Fineotex Chemical: PAT growth of 43% & revenue growth of 10% at a PE of 39

FCL has a track record of PAT & EBITDA CAGR of 25%+. The track record is being maintained in FY24. The long term outlook for FY25 and beyond is to maintain the historic growth momentum

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1. Specialty chemicals producer

fineotex.com | NSE: FCL

Successful expansion into the cleaning and hygiene segment

Non-textile segments will drive volume and value growth going forward

Segmental Split

Yes, the kind of, let's say generally we have like 60% of our volumes has been always in the FMCG sector in terms of the volumes. Even now, I can say we are almost to that level. So basically, you can consider that we have maybe almost 60% or let's say 58% is in the cleaning and hygiene businesses right now. The rest is on the textile specialties and the drillings and the other ones.

2. FY19-23: Growth picked up from FY22

And in our last 12 or 13 years of being listed, our average CAGR growth of PAT and EBITDA has been more than 25%. And our EBITDA percentage in, also, you can always check, it has been minimum 16 to 18%. Till where we are today is 27%, broadly.

3. FY23: PAT up 57% and revenue up 40% YoY

4. H1-24: PAT up 41% and revenue up 3% YoY

5. Strong Q3-24: PAT up 47% and revenue up 27% YoY

6. Strong 9M-24: PAT up 43% and revenue up 10% YoY

7. Business metrics: Strong return ratios & cash generation

Our ROCE and ROE were at 35.2% and 30.4% respectively, highlighting effective capital utilization

We are a very cash disciplined company. As you can see in the last so many years, we have always been cash rich company as such and debt free. We would like to remain as such a debt free company more or less.

6. Outlook: Outlook for 25%+ long term growth

i. Growth to continue as per the long term historic trend

One can look forward to a 25%+ growth CAGR for the future.

I mean, the last 12 years CAGR for the company is more than 28% on a 12 year basis.

I'm not considering the last three years, which has been more, much, much more than, from the normal averages.

So, I think if you see the last few growth rates, I think similar can be done in the coming quarters and years.

ii. Potential for inorganic growth

So as such, we are very disciplined in deployment of cash. However, if there's certain good opportunities which comes to us at a great value and which is fitting in our strategic initiatives, which is either we produce the same kind, either the target produces similar kind of products for new avenues or maybe additional product lines going to the same target.

iii. H2-24 to be better than H1-24

H2-24 better than H1-24 is being delivered through a strong Q3-24 and similar expectations from Q4-24 looks reasonable.

we are confident of delivering the EBITDA numbers, percentages, what we have been doing in the past. And always there will be some growth. Let me also mention generally for the business where we are, the H2s are generally better than H1s, generally.

7. PAT growth of 43% & revenue growth of 10% at a PE of 39

8. So Wait and Watch

If I hold the stock then one may continue holding on to FCL

• Coverage of FCL was initiated after Q1-24 results. The investment thesis has not changed after a strong 9M-24. The only changes are the delivery of a strong Q3-24 and the increased confidence in the management to deliver a stronger FY24.

• The volume growth of 38% inspires confidence in business.

Volume of the Quarter ended has increased by 37.72% on Y-o-Y basis.

The average realization for this quarter has gone down and due to the product mix and also the correction in the price of raw materials and some of it, which we have passed to the customer, retaining certain portion of the EBITDA, which has reflected in the increase of EBITDA

9. Or, join the ride

If I am looking to enter FCL then

• FCL has delivered PAT growth of 43% and revenue growth of 10% in 9M-24 at a PE of 39 which makes FCL fairly valued in the short term

• Over the long-term FCL has a track record of delivering 25%+ growth which makes the stock interesting from a long term perspective. The track record is being maintained in FY24

And in our last 12 or 13 years of being listed, our average CAGR growth of PAT and EBITDA has been more than 25%. And our EBITDA percentage in, also, you can always check, it has been minimum 16 to 18%. Till where we are today is 27%, broadly.

• Positions need to be built over time over bad days when the stock is not doing well.

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Previous coverage of FCL

Fineotex Chemical: PAT growth of 41% & long term PAT growth of 25%+ CAGR at PE of 34

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