Fine Organic Ind. Limited: Monumentous Growth?

Given its first mover advantage and market dominance in this sector, Fine could be a significant benefactor of the growth in the boom of oleo – chemicals sector due to its environmentally friendly origins.

Stock Data
Ticker	FINEORG
Exchange	NSE
Industry	SPECIALITY CHEMICALS

Price Performance
Last 5 Days	-2.89%
YTD	-24.44%
Last 12 Months	+7.37%

*As of 31.03.2023

About the Company: 

When Fine Organic Industries Limited was founded, its main goal was to replace local emulsifiers used by Mumbai’s ice-cream shops and bakery chains by using substitute imports. Throughout the following five decades, the company actively pushed to diversify the applications for its additives product portfolio and considerably increased both its client base in India and foreign markets. Currently, Fine is among the top producers worldwide and by far India’s largest manufacturer of food, polymers, and specialty additives based on oleo-chemicals.

The Company has had steady and robust financial development along with a huge increase in EBITDA margins owing to operating margins expanding more quickly as a result of scale advantages, an improved product mix, and stable raw material prices. F In the mar for speciality chemicals in the industry, the Company has one of the best fixed asset turnover rates. This, together with reasonable cash conversion, has allowed for a wholesome and consistent RoCE throughout the years.

Key Success Factors:

Strong Focus on R&D and innovation:

R&D becomes a crucial success component due to the high level of customization, integrated product development with clients, ongoing technical support, strict attention to quality, and requirement for product innovations to acquire a consumer. Thus, Fine’s R&D prowess has been crucial to the Company’s growth over the years to more than 400 items across several industries.

In addition to having the ability to develop and deliver products, Fine’s internal engineering team’s work on debottlenecking projects, plant design, and fabrication has enabled the company to establish its own manufacturing capabilities and process technologies at a significantly lower cost and in a shorter amount of time than third-party vendors. This made it easier for the company to launch a number of new items. This facet of Fine’s business was crucial early on in its development when the company had limited resources.

Entry barriers surrounding high switching costs and stringent approval process:

The two main revenue generators for Fine are food and plastic additives, both of which face minimal international competition. In the markets for food and plastic additives, there are only around four to five large global competitors each (India does not have any significant competitor). The specialised nature of products and high entry hurdles surrounding product quality, reliability, and consistency are the primary causes of this low level of competition.

• Quality of the Product: The bigger clients (in the food, cosmetic, and plastic industries) need specially formulated additives to provide their products with the attributes that their product design team demands. This includes characteristics such as smoothness and fluffiness, which vary for items made by various manufacturers. Due to the specialised nature of the product, there are entry barriers related to knowledge, a lengthy product development cycle, and highly technical sales abilities.

• Reliability: The procurement departments of clients describe their needs to the sales representatives of additive vendors, who are then expected to make suggestions for potential solutions in order to obtain the appropriate additives. The product team of the client collaborates with the development team of the suppliers to test, gauge, and enhance the additives for the shortlisted alternatives. Because of this collaboration, the client must have complete confidence in the additive provider because they must disclose the product’s formulation and manufacturing procedures (since the client is divulging the core IP of the product).

• Consistency: In the clients’ final products, which have a molecular weight of less than 1%, there are relatively few additives. Yet any problem related to the quality of the additives can affect the overall quality of the product. Furthermore, the quality needs to be constant between batches because additives give finished items unique qualities. The finished result could be dramatically impacted by even a small alteration. Also, the screening procedure is highly rigorous because these additives can directly cause an impact on human life and the environment.

Global Rising preference towards green additives:

Plants are the source of the oleo-chemical additions made by Fine. As a result, they are far safer and more environmentally friendly than additives made from petrochemicals. This makes  customers increasingly prefer environmentally friendly additives like those made from oleo-chemicals over synthetic ones. Without sacrificing on performance, this trend is anticipated to persist across a variety of industries, including foods, packaging, coatings, plastics,  cosmetics, rubbers etc. Given its first mover advantage and market dominance in this sector, Fine could be a significant benefactor of this trend.

Key challenges:

• Significant volatility in prices of Raw material: Any significant fluctuations in the price of the underlying raw materials can have an effect on margins over a few months ( like in FY21). This might be because the contracts entered into by vendors and those with customers have different durations and timings. Additionally, any levies imposed by the Indian Government or by other governments may result in uncertainty regarding the prices of raw materials given the vulnerability of the primary raw materials used by Fine.

• Any regulations/action surrounding products or production processes: The company’s operations could be disrupted by any strict quality or product criteria imposed by clients or authorities. Similar to this, the Corporation may suffer from any regulatory measures pertaining to the production plant or operations.