Fine Organics — Q3 FY’24
I had already posted revenue forecasts for Mar FY’24, and so far it looks on track with TTM revenue standing at 2173 Cr after Q3 results. In this post, I also want to touch upon a product called Erucamide which is, in my opinion and study, one of the reasons for the fall in demand.
Erucamide is a primary fatty amide that serves as a crucial releasing agent, antistatic agent, and anti-sticking lubricant for polyethylene (PE) and polypropylene (PP). Erucamide is one of the larger contributors to the company’s revenue and they sell them in various formulations for example:
Finawax-e (Erucamide):
FinaFog (PAs, PEs, PPs):
Finalux G 1600
Erucamide, as seen from the examples above, is used in lubricants, plastics, surfactants, automobile interiors and more. The Erucamide market size is expected to develop revenue and exponential market growth at a CAGR of 3.5% during the forecast period from 2023–2030. The growth of the market can be attributed to the increasing demand for Erucamide owning to the Plastics Industry, Ink and Paint Industry, Rubber Industry and other applications across the global level. That being said, in the short term due to the poor economic performance, most international markets are witnessing a massive drop in demand for Erucamide.
Also, China who was a big importer of PP(Polypropylene) has now started meeting its requirement through domestic manufacturing, again hitting FineOrg’s export opportunity.
Remember, Fine organics depends a lot on exports, and in FY’23, FineOrg’s split between domestic and export market was 32% and 68% respectively. That very split has now changed to 50-50% by Q2 FY’24. The exports business is a high margin business, and hence margins are on a declining trend at the moment.
FineOrg’s long term business prospects are still in-tact, and there is no fundamental problem in the business itself. But the short to medium term forecasts don’t look positive. A lot of this is already priced into the stock, and it will not receive the premium valuation it once used to command until the export demand starts to recover. Please note, that it is highly unlikely that this recovery is going to be sharp, instead it will take several more quarters before the prospects start to improve. Another risk to note is the constant FII selling, but the positive takeaway is the promoter holding standing firm at 75%. It might end up being a game of patience.
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