PL Stock Report: Fine Organic Industries (FINEORG IN) - Q2FY24 Result Update – Land allotment still awaited - HOLD

Fine Organic Industries (FINEORG IN) - Swarnendu Bhushan - Co-Head of Research, Prabhudas Lilladher Pvt Ltd.

Rating: HOLD | CMP: Rs4,303 | TP: Rs4,252

Q2FY24 Result Update – Land allotment still awaited

Quick Pointers:

♦ EBBIDTA margins declined to 22%, expected to hover at 20-22% going ahead.

♦ Land allotment still awaited.

We cut our EPS estimates by +10% each for FY24E & FY25E to factor decline in blended realizations and subdued demand. FINEORG delivered poor performance both YoY & QoQ with EBITDA at Rs1bn (-51% YoY/-31% QoQ) and EBITDA margin at 22% vs 25.8% in Q2FY23 and 28.5% in Q1FY24. The company’s performance will largely remain flat in the near to medium term due to (1) non-availability of land for further expansion as of now, (2) plants running at optimum utilization with no further scope of debottlenecking, (3) longer-than-expected time taken for setting up incremental capacities and delay in start-up of the Thailand JV. However, long term growth prospects remain intact given (1) strong demand/order visibility and wallet share gains and strong balance sheet. FINEORG is currently trading at ~32x FY25E EPS and ~22x FY25E EV/EBITDA. Maintain ‘Hold’ rating with revised TP of Rs 4252 (Rs4594 earlier) at 30x FY26E EPS.

♦ Standalone revenue at Rs4.7bn (-43% YoY/ -11% QoQ) was impacted by softer export demand on destocking and pass-through of lower input costs. For H1FY24, topline dropped by 36% to Rs 10.0bn from Rs 15.8bn. while EBITDA & PAT margins to 25.5%/19.2% from 26.5%/20.3% respectively.

♦ Gross margin was at 41.9% (vs 42.9% in Q1FY24 and 38.2% in Q2FY23). YoY decline was due to sharp decline in feedstock prices & product realisations. We expect gross margins to contract going ahead.

♦ EBITDA came in at Rs1bn (-51.2% YoY/ -31% QoQ), and EBITDA margin came at 22.1% (vs 25.8% in Q2FY23 and 28.5% in Q1FY24).

♦ Reported PAT as at Rs794mn (-52% YoY/ -30% QoQ), while margins were at 16.8% in Q2FY24 vs 19.8% & 21% in Q2FY23 & Q1FY24 respectively.

♦ Company plans to establish manufacturing facilities closer to customers in the US and sell products at premium price for higher margins.

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