FINEOTEX CHEMICALS LIMITED

INITIATING COVERAGE
09th February 2024
 India Equity Institutional Research II Initiating Coverage II 09th February, 2024

Fineotex Chemicals Ltd.

Particulars
Market Data
CMP (INR) 374 Investment thesis
Sep-23
Target Price (INR) 531 • Fineotex Chemicals Limited (FCL) is a chemicals manufacturer operating in 3 segments: Textile Chemicals, Cleaning &
Upside (%) 42.0% Hygiene, Oil & Gas.
Jun-23
Rating BUY • The company operates 3 facilities: Ambernath, Mahape & Malaysia with a total installed capacity of 104,000 MTPA, capacity
Mkt Cap (INR Mn) 41,531 utilization @ 68% for Q2FY24.
Mar-23
52 Wk H/L (INR) 392/208 • While the company captures the entire value chain for textile chemicals, focus is on the finishing process. Finishing
Promoters
Volume Avg (3m K) 613.8
•
chemicals have the higher margins and customer stickiness.
FCL works with key clients like Vardhman, Chenab Textile Mills, Welspun India, Only Vimal, Raymond, among others.
Shares outs (Mn) 111
73.45%
Face Value (INR) 2
• The cleaning & hygiene segment was launched 4 years ago and contributes to 56% of volumes and 41% of revenues for
Q2FY24, this segment is poised for future growth with growing products like mosquito repellents, detergents, floor
74.4%
Bloomberg Code FXTC IN cleaners.
Sector Chemicals • FCL has spent INR 350 MN through it’s a new wholly owned subsidiary FSPL Specialties Private Limited on 30th December
74.4%
Price Chart 2023 for purchase of 7 acres of land, the land will be used to further expand manufacturing capacity.

FIIs
800
600 Outlook & Valuation
FCL has showcased a strong track record of growth in revenues with 3 year Revenue CAGR of 38% as on FY23 supported by
2.34%
400
200 robust margins, average 5 year PAT margins coming in at 15% as on FY23. FCL is a growing specialty chemical manufacturer
0.2%
0 with international strategic partnerships with Eurodye-CTC, Belgium & HealthGuard Australia which will drive further
growth opportunities for the company both in India & abroad. The upcoming addition to its manufacturing capacity will
Feb-22
Aug-21

Aug-22

Aug-23
Feb-23

Feb-24
Feb-21

0.2% add a strong base for generating future growth, management’s tight control over working capital cycle and margins will
ensure good earnings growth going forward.
Others Fineotex Chemicals SENSEX
Currently, FCL is trading at a 35.2x/27.2x forward P/E for FY25E and FY26E, we remain optimistic on the prospects of the
SENSEX 71,595
24.21%
NIFTY 21,783
company and assign a P/E of 30x and initiate our coverage with a target price of 531.
Key Financials
25.4%
Shareholding Pattern (%)
Particulars (INR Mn) FY21 FY22 FY23 FY24E FY25E FY26E
25.4%
Particulars Dec-23 Sep-23 Jun-23 Net Sales 2,185 3,682 5,170 6,417 7,893 9,729
Total
Promoters 65.04% 65.04% 65.04% EBITDA 406 712 1126 1465 1881 2416
PAT 446 569 896 1177 1524 1962
100.0% 0.82% 0.72% 0.75%
FIIs
EPS (INR) 3.83 4.97 7.97 5.10 10.63 13.76
DIIs 3.69% 3.86% 3.65%
100.0%
Others 30.46% 30.39% 30.56% EBITDA Margin (%) 18% 19% 22% 22% 24% 25%
PAT Margin (%) 20% 15% 17% 18% 19% 20%
100.0%
Total 100% 100% 100%
Source: KRChoksey Research

RESEARCH ANALYST KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
Unnati Jadhav, [email protected], +91-22-6696 5420 is also available on Bloomberg KRCS<GO> www.krchoksey.com
Thomson Reuters, Factset and Capital IQ
 India Equity Institutional Research II Initiating Coverage II 09th February, 2024

Investment Thesis
Textile Chemical industry has been in a downcycle, poised for an upward trend
The textile chemical business is heavily linked to prices of cotton and fortunes of the cotton industry. This industry has been recently in a downcycle ailed by high
commodity prices and lower margins. We expect cotton prices to taper off which will lead to supply side tailwinds in terms of production. An uptick in the textile industry
will entail higher use of chemicals for processing/finishing.

Sustained growth in sales with robust margins

FCL has had a fantastic last 10 year track record, with 10/5/3 year CAGR in revenues of 38%/29%/49% as on FY23. This revenue growth has been supported by consistent
margins with 5 year average EBITDA margins at 19% as on FY23, for H1FY24 the company posted EBITDA margins of 25%, highest so far. The PAT margins also stood tall with 5
year average at 15% as on Mar’23, and H1FY24 coming in at 21%. Buoyant margins along with sales growth over such a long period inspire confidence in management.

Solution based approach towards sales, with technical personnel guiding customers
FCL follows a solution based specialty chemical approach, where it can customize and provide specialty chemicals based on the needs of the individual customer. This
approach is not followed by leading MNC players who have provide a standard formulation regardless of the needs of the customer. FCL can thus provide better
finishing/processing chemicals which adhere to local needs like hardness of water. FCL also employs skilled technical personnel for sales of its specialty so as to be more
involved in the process of the customer, giving it more traction.

Cleaning & Hygiene Segment to drive growth

Cleaning & Hygiene segment has been started by the company 4 years ago. Similar products & processes as used in the Textile segment can also be re-purposed with
minimal modifications to be sold in this segment. Additionally, FCL is starting to gain traction for its consumer segment chemicals like floor cleaners, toilet cleaners,
mosquito repellents.

Brownfield expansion on cards

The company through its’ wholly owned subsidiary has acquired about 7 acres of land next to the existing Ambernath Plant, the land has buildings already constructed as it
was an existing plant for packaging and labelling products. The company expects about 1-1.5 years for development and operationalization of the plant. The plant is
expected to be fungible like the Ambernath plant and will contribute to manufacture of both Textile and Cleaning Hygiene products.

Strategic Tie-ups with Healthguard & Eurodye CTC

FCL has tied up with Healthguard for global licensing of their anti-microbial products. Health Guard is an Australian company developing premium anti-microbial surface
coatings. The company also working towards bringing manufacture of these products to India. FCL has also partnered with EuroDye CTC to introduce their dyeing and pre-
treatment products to India. Eurodye-CTC is a premium Belgian specialty chemicals company founded in 1978. These products are primarily focused on enabling the
sustainable manufacturing of textiles.

RESEARCH ANALYST KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
Unnati Jadhav, [email protected], +91-22-6696 5420 is also available on Bloomberg KRCS<GO> www.krchoksey.com
Thomson Reuters, Factset and Capital IQ
 India Equity Institutional Research II Initiating Coverage II 09th February, 2024

Investment Thesis
Strong Focus on R&D
FCL's subsidiary, Biotex, spearheads the company's R&D activities aimed at sustainable manufacturing and products. Biotex has developed a "mosquito life cycle controller,"
which is used as a non-toxic and eco-friendly solution for mosquito outbreaks. FCL has established a state-of-the-art R&D center in collaboration with the Synthetic & Art Silk Mills
Research Association (Sasmira) in Worli, Mumbai. The primary focus of this center is on the manufacture and research of sustainable chemicals that reduce water, energy, and
time consumption in wet textile production

Key Takeaways from Plant visit & Management Meets

• Management is focused on finishing chemicals in the Textile segments as it is a higher margins and sticky proposition for customers
• Customers rarely change their finishing chemicals as these chemicals determine the fit and finish of the final product
• FCL has an edge as it provides customized specialty chemicals based on each customer’s need rather than providing standard formulations as offered by larger players
• FCL employs technical experts for sales, guiding customers and assisting them in determining what would work best for their processes
• FCL has opportunity to cross-sell and up sell their products within the existing customer base
• Increasing the prices of finished products is justified to customers due to the time saved in manufacturing and the enhanced quality of the textile output
• FCL has partnered with HealthGuard, Australia for developing anti-microbial and anti-viral products and Eurodye-CTC,Belgium contributes specialized pre-treatment and
dyeing products
• Management keeps a long-term view of the production process as setting up and establishing a new plant takes 1.5-2 years
• BioTex Malaysia is offering chemicals for applications in technical textiles like water and blood repellent, anti-microbial etc.
• Company is under process of releasing products for replacement of LABSA/Soda Ash for use in detergents, FCL has already received trial orders
• A reduction in cotton prices can bring increasing sales, as textile manufacturers are more likely to procure & manufacture in higher quantities
• Company has recently received upgraded ratings from ICRA, CRISIL
• Capex for new plant should be in the range of INR 400-600 Mn, and management expects it to complete it within 1-1.5 years
• EBITDA & PAT margins to remain stable and might improve going forward
• Credit period for Textile Chemicals is 70-80 days and 30-45 days for Cleaning & Hygiene segment
• Cleaning & Hygiene segment is mainly driven by B2B business
• Major Raw Materials for textile segment: Caustic Soda, IPA.

RESEARCH ANALYST KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
Unnati Jadhav, [email protected], +91-22-6696 5420 is also available on Bloomberg KRCS<GO> www.krchoksey.com
Thomson Reuters, Factset and Capital IQ
 India Equity Institutional Research II Initiating Coverage II 09th February, 2024

Industry Overview – Textile Chemicals

In India, the specialty chemicals sector demonstrates significant fragmentation. As per McKinsey's findings, the Indian specialty chemicals landscape comprised roughly 700
companies in 2010, wherein the top 20 companies contributed to just under 50% of market revenues. In a September 2020 report, the Federation of Indian Chambers of
Commerce and Industry (FICCI) similarly characterized the market as fragmented, noting that the majority of sub-segments had only a few major players that had scaled up their
operations. Although the market is fragmented, Indian specialty chemicals manufacturers are engaged across various segments, including colorants, construction chemicals,
flavors and fragrances, paints and coatings, personal care ingredients, polymer additives, surfactants, textile chemicals, and water treatments.
Throughout the manufacturing process of textiles, ranging from fiber pre-treatment to textile finishing, a variety of chemicals are employed to treat the textile materials. The
production of textile chemicals involves multiple stages, including washing, scouring, mercerizing, dyeing, printing, and finishing. Textile chemicals mainly fall into two categories:
colorants, which encompass substances like azo dyes, anthraquinone dyes, and phthalocyanine dyes, among others; and auxiliary chemicals comprising bleaching agents,
detergents and scouring elements, softeners, fixing agents, and more.
Asia Pacific Textile Chemical Revenue (USD Bn)
26.1 27.5
23.4 24.7
21.0 22.2

2021 2022 2023E 2024E 2025E 2026E

Source: Industry Reports, KRChoksey Research

The textile chemicals market is anticipated to achieve a market size of USD 27.5 Bn by FY2026E within the Asia-Pacific region. In FY2020, Asia Pacific held the dominant position in
the textile chemicals market concerning revenue, securing a share of 38.0% out of the total chemicals market. This region is expected to maintain its market dominance in the
coming years. During FY2023-28E, the Indian Textile Chemicals Market is expected to achieve a growth rate of approximately 11.0% CAGR. Strong domestic consumption,
escalating export rates, and a rise in import substitution collectively stimulate growth across diverse end-user industries, propelling the market's expansion. On a global scale, the
textile finishing chemicals market was USD 6.2 Bn in FY2019 and is estimated to attain USD 8.2 Bn by FY2024E. The surge in market growth is credited to increased demand across
diverse applications such as clothing textiles, home textiles, and technical textiles.

The escalating global need for finishes in technical textiles and home textiles is propelling the expansion of the textile finishing chemicals market. India's contribution of only 9%
to global cotton production, despite having the largest cultivated cotton area, suggests room for improvement. However, inconsistent prices and uncertain raw material supplies
stand as primary factors contributing to low productivity and health issues in the mills. Moreover, the industry faces hindrances in its development due to frequent strikes,
layoffs, and retrenchments occurring within cotton mills across the country. The cost of raw materials accounts for 35% of the overall production expenses in textile
manufacturing. Yet, there exists a demand for increased cotton supply in the country, especially for long-staple cotton sourced from nations like Pakistan, Kenya, Uganda, Sudan,
Egypt, Tanzania, the United States of America, and Peru.

RESEARCH ANALYST KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
Unnati Jadhav, [email protected], +91-22-6696 5420 is also available on Bloomberg KRCS<GO> www.krchoksey.com
Thomson Reuters, Factset and Capital IQ
 India Equity Institutional Research II Initiating Coverage II 09th February, 2024

Industry Overview – Textile Chemicals

India is a major producer and exporter of dyes and dyestuffs. Being the world's second-largest textile exporter, India plays a pivotal role as a primary end-user industry for
manufacturers of dyes and dyestuffs. India holds a 12% share within the global colorant industry, exporting over 65% of this production. India's focus has predominantly been on
exports, positioning itself as a leading global supplier of reactive, acid, and direct dyes, contributing to 10% of the world's trade in this sector. At present, India exports dyes and
dye intermediates to nations from which it previously relied for imports. Key export destinations encompass the USA, Turkey, Bangladesh, China, Germany, Europe, Southeast
Asia, and Taiwan.

The Chinese government has implemented more rigorous environmental regulations targeting chemical producers to manage air pollution within the country. Consequently,
regulators in China have compelled the most severe violators to cease their operations and have increased compliance expenses across the chemical industry. This action has
diminished the cost benefit that Chinese producers previously enjoyed in comparison to counterparts worldwide. China's commitment to maintaining its zero COVID strategy
prompts end-user industries to seek diversification in their supply chains, potentially favoring exporters in the Indian specialty chemicals sector.

Industry Overview – Cleaning & Hygiene

The global household cleaning products market is projected to expand from USD 100.50 Bn in CY21 to USD 177.13 Bn by CY30E. This growth signifies a compound annual growth
rate (CAGR) of 6.5% anticipated in the coming years, according to Spherical Insights & Consulting. The surge in the household cleaning products market is propelled by
heightened awareness concerning cleanliness and the upkeep of hygienic environments, influenced by both individuals and the escalating prevalence of the COVID-19 pandemic.
Increased consciousness among individuals about maintaining cleanliness within households has emerged as a leading catalyst for the growth of the household cleaning market.
Factors such as an aging population, urbanization expansion, and increased income levels are poised to fuel the demand for household cleaning products in the market.

The segment of surface cleaners currently holds the most significant market share and is expected to witness substantial growth at a high CAGR in the foreseeable future. This
surge is attributed to the growing dependence of customers on surface cleaners for disinfecting home spaces, significantly driven by the impact of the COVID-19 pandemic. The
utilization of cleaning solutions and the sales of surface cleaners have experienced an exceptional surge, largely propelled by the escalating threat posed by the COVID-19
pandemic. There has been a heightened demand for surface cleaning solutions, driven by increased awareness regarding personal hygiene and the heightened risk of contagious
illnesses. North America emerged as the predominant region in the household cleaning products market. Notably, in recent years, there has been a significant upsurge in the
utilization of cleaning chemicals in North American countries, particularly the United States. The expanding middle-class demographic in the region has notably favored
manufacturers and key players, especially within the home cleaning products industry. Both the elevated living standards of consumers and the robust employment rate are
propelling the growth of the home cleaning products market in Italy. Anticipated factors contributing to market expansion include the advancement of superior-quality products,
heightened hygiene standards, and the entry of new participants into the market.

RESEARCH ANALYST KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
Unnati Jadhav, [email protected], +91-22-6696 5420 is also available on Bloomberg KRCS<GO> www.krchoksey.com
Thomson Reuters, Factset and Capital IQ
 India Equity Institutional Research II Initiating Coverage II 09th February, 2024

Industry Overview

According to Future Market Insights, the worldwide hand sanitizer market is projected to achieve a valuation of USD 1.8 Bn by CY23. Moreover, it is forecasted to attain USD
3.7 Bn by CY33E, with an estimated CAGR of 7.2% from CY23E to CY33E. As per Market Research Future, the floor cleaner market size is expected to attain USD 20.46 Bn by
CY30E worldwide, with a CAGR of 4.9%. The household cleaning market in India is thriving due to an increased consciousness regarding hygiene and a significant level of
disposable income within the nation's middle-income demographic.

In a recent study by BlueWeave Consulting, the India household cleaning market was projected to reach USD 7.6 Bn in CY22. BlueWeave anticipates a strong CAGR of 21.4%
during the forecast period spanning from CY23 to CY29E, estimating the market to escalate to a value of USD 29.6 Bn by CY29E. Primary factors fueling growth in the India
household cleaning market encompass the accelerating pace of urbanization, heightened disposable incomes, evolving lifestyles, and an expanding consciousness regarding
hygiene and cleanliness.. Notably, the market is experiencing expansion due to the wider availability of products and the swift proliferation of organized retail outlets,
especially in tier 2 and tier 3 cities throughout the country. The Indian Government is actively engaged in advocating household hygiene awareness in rural regions through
diverse initiatives. Additionally, consumer inclinations are moving towards specialized cleaning solutions tailored for a variety of surfaces like glass, stainless steel, wood, and
concrete. The surge in demand for eco-friendly cleaners made from natural elements such as citrus solvents, corn starch, oxygen bleach, baking soda, and alcohol is amplifying
this trend and driving market expansion. Nevertheless, price sensitivity and fierce competition are expected to hinder overall market growth throughout the forecast period.
GreyViews reported that the market size of floor cleaning and mopping machines in India reached USD 0.50 Bn in CY22 and is projected to achieve USD 1.2 Bn by CY30E. They
anticipate a CAGR of 12.0% from CY23E to CY30E.The increase in dual-income nuclear families in India has led to an increased need for floor cleaning and mopping machines.
Moreover, the advancement of the "Make in India" initiative has played a role in enhancing market growth, with various local manufacturers entering the market and further
propelling its momentum.

Global Household Cleaning Products Market Size (USD

Bn)
166.3 177.1
146.6 156.2
129.3 137.7
107.0 114.0 121.4
100.5

2021 2022 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E

Source: Industry Reports, KRChoksey Research

RESEARCH ANALYST KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
Unnati Jadhav, [email protected], +91-22-6696 5420 is also available on Bloomberg KRCS<GO> www.krchoksey.com
Thomson Reuters, Factset and Capital IQ
 India Equity Institutional Research II Initiating Coverage II 09th February, 2024

Company Overview
FCL was founded in 1979 by Surendra Tibrewala, listed on BSE in 2011. FCL is one of the leading manufacturer for specialty chemicals with applications for textiles, water
treatment, cleaning & hygiene, oil chemical industry. The company offers 470+ product categories and has 100+ dealers in the Indian and International markets. FCL operates
in almost 70 countries including Brazil, Bangladesh, Germany, Indonesia, Malaysia, Singapore, Syria, Thailand, USA, Venezuela and Vietnam. The company is rated A+ (long
term)/A1+ (short term) by ICRA, the company has critical industry certifications like Bluesign, Global Organic Textile Standard, REACH, Bhive, ISO 9001:2015, ZDHC and OEKO-
Tex. The company was recently certified by US EPA for antimicrobial treatments, HG AMIC and HG BK.

Production Capacity (MTPA)

FY23 36,500 61,000 FCL operates 3 plants, 2 near Mumbai: Mahape & Ambernath and 1 in
6,500
Selangor, Malaysia via its subsidiary Biotex. The Ambernath facility is
FY22 36,500 40,000 6,500 fungible across the entire product range, this is the newest facility for the
company which was commissioned in 2020. The Ambernath facility has
FY21 36,500 36,000 room for addition of about 15-20% with minimal capex. The total production
6,500
FY20 36,500 6,500
capacity of the company stands at 1,04,000 MT as on 30th September 2023.
The Mahape facility caters exclusively to the Textile Segment.
FY19 36,500 6,500

Mahape Ambernath Selangor

Source: Industry Reports, KRChoksey Research

Capital History
FCL is a debt-free company, with a negative net debt position as 31st March 2023. The company is cash rich and has Rs.143 Mn of Investment as on 30th Sep 2023. FCL conducted
its IPO in Feb’2011, with issue price of INR 70/share. In 2014, FCL issued bonus shares in the ratio of 1:1 doubling its paid-up equity capital to INR 220 MNs. In 2020, the company
conducted a buyback of its equity shares at a weighted average price of INR 33/share. w

RESEARCH ANALYST KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
Unnati Jadhav, [email protected], +91-22-6696 5420 is also available on Bloomberg KRCS<GO> www.krchoksey.com
Thomson Reuters, Factset and Capital IQ
 India Equity Institutional Research II Initiating Coverage II 09th February, 2024

Financial Summary Increasing Capacity Utilization

We expect the capacity utilization to steadily increase towards FY25E to 78%
dropping to 65% in FY26E post assumed expansion of Ambernath Plant. The
FY26E
primary drivers for increasing capacity utilization would be 1) Higher Export
65%
Turnover 2) Pick up in textile chemical segments 3) Expansion of Cleaning &
FY25E 78% Hygiene Product Portfolio
FY24E 65%
FY23 54%
FY22 37%
Revenue Growth
Capacity Utilization % We have assumed a modest 3% growth rate in realizations for FY24E onwards.
This will result in a modest 3 year CAGR of 15%, our model assumes 90%+ of
Source: Industry Reports, KRChoksey Research
production will be sold on average.
12000 30%
24%
10000 22% 23% 23% 25%
21% 22%
19% 19% 19%
8000 18% 20%
EBITDA growth
6000 15%
FCL has commendably increased its EBITDA margins from 19% (avg FY19-FY22)
9729 to 25% in H1FY24, we have assumed modest/flatline EBITDA margins from 23-
4000 7893 10%
6417 25% from FY24E to FY25E
5170
2000 3682 5%
1344 1429 1823 1963 2185
0 0%
FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24E FY25E FY26E

Revenue EBITDA Margin %

Strong ROE and ROCE
Source: Industry Reports, KRChoksey Research The company has maintained a strong ROE/ROCE profile of 25% average over
last 5 FYs (FY19-FY23), peaking in FY23 @ 34%. We expect this ratio to remain
stable till FY26E.

RESEARCH ANALYST KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
Unnati Jadhav, [email protected], +91-22-6696 5420 is also available on Bloomberg KRCS<GO> www.krchoksey.com
Thomson Reuters, Factset and Capital IQ
 India Equity Institutional Research II Initiating Coverage II 09th February, 2024

Products

FCL has three major product lines: Textile Chemicals, Cleaning & Hygiene and Oil & Gas.

Textile Chemicals

FCL supplies chemicals to the textile industry that have applications for weaving, pre-treatment, dyeing, printing & finishing. FCL is focused on finishing chemicals, finishing
chemicals determine the look & feel of the final textile product and hence are very critical to get right. This increases the stickiness of the customers while making the product
price insensitive as it forms a very small part (1-3%) of the final finished output.

The domestic business contributes to 77% of the revenue where it caters to esteemed clients like Raymond, Welspun, Vardhaman Textiles, Nahar Group and Only Vimal. FCL’s
expertise in the Specialty chemicals and customized solution has helped the business grow both its clientele and attract new ones over the years to sustain healthy profit
margins.
FCL's technical partnership with BioTex-Malaysia led to the development of "Mosquito Lifecycle Controller“ which is a distinctive product, this is opening doors to a niche
market segment which has high end super speciality textile chemical applications.
Biotex Malaysia drives all the R&D initiatives of the Company and overall new product development. BioTex specializes in high end specialty finishing textile chemicals like
water & oil repellents, antimicrobials, etc. for textiles.

Cleaning & Hygiene

The cleaning and hygiene business provides customized solutions for housekeeping, kitchen care and disinfectants. FCL’s key products in this segment are Finocon, ECODO,
Clean Jet. The management expects the non textile segments to accelerate even further.
FCL’s recent strategic collaboration with EURODYE –CTC to commercialize specialty chemical product would facilitate an efficient production system and distribution network
across the Indian Textile. Collaboration with Healthguard, Australia will concentrate on developing cutting-edge solutions that will be marketed and channelized by FCL-Biotex.
The synergies derived are expected to provide durable metal-free sustainable chemistry solutions that are anti-microbial and anti-viral. Moreover FCL has set up R&D center in
collaboration with Sasmira Institute (India’s premier textile Institute ) to catalyze innovation and focus on sustainable chemistry.

Oil & Gas

The company has also ventured into speciality chemicals for oil & gas drilling and is in discussions with major players in this field. FCL has also received sizable orders from a
leading oil and gas company India. There is significant potential for offering effective products used for drilling in oil exploratory process. This product line is in very early
stages of prototyping.

RESEARCH ANALYST KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
Unnati Jadhav, [email protected], +91-22-6696 5420 is also available on Bloomberg KRCS<GO> www.krchoksey.com
Thomson Reuters, Factset and Capital IQ
 India Equity Institutional Research II Initiating Coverage II 09th February, 2024

Strong Working Capital Management

The current ratio of FCL has been consistent over the years in the range of In FY23, FCL’s Inventory days was lowest from the previous years at 51days
~3 to 4 showcasing a good working capital management.

Current Ratio Inventory Days

5 88 93
100
4 4 4 78 75
4 3 3 4
80 62
3 59
3 60 51

2 40
1 20
0 0
FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY17 FY18 FY19 FY20 FY21 FY22 FY23

Source: Industry Reports, KRChoksey Research Source: Industry Reports, KRChoksey Research

FCL’s debtor days are improving and reaching the pre COVID levels. For The creditor days of FCL are normalizing to the previous levels. The
FY23 the debtor days stood at 72. creditor days for FY23 stood at 51.

Debtor Days Creditors Days

138 120
150 96
110 91
100 100
98
79 80 69 65 69
100 72
71
45 51
60
50 40
20
0 0
FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY17 FY18 FY19 FY20 FY21 FY22 FY23
Source: Industry Reports, KRChoksey Research Source: Industry Reports, KRChoksey Research

RESEARCH ANALYST KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
Unnati Jadhav, [email protected], +91-22-6696 5420 is also available on Bloomberg KRCS<GO> www.krchoksey.com
Thomson Reuters, Factset and Capital IQ
 India Equity Institutional Research II Initiating Coverage II 09th February, 2024

Strengths Weakness
• Diversified Revenue Mix across geographies • Textile Chemical Business is dependent on cotton & other fibre prices
• Fungible Plant Capacity at Ambernath • Volatile Raw Material Prices
• Certified Manufacturing Excellence • Supply Chain Disruptions
• Diverse Product Portfolio • Threats from Import of Substitute Materials
• Deep Customer Relationships
• Sticky Customers in Textile Finishing Chemicals Segment

Opportunities Threats
• 20% Additional brownfield capacity expansion possible at Ambernath Plant • Textile Chemicals has stiff competition from peers
• New Land acquired by wholly owned subsidiary of the company for • Under utilized Large Cash Balance on books
setting up 4th Plant
• Environmental Compliance Costs
• New Collaborations with Health Guard-CTC & Eurodye
• Supply Chain Disruptions
• Non Textile Segments to drive volume & value growth
• Oil & Gas segment has possibility of driving large contracts from Oil
exploration companies in India/Abroad

RESEARCH ANALYST KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
Unnati Jadhav, [email protected], +91-22-6696 5420 is also available on Bloomberg KRCS<GO> www.krchoksey.com
Thomson Reuters, Factset and Capital IQ
 India Equity Institutional Research II Initiating Coverage II 09th February, 2024

Management Team

Mr. Surendra Kumar Tibrewala, Chairman & Managing Director (B.Com LLB)
Mr. Surendra Kumar is the chairman and the managing director of the company. He has three decades of experience into the manufacturing Specialty Chemicals and Enzymes
for various industries namely Textile, Chemicals and Enzymes for various industries namely Textile Garments, Construction, Water treatment, Leather, Paint , Adhesives, etc.
He is a commerce graduate RA Podar College and Law graduate from Government Law College.

Mr. Sanjay S. Tibrewala, Executive Director & CFO (B.Com & P.G in Textile Chemicals & Processing)
Mr. Sanjay S. Tibrewala is the Whole time Director of the Company. He joined his father in 2001 and has in depth knowledge of products and understanding of market
dynamics. He has about 9 years of experience in the Specialty chemicals sector. He is a commerce graduate from Narsee Monjee College and a Post Graduate in Textile
Processing and Chemicals from SASMIRA.

Other Directors:

Aarti Jhunjhunwala, Executive Director & Head, International Marketing (B.Com M.Com)

Navin Mittal, Independent Director

Alok Dhanuka, Independent Director

CS Bindu Shah, Independent Director

Dr. Sunil Waghmare, Independent Director

RESEARCH ANALYST KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
Unnati Jadhav, [email protected], +91-22-6696 5420 is also available on Bloomberg KRCS<GO> www.krchoksey.com
Thomson Reuters, Factset and Capital IQ
 India Equity Institutional Research II Initiating Coverage II 09th February, 2024

Peer comparison

Return on capital
Name Industry Current Price Price to Earning Price to book value Return on equity EV/ EBITDA PEG Ratio
employed

Fineotex Chemicals Chemicals 335 35.4 9.31 28.92 36.46 26.76 1.14
Industry average 4.21 17.91 21.34 17.29 -2.21
Transpek Inds. Chemicals 1,977 16.8 1.8 15.96 19.92 6.99 0.64
Rossari Biotech Chemicals 783 34.4 4.41 12.45 18.45 19.88
GHCL Chemicals 578 6.24 2.01 31.5 35.53 4.16 0.25
Chemplast Sanmar Chemicals 472 212 4.1 11.93 14.86 23.35
BASF India Chemicals 2,954 37.4 4.38 15.19 20.12 17.47 1.44
Alkyl Amines Chemicals 2,271 67.8 9.72 21.46 27.87 37.18 2.34
Tata Chemicals Chemicals 1,006 12.9 1.2 11.96 11.63 7.93 -19
SRF Chemicals 2,223 38 6.07 22.84 22.37 21.34 1.05
Source: Industry Reports, KRChoksey Research

Sales growth Profit growth Average return on Free cash flow EPS growth
Name Sales growth 10Years Sales growth 7Years Dividend yield
3Years 3Years equity 3Years 3years 3Years
Fineotex Chemicals 18.36 24.76 38.09 63.84 25.47 63.58 64.11 0.26
Industry average 23.49
Transpek Inds. 13.07 16.51 13.49 5.22 13.32 95.57 5.22 1.5
Rossari Biotech 40.26 17.92 15.65 106.12 14.69 0.06
GHCL 7.27 8.73 11.21 39.9 24.41 1322.47 39.6 2.77
Chemplast Sanmar 57.79 66.4 18.09 1806.62 25.01 0
BASF India 13.22 16.27 21.57 99.77 20.54 1091.05 99.77 0.31
Alkyl Amines 16.48 19.49 19.22 6.96 28.54 111.85 6.89 0.44
Tata Chemicals 1.33 1.75 17.47 -30.87 7.63 2610.82 -30.87 1.65
SRF 14.67 18.27 27.29 28.9 22.74 905.43 27.58 0.31
Source: FactSet, KRChoksey Research

In contrast to the industry average of 17.91, Fineotex Chemical recorded a Return on Equity ratio of 28.92. At 36.46%, the ROCE is the greatest compared to its peers; the
industry average is 21.43%. In contrast to Fineotex's PEG ratio of 1.19, the industry average PEG ratio is negative. Finetoex Chemical had the most industrial growth, with a 10-
year CAGR of 18.36%. Furthermore, with a three-year EPS growth of 64.1%, it ranks second among its peers, behind BASF India. The industry average 3 years EPS growth is 23.49.

RESEARCH ANALYST KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
Unnati Jadhav, [email protected], +91-22-6696 5420 is also available on Bloomberg KRCS<GO> www.krchoksey.com
Thomson Reuters, Factset and Capital IQ
 India Equity Institutional Research II Initiating Coverage II 09th February, 2024

Peer comparison
It is a key player in the specialty chemicals market, with applications for the paint, leather, water treatment, textile, and fertilizer industries. In comparison to its peers and the
industry, FCL is fairly valued. In contrast to the industry average of 17.91, Fineotex Chemical recorded a Return on Equity ratio of 28.92. At 36.46%, the ROCE is the greatest
compared to its peers; the industry average is 21.43%. In contrast to Fineotex's PEG ratio of 1.19, the industry average PEG ratio is negative. Finetoex Chemical had the most
industrial growth, with a 10-year CAGR of 18.36%. Furthermore, with a three-year EPS growth of 64.1%, it ranks second among its peers, behind BASF India. The industry average
3 years EPS growth is 23.49.

Company EPS FY25 EPSFY26 FY25 Forward PE FY26 Forward PE

Fineotex Chemicals 13.76 17.72 24.35 18.91
Transpek Inds. NA NA NA NA
Rossari Biotech 27.60 34.40 28.37 22.76
GHCL 95.40 NA 6.06 NA
Chemplast Sanmar 24.33 30.35 19.40 15.55
BASF India 135.70 157.50 21.77 18.76
Tata Chemicals 70.70 60.55 14.23 16.61
SRF 73.48 92.27 30.25 24.09

Source: FactSet, KRChoksey Research

Outlook and Valuation

FCL has showcased a strong track record of growth in revenues with 3 year Revenue CAGR of 38% as on FY23 supported by robust margins, average 5 year PAT margins coming
in at 15% as on FY23. FCL is a growing specialty chemical manufacturer with international strategic partnerships with Eurodye-CTC, Belgium & HealthGuard Australia which will
drive further growth opportunities for the company both in India & abroad. The upcoming addition to its manufacturing capacity will add a strong base for generating future
growth, management’s tight control over working capital cycle and margins will ensure good earnings growth going forward.
Currently, FCL is trading at a 35.2x/27.2x forward P/E for FY25E and FY26E, we remain optimistic on the prospects of the company and assign a P/E of 30x and initiate our
coverage with a target price of 531.

RESEARCH ANALYST KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
Unnati Jadhav, [email protected], +91-22-6696 5420 is also available on Bloomberg KRCS<GO> www.krchoksey.com
Thomson Reuters, Factset and Capital IQ
 India Equity Institutional Research II Initiating Coverage II 09th February, 2024

Ratio Analysis
Particulars FY21 FY22 FY23 FY24E FY25E FY26E
Profitability
Return on Assets 19% 19% 23% 24% 24% 24%
Return on Capital 20% 28% 34% 34% 33% 32%
Return on Equity 23% 23% 29% 28% 28% 27%

Margin Trend
Gross Margin 64.3% 63.9% 65.6% 65.6% 65.6% 65.6%
EBITDA Margin 18.6% 19.3% 21.8% 22.8% 23.8% 24.8%
Net Profit Margin 20.4% 15.4% 17.3% 18.3% 19.3% 20.2%

Liquidity
Current Ratio 3.34 3.41 3.51 3.45 3.40 3.36
Debtor Days 138 110 72 72 72 72
Inventory Days 75 93 51 51 51 51
Creditors Days 96 91 51 51 51 51
Working Capital Days 117 111 72 72 72 72

Solvency Ratio
Total Debt / Equity 2% 1% 2% 2% 1% 1%
Interest Coverage 54.00 74.41 132.01 173.34 224.03 287.99

CMP 359.65 359.65 359.65 359.65

EPS 3.83 4.97 7.97 10.63 13.76 17.72
Book Value 19.47 24.33 32.12 42.74 56.50 74.22

Valuation Ratio
EV/EBITDA 35.10 26.98 21.01 16.36
EV/Sales 7.65 6.16 5.01 4.06
P/E 45.13 33.84 26.14 20.30
P/B 11.20 8.41 6.37 4.85

CFO/EBITDA 23% 19% 95% 66% 68% 68%

Source: KRChoksey Research

RESEARCH ANALYST KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
Unnati Jadhav, [email protected], +91-22-6696 5420 is also available on Bloomberg KRCS<GO> www.krchoksey.com
Thomson Reuters, Factset and Capital IQ
 India Equity Institutional Research II Initiating Coverage II 09th February, 2024

Financials & Projections

Income Statement (INR Mn) FY21 FY22 FY23 FY24E FY25E FY26E
Revenue from operation 2185 3682 5170 6417 7893 9729
COGS 1406 2351 3392 4211 5179 6384
Employee benefits expense 89 136 184 228 281 346
Other expenses 285 483 468 513 553 584
Total Expenses 1779 2970 4044 4952 6012 7313
EBITDA 406 712 1126 1465 1881 2416
Depreciation and amortization expense 15 25 43 43 43 53
EBIT 391 687 1083 1422 1838 2363
Other income 175 55 73 95 123 160
Finance costs 7 9 8 8 8 8
Profit before tax 559 733 1148 1509 1953 2515
Exceptional items - income / expense 0 0 0 0 0 0
Profit / loss before tax 559 733 1148 1509 1953 2515
Current tax 101 159 242 0 0 0
Total Tax expense 113 164 252 332 430 553
Profit after tax 446 569 896 1177 1524 1962
Source: KRChoksey Research

Cash Flow Statement (INR Mn) FY21 FY22 FY23 FY24E FY25E FY26E
Net Cash Generated From Operations 92 134 1073 973 1275 1653
Net Cash Flow from/(used in) Investing Activities -65 -7 -1018 -966 -1267 -1646
Net Cash Flow from Financing Activities -44 -57 -64 -8 -8 -8
Net Inc/Dec in cash equivalents -25 84 14 0 0 -1
Opening Balance 230 205 289 303 302 302
Closing Balance Cash and Cash Equivalents 205 289 303 302 302 301

Source: KRChoksey Research

RESEARCH ANALYST KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
Unnati Jadhav, [email protected], +91-22-6696 5420 is also available on Bloomberg KRCS<GO> www.krchoksey.com
Thomson Reuters, Factset and Capital IQ
 India Equity Institutional Research II Initiating Coverage II 09th February, 2024

Financials & Projections

Balance sheet (INR Mn) FY21 FY22 FY23 FY24E FY25E FY26E
Property, plant & equipment 495 740 888 845 802 984
Capital work in progress 46 0 4 4 235 0
Investment property 38 39 39 39 39 39
Goodwill on consolidation 61 61 61 61 61 61
Investments 315 173 893 1869 2915 4571
Others 19 8 24 24 24 24
Non - current tax assets 0 12 33 33 33 33
Other non - current assets 38 43 45 45 45 45
Total non - current assets 1013 1077 1988 2920 4155 5758
Inventories 288 596 473 587 722 890
Investments 9 0 0 0 0 0
Trade receivables 827 1109 1014 1259 1548 1908
Cash and cash equivalents 232 308 376 376 376 376
Bank balances 108 72 220 220 220 220
Other financial asset 3 31 7 7 7 7
Other current assets 119 129 77 77 77 77
Asset classified as held for sale 72 72 72 72 72 72
Total current assets 1656 2318 2239 2598 3023 3551
Total assets 2670 3395 4227 5518 7177 9308
Equity and Liabilities
Equity share capital 221 221 221 221 221 221
Other equity 1872 2400 3265 4442 5966 7928
Minority interest 67 73 70 70 70 70
Total equity 2161 2694 3557 4734 6258 8220
Other financial liabilities 5 8 10 10 10 10
Provisions 1 1 0 0 0 0
Deferred tax liabilities (net) 7 11 21 21 21 21
Total non - current liabilities 13 20 32 32 32 32
Borrowings (overdraft) 35 19 73 73 73 73
Trade payables 368 588 474 588 723 891
Other financial liabilities 1 1 2 2 2 2
Other current liabilities 91 70 87 87 87 87
Provisions 2 3 4 4 4 4
Current tax liabilities (net) 0 0 0 0 0 0
Total current liabilities 496 681 638 753 888 1056
Total liabilities 509 701 670 785 920 1088
Total equity and liabilities 2670 3395 4227 5518 7177 9308
Source: KRChoksey Research
RESEARCH ANALYST KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
Unnati Jadhav, [email protected], +91-22-6696 5420 is also available on Bloomberg KRCS<GO> www.krchoksey.com
Thomson Reuters, Factset and Capital IQ
 India Equity Institutional Research II Initiating Coverage II 09th February, 2024

Rating Legend (Expected over a 12-month period)

Our Rating Upside
Buy More than 15%
Accumulate 5% – 15%
Hold 0 – 5%
Reduce -5% – 0
Sell Less than – 5%

ANALYST CERTIFICATION:

I, Unnati Jadhav (MMS, Finance ), Research Analyst, author and the name subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect my views about the subject issuer(s) or securities. I also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

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Date: 2024.02.09 16:09:45 +05'30'

RESEARCH ANALYST KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576
Unnati Jadhav, [email protected], +91-22-6696 5420 is also available on Bloomberg KRCS<GO> www.krchoksey.com
Thomson Reuters, Factset and Capital IQ