Fineotex Chemicals - Multiple Growth Levers Ahead: KRChoksey Initiates Coverage With A 'Buy'

KR Choksey Report

Fineotex Chemicals Ltd. has showcased a strong track record of growth in revenues with three year revenue compound annual growth rate of 38% as on FY23 supported by robust margins, average five year profit after tax margins coming in at 15% as on FY23.

Fineotex Chemicals is a growing specialty chemical manufacturer with international strategic partnerships with Eurodye-CTC, Belgium and HealthGuard Australia which will drive further growth opportunities for the company both in India and abroad.

The upcoming addition to its manufacturing capacity will add a strong base for generating future growth, management’s tight control over working capital cycle and margins will ensure good earnings growth going forward. Currently, Fineotex Chemicals is trading at a 35.2 times/27.2 times forward price/earnings for FY25E and FY26E, we remain optimistic on the prospects of the company and assign a P/E of 30 times and initiate our coverage with a target price of 531.

About the company

Fineotex Chemicals Ltd.'s is a chemicals manufacturer operating in three segments: Textile Chemicals, Cleaning and Hygiene, Oil and Gas.

The company operates three facilities: Ambernath, Mahape & Malaysia with a total installed capacity of 104,000 million tonnes per annum, capacity utilization @ 68% for Q2 FY24.

While Fineotex Chemicals captures the entire value chain for textile chemicals, focus is on the finishing process. Finishing chemicals have the higher margins and customer stickiness.

Fineotex Chemicals works with key clients like Vardhman, Chenab Textile Mills, Welspun India Ltd.'s, Only Vimal, Raymond Ltd.'s, among others.

The cleaning and hygiene segment was launched four years ago and contributes to 56% of volumes and 41% of revenues for Q2 FY24, this segment is poised for future growth with growing products like mosquito repellents, detergents, floor cleaners.

Fineotex Chemicals has spent Rs 350 million through it’s a new wholly owned subsidiary FSPL Specialties Private Limited on December 30 2023 for purchase of seven acres of land, the land will be used to further expand manufacturing capacity.

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