Fineotex Chemical Limited (FCL)

Fineotex Chemical Q3FY23 earnings call highlights. https://www.bseindia.com/xml-data/corpfiling/AttachHis/7bdb8968-f23d-419d-8225-57c435022996.pdf

• In quarter Q3 FY23, our operational revenue improved to Rs.1,092 million from Rs. 1,051 million. The operational EBITDA has grown by 14% from Rs. 251 million to Rs. 286 million with a margin of 26.1%; PAT grew by 17.8% from Rs. 191 million to Rs. 225 million and with a margin of 20.6%. The volume has doubled and the increase is 100.12% Y-o-Y basis, demonstrated a strong performance.

• Our bestselling antimicrobial treatment HealthGuard AMIC has received the US EPA approval.

• we have proceeded towards more FMCG cleaning and hygiene businesses, which has a better cash flow and a better working capital requirement compared to the traditional textile chemicals. Right now 40% of our sales value of the Q3 is from the cleaning and hygiene segment.

• Large order from an FMCG major for around Rs. 150 crores in the last quarter, started supplying in Q3. We just had a small requirement in the month of December and a little bit in November. That was just the beginning of the consignments. Less than around Rs. 10 crores business was there on the new product line and this has been picked up now from 15 January also and I think you should be seeing that impact happening from Q4 for sure. And more importantly from the next year onwards, we are also looking at some more the upgrade in the volumes also going forward.

• For textiles, I would like to mention the top 10 customers contribute only 27% of our business and the top 10 products contribute only 18% of our business. With the 470 product lines which we have and in that we are doing almost all sorts of chemistries, phosphonation, sulfonation, polymerization, esterification etc.

• We are not those kinds of companies where you will find our EBITDA sometimes 5%, sometimes 35%, this will never happen with Fineotex. And this is not our business model. When we sell our products, we sell as a solution. The cost is not material to the customers, because like I always say, the full processes of textile together require 25 different functional chemicals and all put together contribute only 3% cost to the users. So every chemical is costing 0.15%, which is insignificant. At the same time, the risk of changing the chemical is very high. So there is a big risk entry and exit barrier for the businesses. Going forward also, you can expect similar range of EBITDA margins what you have seen in last few quarters.

• Generally, the price per kilo, the realization in the cleaning and hygiene per kilo is quite lower compared to textiles. However, the volumes will always be good enough. So it will lead to the overall turnover would be almost again contributing to 40%, 50% going forward. Average realization per kilo in textiles, generally it’s like Rs. 130, Rs. 140, that’s the normal levels. But in the detergents, it’s almost like Rs. 60 to Rs. 65 broadly, per kilo. So it’s almost, you can say, little like almost 40% of it.

• FMCG brands like Patanjali, and other ones have started using our products in their FMCG products.

• In textiles, what also happens is there is a lot of promotional expenses, technical services, which we are providing and things like that. So there is a good gross margins in textiles as such. However, looking at the blended EBITDA, if you talk about the EBITDA margins, more or less, it is similar because in detergents, then your overheads are not too high from the point of view of giving technical services comparatively to the textile businesses.

• Textile Sector: I see that already from 14, 15 January, things are getting much-much better than it was.

• in the last five quarters, our business of cleaning, hygiene, FMCG has gone almost we can say almost 20x from where it was.

• Right now, where we are today is like 1,04,000 tons. I think another 35%, 40% easily we can expand in the same line. And that would not take a lot of investments also nor will it take a lot of time comparatively. we have increased our capacity from 43,000 tons to 1,04,000 tons in the last 14 months.

• Fineotex in a way as a very high end specialty chemical company which is translated by three things, I believe, is the EBITDA margins, which is consistently growing, consistently there. Asset turnover ratios are quite good enough, which also demonstrates our products specialty and the performance, the focus which we have. And the third thing which we are quite happy about is our cash flows, which is almost 87% to the EBITDA value so operating thing obviously.

• Rs. 150 cr new order: Per kilo realization, this is around Rs. 49, Rs. 50 per kilo broadly. we have supplied I think around 2,000 tons only yes only 2,000 tons approx… So that would be around Rs. 10 crores only we have supplied in the last December month. And a lot of things has been postponed for the January month and things like that. That Rs. 150 crores will also be increased actually. So on a conservative level it is Rs. 150 crores.

• Q4FY23 total volumes we are reaching around 18,000 tons to 20,000 tons, which I feel is not difficult.

• Volume 21,000 tons for the nine months for the cleaning & hygiene. Full nine months volume is around 38,000 tons.