109.23 crore in December 2022 up 3.96% from Rs. 105.07 crore in December 2021.
• Quarterly Net Profit stood at Rs. 22.15 crore in December 2022 up 20.01% from Rs. 18.46 crore in December 2021.
• EBITDA stood at Rs. 30.35 crore in December 2022 up 15.58% from Rs. 26.26 crore in December 2021.

For the 9 months Ended Q3 FY23

• The company’s operating revenue increased by nearly 54% year on year to Rs. 379 crores in the first nine months of FY23.
• EBITDA for the company increased by 61% year on year, reaching Rs. 80 crores with EBITDA margins of 21.1%.
• Furthermore, the company reported a profit after tax of Rs. 63.6 crores, a 59.3% rise year on year, with a PAT margin of 16.8%.
• The annualised ROCE and RoE for the company were 29.1% and 35%, respectively.

For the year ended March 22

• The operational revenue increased to Rs. 109.2 crores in the third quarter of FY23 from Rs. 105.1 crores in the previous quarter.
• The operating EBITDA increased by 14%, from Rs. 25.1 crores to Rs. 28.6 crores, with a margin of 26.1%.
• PAT increased by 17.8%, from Rs. 19.1 crores to Rs. 22.5 crores, with a margin of 20.6%.
• The volume has more than doubled, with a 100.12% rise year on year, reflecting the company’s continued excellent performance and success.
• Sales have shown a volume growth of 47.58%
• The company’s large trade receivables of 111 crore are problematic, given operational cash flow has persistently trailed behind net profit in previous years.

In comparison to the same period previous year, the company increased its top line by 69% and its EBITDA by 76%. During the year, domestic revenue climbed by 93%, while Group revenue increased by 68%. Operational improvements resulted in a 50% rise in volume, a greater percentage of high-value specialties, and better working capital and long-term capital management.

Management’s comments

In opposed to conventional textile chemicals, the company has moved its focus to FMCG cleaning and hygiene sectors, which have exhibited improved cash flow and working capital requirements. This move has resulted in a large increase in sales, with the cleaning and hygiene segment accounting for almost 40% of Q3 sales.

The company’s management emphasises that it is a high-end speciality chemical producer with sustained EBITDA margins of 17-25%. Unlike other businesses, they give solutions rather than merely selling things, which is beneficial to their clients. Their product costs are not significant, and their EBITDA margins have stayed stable over the previous 50 quarters. The management is convinced that investors may expect comparable EBITDA margins in the coming quarters. Furthermore, when raw material costs fall, their EBITDA margins rise, encouraging companies to engage more in marketing and promotional operations.

Going ahead, the company’s major core business has always been offering solutions for textile firms, which is growing and will continue to develop. However, joining the FMCG industry is the most difficult component for any speciality chemical company, but it is also a long-term economic potential because demand is less volatile. The firm is pleased with the development made in the previous three years, which includes large brands such as Patanjali employing their materials in FMCG items.

In the previous 14 months, the company’s capacity has expanded from 43,000 tonnes to 1,04,000 tonnes, and utilisation has also improved significantly. Company anticipates that the final expansion of 21,000 tonnes will be fully utilised this quarter, and the company anticipates that it will achieve a growth rate of 25% to 30% in the following two to three years. The company intends to attain even greater organic growth percentages and anticipates that the textile sector will shortly recover.

Sectorial Outlook

According to CRISIL, the Indian speciality chemicals sector will quadruple its worldwide market share to 6% by 2026, with revenue increasing by 18-20% this fiscal year and 14-15% the next year. According to industry forecasts, the market will reach US$ 304 billion by 2025, with a CAGR of 9.3%, driven by rising demand for speciality chemicals and petrochemicals across end-user categories.

Speciality chemicals now account for 22% of India’s overall chemicals and petrochemicals industry, and the country’s market share is predicted to grow in the next five years. Speciality chemicals account for 20% of the US$ 4 trillion chemicals industry globally, and India’s market is predicted to grow at a CAGR of 12% to US$ 64 billion by 2025.

Caution

Fineotex Chemicals was implicated in a pump-and-dump scam in which influencers created discussion about the stock, causing its price to rise. Those involved in the plan liquidated their stakes at the top, resulting in a sell-off and a 44% drop in the stock price by December 2022. This demonstrates the impact of social media on markets, as well as the need of investors exercising caution and conducting their own research before making investment decisions.

Source-: https://www.valueresearchonline.com/stories/52300/pump-and-dump-20/

Conclusion

Fineotex Chemical, a completely debt-free company, is a leading manufacturer of over 450 specialty chemicals and enzymes. The company is engaged in the business of manufacturing auxiliaries and specialty chemicals for textiles, construction, water treatment, fertilizer, leather, and paint industries. Fineotex has achieved exceptional sales and profit growth, with CAGRs of 26% and 16% over three years, and 24% and 35% over five years. With its strong focus on growing into new locations, establishing new market categories, and exploiting industry expertise and client connections, the company is an appealing proposition to explore for long term. Furthermore, management’s commitment to future growth and the prospect of reaching comparable EBITA margins as previously witnessed strengthens its potential as a long-term investment.