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.

Thanks @kowshick_kk … I will still request to add a filter (if possible) so that I could permanently filter out some companies to appear in my watchlist…

Q3 FY 24 Concall summary

BUSINESS

• Revenue for the current quarter was INR750 crores 40% YoY increase.
• Profit after tax for the quarter is INR31.75 crores
• Cotton prices have remained stable and marginally below international prices.
• Capacity utilisation is 90% it may go to 95%.
• Due increased capacity utilization and favorable cotton prices, margins have improved during the current quarter, the margins are not at the normal levels due to the pricing pressures.
• We are exporting nearly 100 million to 110 million kgs of yarn per month at the moment.
• our raw material costs are around 60%.
• Debt, total long- term debts are about INR1,000 crores and the short-term debts are about INR375 crores. repaying as per the repayment schedule, which is about INR130 crores, INR140 crores every year.
• EBITDA levels are in the range of 16% to 20%, that is quite a reasonable level where we can think about adding the capacities, especially in the yarn side. Whereas in the fabric side, it is on a higher side.
• This demand, this downturn which we saw in the last one year was because of the de- stocking. stock levels have been substantially reduced in the last one year. And that is, so they have reached a non-sustainable level.
• 15 months back, the cotton prices were like INR1,10,000 a candy, which is INR55,000
• We are consuming about 24%-25% yarn both in knitting and weaving. 20% on the woven side and 5% on the knitted side.
• increasing our inventory levels, especially on the raw cotton side because it is a seasonal product.
• Production of yarn, our rated capacity is about 110,000 metric tons. So traditionally, we should be able to do about 105,000 tons to 106,000 tons every year.
• The major increase in the margin expansion has been because of the reduction in the raw material prices.

MANAGEMENT GUIDANCE

• At this point of time , we have not contemplated any major expansion.

• interest incentives, INR20 crores every year, which is not being considered here in these numbers. Interest subsidy per annum will be in the range of about INR20 crores. So, it should be INR5 crores every quarter.

• Secondly, we will also be eligible for capital subsidies, which will also be in about next 7, 8 years, we will be getting about INR200 crores plus of capital subsidies. Subsidiaries of 40 crores every year.

• Bottom of the cycle, not expecting any further decrease in cotton prices.

• We have already seen the lowest level of the raw material prices and there is no room from here to go down. At that point of time, normally people start increasing their stocks or bringing it to the normal levels.

• much increase in the raw materials in the coming four, five, six months. Maybe they should remain at this level.

• next financial year interest cost net of subsidies will be about INR90 crores.

• depreciation INR36 to INR37 crores.

• we would be, we are okay with 1:1 debt equity.

• Our average cost of borrowing is about 6.5%.

RISK

• Global challenges are still prevailing due to which margins remain below the normal levels.
• I have not seen this kind of low cycle of 15, 18 months on a continuous basis for a long time.
• Unless something drastic happens internationally with regards to geopolitical situations.

and i think they did what they had to do…now promotors hold <0.3%, obviously they knew alot !!