Have had a detailed call with SGA which handle Fine’s investor relations. Important points to note:
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The way they defined fine’s products are through the following analogy: Say you want to cook Chicken. You just need handful of spices as a proportion of total volume of chicken. But these handful spices in small amount, makes big difference. Similarly, fine’s products provide the finished touches in such a way that it is not possible to manufacture the final products without them
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There are a couple of competitors in the oleochemical based additives. However, the bouquet of products which are present with Fine is huge. Hence the MNC’s tend to go with the supplier having a range of products rather than a singular product
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They sign the contract with MNC’s for the supply. This contract can be short term or long term depending upon the prevailing price of raw material. When the raw material prices are high, the customers tend to sign short contract vis a vis long contracts when the prices are low
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SGA iterated that 28% EBITDA displayed is unsustainable. The prime reason was a lot of inventory of raw material undertaken during lockdown which got sold for high prices in 2021 due to raw material inflation. These contracts were short term
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Contracts are up for renewal this quarter. The prime objective of the customers would be to sign long term contracts this time since RM prices have normalized. Going forward there might be the pressure in margins
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One should expect a steady state 18%-20% EBITDA. China has no impact on this business since it is highly specialized. The application of these products are in a mission critical sector, hence the suppliers cannot be changed easily
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Although the content of Fine Organics <0.8% by weight in the final composition, still they do not enjoy pricing power (as opposed to what is claimed by Marcellus). The MNC’s always treat them as “just a raw material provider”.
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