Fine Organic IPO recommendations: Here is what analysts think

Fine Organic IPO recommendations: Here is what analysts think

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Fine Organic Industries is launching its IPO today in the price band of INR780 – 783 per share (check this page for more information about the specifics). Brokerage houses and analysts have analyzed the offer of the Mumbai-based specialty chemicals player and have issued their recommendations. While everyone has acknowledged the company’s uniqueness with no listed peer, some have indicated that gains may be muted in the near future. Here is a quick snapshot of Fine Organic IPO recommendations:

ICICIdirect has a positive view on the upcoming IPO and mentions that there are no listed peers. “On the valuation front, there is no direct peer of FOIL in the listed space domestically. However, given the unique chemistry it is in, it is available at somewhat similar valuation multiples as commanded by other speciality chemical companies domestically. At the upper price band of | 783, FOIL is available at MCap/sales of ~3.0x and P/E of ~30x on FY18 numbers (annualised). Given impressive capex underway and robust product demand, we expect growth to sustain at FOIL going forward. Recommend SUBSCRIBE from long-term perspective,” said the brokerage house in its report.

Similarly, Ajcon Global is among the brokers with positive Fine Organic IPO recommendations. “At the upper end of the price band, the issue is valued at  28 times of 9MFY18 annualized EPS which we feel is reasonable considering it is the only Company with significant market sharein India. With due consideration to factors like a) largest producer of Oleochemical – based Additives in India, b) first mover advantage in India, c) one of the few players in the Oleochemical – based Additives industry in the world,d) specialized business model with high entry barriers (products require specialized research and chemistry along with specialized expensive equipments based on imported technology,  specialty and formulated products difficult to replicate), e) diversified product portfolio, f) negligible threat of substitutes, g) flexible and strategically located production facilities with in – house development capabilities, h) strong R&D capability with a focus on innovation, i) diversified customer base with long term relationships with marquee customers, j)strong balance sheet with Net Debt: Equity at 0.1x, favourable Net Working Capital cycle of ~70 days, positive operating cashflow with decent RoE of 25%, we recommend “SUBSCRIBE” to the issue,” noted analyst Akash Jain in the research report.

Adding further to positive Fine Organic IPO recommendations is HEM Securities which has advised investors to subscribe for long term. “The co is bringing the issue at p/e multiple of approx. 30 on annualized 9MFY18 eps at price band of Rs 780-783/share. Co being the one of the largest player in Oleochemical based additives industry in has posted decent financial performance. However looking after the current market volatility & valuations of issue, we recommend “Long Term Subscribe” on issue,” said the brokerage house.

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Fine Organic IPO recommendations: Not everyone is positive

Absence of immediate triggers in revenue growth was counted as a reason by Angel Broking which has a neutral view on the IPO. “In terms of valuation, pre- issue works out to 22x of annualized FY18 EPS of `35 (at the upper end of the issue price band). We believe FOIL is strategically placed owing to (a market leadership in Slip additive, (b) maintaining healthy operating margin in the range of 18-22%, (c) diversified client base along with geography mix (Top client contribute ~3% of revenue), and (d) Indian food industry is expected to grow at CAGR of 13-15% over FY17-2022. However, due to lack of immediate triggers in revenue growth owing to 100% utilization of current capacity and no major capacity additions in near future, we have a NEUTRAL view on the issue,” noted Angel Broking in its IPO note.

While Choice Broking is positive on the prospects of the company given that there are no listed peers, it has advised investors to exercise caution. “At higher price band, the company is demanding a P/E valuation of 30.6x as against the peer average of 24.2x. With respect to FY18E and FY19E EPS too, it is asking a premium valuation. Thus, the issue seems to be fully priced. However, considering the global market position, benefits arising from the capacity expansion, stable margin & profitability and limited competition, we assign a “Subscribe with Caution” rating to the issue with long term investment horizon,” said its research note.

Needless to say, Fine Organic Industries deserves a scarcity premium but since the stock market is not very positive these days, the premium will not be too high. In fact, grey market premium on the IPO has cracked in the last couple of days although it is still around 5% of the issue price. Feel free to check out our discussion page to see how other investors are reacting to the IPO.

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