Fineotex Chemicals Q3 2022 Concall Highlights

Operational Highlights 

• Q3 results were beyond management expectations. Revenue increased by 33% from the previous quarter. EBITDA grew by 70%. 22-23% EBITDA margins are sustainable in future
• Reason for margin contractions in  previous quarters
• Spending on certification from different institutes. Recently received Eco-passport certification from Hohenstein Institute, Germany
• Increase of technology personnel by 75%
• In the textile industry, the order takes 2-3 quarters to be approved by the customer. thus higher number of approvals will lead to higher margins
• Performance chemicals contributed 95% of revenues
• Even after high freight, power and gas cost, the company delivered healthy growth in margins

Revenue contribution from

• Top 10 Products: 20%
• Top 10 Raw materials (expense): 22-25%
• Top 10 Customers: 36%

• Raw material contribution won’t change even after capex
• Exports in quarter is 43% of revenues
• 5-10% contribution from Ambernath plant. Q4 revenues will be highly driven from this facility
• Capacity utilisation at 70% (excluding Ambernath facility)
• The company has premium customers in every substrate

Business Strategy

• Focus on product diversification and solutions in textile industry
• New product mix is revamped and working on sustainable solutions
• Increase wallet share with existing customers and enter new geographies 
• Higher number of products will lead to higher asset turnover for new capex
• Products manufactured have high grade of technology
• Not difficult to achieve ₹750 Cr in three years
• Recurring revenues from customers is high as products from 2008 are still being demanded 
• Offering new product solutions to existing customers. Customer benefits on their cost management from these products

Capex 

• The new ambernath facility started in November 
• Asset turnover for capex will be 7-8x minimum
• Revenue contribution from Ambernath facility is expected around ₹350 Cr
• Expecting to have capex after utilisation of Ambernath facility

Industry outlook

• Demand for technology is higher for products like antimicrobials, dust repellents, water repellents and perspiration absorption.
• The industry has witnessed exponential growth from 2020
• The incremental prices are neglected by consumer has the contribution of product in final cost is 0.15%
• Unlike other chemistry, the customer is not bothered with high purity or activity, the molecule should serve the purpose in the final applications. 
• Higher switching cost to customers as the reward to risk ratio to approve new suppliers is very low. (any changes in molecule could hamper the final textile product)