Fine Organic surges 11% in a weak market on robust revenue growth outlook

Shares of Fine Organic Industries surged 11 per cent to Rs 1,788 on the BSE on Wednesday in an otherwise weak market on a healthy outlook for revenue growth. The stock of the specialty chemicals firm was trading at its highest level since its listing in July 2018. Since then, it has more than doubled from its issue price of Rs 783 per share.

In the past one month, the stock has outperformed the market by surging 26 per cent, after the company started operations at its new manufacturing facility (third Ambernath) situated at Additional Ambernath Industrial Area, Maharashtra.

In Q2FY20, the company expanded its capacity at Ambernath by 32,000 TPA to manufacture oleochemical derivatives. The plant is expected to contribute around 8,000 tonnes in FY20 and attain 45 per cent utilisation in FY21. Analysts at Anand Rathi Share and Stock Brokers believe that with this addition, the revenue and profit after tax would each clock 17 per cent CAGRs over FY19-21.

“The commissioning of the Patalganga capacities (10,000 tons in Q2 FY21) and the rising utilisation levels at Ambarnath would drive business. Further, operating leverage and rising share of value-added products would help to log higher EBITDA margin”, the brokerage firm said in a company update.

Fine Organic Industries reported robust gross margin of around 40 per cent in Q1FY20 primarily driven by benign raw material prices, as around 50 per cent of revenue is based on fixed price long-term contracts. The company indicated that raw material prices will remain soft even in Q2, which will likely aid margin.

"Prices of raw materials, particularly palm oil, continue to be soft due to growing environmental concerns in Europe and thr US and rising inventories in Malaysia and Indonesia (largest palm producers)," analysts at SBICAP Securities said in company update.

The brokerage firm remains positive on Fine Organic Industries’ growth prospects over the medium term and expects it to deliver mid-to-high-teen earnings growth while sustaining margins and RoE (early twenties/mid-twenties respectively). However, the stock was trading above target price of Rs 1,530 per share.

At 01:05 pm, the stock was up 7 per cent at Rs 1,717 on the BSE, as compared to a 1 per cent decline in the S&P BSE Sensex. A combined 77,378 shares changed hands on the counter on the NSE and BSE till the time of writing of this report.

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel