fineotex chemical ltd share price Management discussions

Indian Economy: Resilience and Growth Potential

The Indian economy remains resilient and is well-positioned to leverage its growth prospects. According to the second advance estimates (SAE) of national income released by the National Statistical Office (NSO), the recovery has been robust, primarily driven by private consumption and a rebound in government consumption. Net exports have shrunk as significant growth in its exports and a noticeable slowdown in growth of imports. On its part, the government is tweaking its policies to promote rapid economic growth and to mitigate risk while streamlining supply chain and continuous availability of raw material. These measures will help the Indian economy to maintain its growth trajectory.

Recently, in Dec 2022, India assumed the Presidency of G20 and under its Presidency, the G20 will focus on the theme, ‘One Earth, One Family, One Future and has identified key priorities to strengthen global economic cooperation, multilateral development banks, and the financial safety net. It also aims to address debt vulnerabilities, resource mobilization for climate action & Sustainable Development Goals (SDGs), risk management and opportunities arising from rapid fintech advancements.

The Indian chemicals industry is projected to reach US$ 304 billion by 2025, with a CAGR of 9.3%. The chemical industry is expected to contribute US$ 383 billion to Indias GDP by 2030. The increasing demand from end-user industries such as food processing, personal care, and home care is driving the development of various segments in Indias specialty chemicals market. Indias specialty chemicals companies are expanding their capacities to meet the rising demand from both domestic and international markets.

An estimated investment of Rs. 8 lakh crore (US$ 107.38 billion) is projected in the Indian chemicals and petrochemicals sector by 2025. Specialty chemicals account for 22% of the total chemicals and petrochemicals market in India. The demand for specialty chemicals is expected to rise. India holds a strong global position in chemical exports and imports, ranking 14th in exports and 8th in imports (excluding pharmaceuticals). The chemicals industry in India encompasses over 80,000 commercial products, contributing to its robust overall market size. The specialty chemicals sector is expected to reach a market size of US$ 40 billion by 2025.

The Indian Government supports the industry through research & development and initiatives such as reducing basic customs duty on several imported products and promoting the ‘Make in India campaign. A 2034 vision for the chemicals and petrochemicals sector has been set up by the government to explore opportunities to improve domestic production, reduce imports and attract investments in the sector. The government plans to implement production-link incentive system with 10-20% output incentives for the agrochemical sector; aiming to create an end-to-end manufacturing ecosystem through the growth of clusters.

To address lower per capita consumption ease of doing business have been promoted by the Indian government; this reflects good investment opportunities with huge growth potential.

The government has established four petroleum, chemicals and petrochemical investment regions (PCPIRs) as investment regions for petroleum, chemicals and petrochemicals, along with associated services. Plastics Parks have been set up to facilitate technology development and conducive ecosystem to produce specialised plastic products. The government has started various initiatives such as mandating BIS-like certification for imported chemicals to prevent dumping of cheap and substandard chemicals into the country.

The Indian government recognises chemical industry as a key growth element and forecast to increase share of the chemical sector to ~25% of the GDP in the manufacturing sector by 2025.

• Under the Union Budget 2023-24, the government allocated Rs. 173.45 crore (US$ 20.93 million) to the Department of Chemicals and Petrochemicals

• PLI schemes have been introduced to promote Bulk Drug Parks, with a budget of Rs. 1,629 crore (US$ 213.81 million)

• The Government of India is considering launching a production linked incentive (PLI) scheme in the chemical sector to boost domestic manufacturing and exports

• A 2034 vision for the chemicals and petrochemicals sector has been set up by the government to explore opportunities to improve domestic production, reduce imports and attract investments in the sector. The government plans to implement production- link incentive system with 10-20% output incentives for the agrochemical sector; to create an end-to-end manufacturing ecosystem through the growth of clusters

• 100% FDI is allowed under the automatic route in the chemicals sector with few exceptions that include hazardous chemicals

• Single window clearance is provided for central and state-level approvals

Emergence of the Indian Specialty Chemicals Market and Growth Potential

The specialty chemicals industry is still experiencing the global impact, post-pandemic. The hardships caused by pandemic-related restrictions, stockpiling at ports, and labour shortages, has not deterred the industry to demonstrate its resilience. The shift in consumer behaviour, driven by a heightened focus on health, hygiene, and the demand for specialized products, has further fuelled the need for the industry across various applications.

Meanwhile, Indias specialty chemicals market has emerged strong because of its process engineering prowess, cost-optimized manufacturing, and its skilled workforce. Further, favourable government initiatives the Petroleum, Chemicals, and Petrochemicals Investment Region (PCPIR) policy and Production-Linked Incentive (PLI) schemes, have increased the global investor confidence. With tighter pollution control norms and rising labour costs, global manufacturers are actively seeking to shift their production base to low-cost economies.

Benefitting from its robust manufacturing capabilities, favourable cost structures, government support, and the evolving global manufacturing landscape, Indias specialty chemicals market is primed for significant growth in the near term. India is seizing the opportunity and potential to establish itself as an alternate manufacturing hub for the global specialty chemicals industry.

Expanding and Diversifying Fineotexs Portfolio: Specialty Chemicals in Textile and Cleaning and Hygiene Segments

Fineotex is a forward-looking group and continuously explores new domestic and international geographies to expand and diversify its portfolio. Over the years, the company has enhanced its brand through strategic alliances with reputed companies. Of late, the industry has seen a rising demand for its super specialty finishing products, and we, at Fineotex is well-equipped to meet this surge in demand. Furthermore, the global demand and the increasing focus on health and hygiene will further boost the companys revenue. To respond to the growing demand, Fineotex is expanding its capacity and developing new super specialty chemicals.

Fineotex is a specialty chemicals producer with a specific focus on textile chemicals. The industry dynamics are attractive, with technical barriers to entry and a high level of development and product customization. Biotex Malaysia plays a pivotal role in spearheading R&D solutions, application research, and product development in this segment.

The textile industry is the largest consumer of Fineotexs specialty chemicals. We have established strong relationships with major textile brands and enjoys a good brand recall for its high-quality products. Our products are widely accepted in both domestic and international textile markets, both for manufacturing and processing. Fineotexs export portfolio covers more than 60 nations.

Fineotex has successfully diversified into the cleaning and hygiene business, leveraging its existing technical expertise and knowledge in production and distribution to gain a competitive advantage. Many chemical compounds used in the textile specialty segment have potential applications in the cleaning and hygiene segment as well. The cleaning and hygiene segment has exhibited steady growth and is expected to accelerate further soon. This expansion allows Fineotex to diversify its business and revenue streams while leveraging its core competencies. The company aims to maintain the same high standards of quality and performance in its cleaning and hygiene products as it does in its textile chemicals.

In addition to manufacturing specialty chemicals, Fineotex offers customized technical solutions and services through its dedicated focus on R&D activities, facilitated by strong alliances with partners and institutions.

The company has established strategic partnerships with EuroDye, HealthGuard, and Sasmira to further enhance its offerings and market presence.

Fineotex actively encourages sustainability and strives to minimize its environmental footprint by fostering collaboration and knowledge sharing between the textile, cleaning, and hygiene industry-wide manufacturers.

Our Ambernath plant is fungible and has the capabilities to manufacture products for both the textile chemical as well as cleaning and hygiene segments. The Fineotex groups total plant capacity expansion from 83,000 MT to 1,04,000 MT since 14th November 2022. Equipped with modern infrastructure and amenities, the facility enables sustainable chemical production through advanced automation, storage, and logistics handling. This expansion allows Fineotex to meet the growing demand for specialty chemicals while maintaining efficient and environmentally friendly manufacturing processes.

Fineotexs Commitment to Sustainable Operations and Innovation

The year 2022 is a significant milestone year for Fineotex, in which we reached a total capacity of 104,000 tonnes per year reflecting our intention for seizing opportunity for growth. This expansion will help us to expand our client base and product base and enabling us to meet the ever-evolving needs with speed.

Our accomplishments have been widely recognized across the industry and market segments. Celebrating 12 years of being listed on the Indian stock market, Fineotex Chemical has earned the certification as a ‘Great Place to Work, showcasing our commitment to providing a conducive work environment. Additionally, we have been included in the Nifty Micro-Cap index and have entered the ‘A group category of listed companies, reflecting our dedication to excellence and growth. The certification from the US Environmental Protection Agency (EPA) and the Women at Work Leadership Award further validates our commitment to quality and distinction.

Fineotex Chemical offers a wide range of over 470 diverse products across many categories. Our recent partnerships with HealthGuard Australia and EuroDye CTC Belgium have enriched our product offerings, allowing us to provide comprehensive and innovative solutions to meet market demands. The industry has already recognized the exceptional quality of our bespoke specially developed silicone functional range, which includes epoxy, hydrophilic and, color enhancement finishes.

With a global presence in approximately 70 countries, Fineotex has established a strong network of over 110 dealers. Our commitment to delivering excellent products and services extends both to the Indian and international markets. International Sales contribute to 25% of our income, underscoring our dedication to providing outstanding solutions to customers worldwide.

Recognizing the increasing importance of sustainability in the textile chemicals sector, Fineotex is at the forefront of promoting sustainable practices. We adhere to the strict requirements set forth by statutory authorities, ensuring that our processes and products are non-hazardous and free from harmful substances. Our wastewater is treated and safely discharged through our effluent treatment plants (ETPs) and combined effluent treatment plant (CETP), preventing water pollution.

We are committed to reducing our overall water and energy consumption, driving efficiency, lowering costs, and promoting sustainability. By adopting processes that minimize air and water pollution, reduce waste from production and packaging, and address transport-related pollution, we actively contribute to a cleaner and safer environment.

In our pursuit of a sustainable future, Fineotex Chemical focuses on innovation. We develop new-generation chemistry that saves power, energy, and process time on existing production lines. Through our continuous efforts to improve and innovate, we aim to create more sustainable and efficient processes.

Fineotex Chemical is driven by a deep-rooted commitment to sustainability and innovation. Our dedication to providing exceptional products and services goes hand in hand with our responsibility to the environment and society. As we move forward, we remain resolute in our mission to make a positive impact, foster sustainability, and contribute to a cleaner and more sustainable world for future generations.

FY2023 saw our textile business division in a significant new product development mode. Our advanced low cyclic sustainable silicone product range will find newer applications that will hold great potential for its success in many countries. We owe this success to our partnership with a few globally acclaimed brands. Our dedicated R&D team has made remarkable progress in creating a new finishing range while reducing silicone dosage. This apart the production process reduces packing material wastage and transportation emissions which are distinguishing benefits compared to our existing products.

Furthermore, we expanded our operations by developing a resin finish product line specifically tailored for European and American retail buying houses. This product line was met with great success as we managed to successfully supply it to renowned textile industries throughout India.

In the recent past, we dedicated our efforts to developing EuroDye CTC dyeing auxiliaries, and we are pleased to announce that they have been successfully launched and adopted by many customers, thus showcasing their effectiveness and reliability in enhancing the dyeing process. The successful market entry and positive feedback from multiple customers validate the value and quality of EuroDye CTC dyeing auxiliaries in the textile industry.

The SWOT Analysis

Strength

Fineotex holds a strong market position in the specialty chemicals industry in India. The companys extensive experience and expertise have enabled it to establish a reputable brand name and gain a competitive edge in the market. With a diversified product portfolio that includes textile chemicals, polymers, and enzymes, Fineotex Chemical caters to various industries, which helps mitigate the risks associated with relying on a single sector for revenue generation. Additionally, the company boasts a well-developed distribution network and a broad customer base, both domestically and internationally. These strengths contribute to the companys consistent revenue growth and overall financial performance. Fineotex also benefits from its experienced management team, which has a proven track record of successfully navigating the industry and driving the companys growth.

Weakness

The weakness faced by companies in the specialty chemicals industry is the potential risk of technological obsolescence due to rapid

advancements and evolving customer preferences. This can lead to products and manufacturing processes becoming outdated and less desirable over time, posing challenges for companies to remain innovative and adapt to changing market demands. However, Fineotex Chemical has effectively countered this weakness by establishing strategic alliances and collaborations. These partnerships with EuroDye CTC, HealthGuard?, and Sasmira Institute enable Fineotex to leverage cutting-edge technologies, research expertise, and industry insights. By actively embracing innovation and investing in research and development, Fineotex Chemical remains at the forefront of technological advancements and maintains a competitive edge in the market.

Opportunities

Fineotex Chemical operates in an industry that presents several growth opportunities. There is a growing demand for specialty chemicals not only in India but also overseas, which Fineotex can tap into by expanding its international footprint. The company can capitalize on this demand by investing in research and development to further expand its product portfolio. Moreover, with the increasing emphasis on sustainability and eco-friendly products, Fineotex has an opportunity to position itself as a leader in providing environmentally conscious solutions to its customers.

Threats

Fineotex Chemical is exposed to the risks associated with economic slowdowns and geopolitical factors. Economic downturns can impact on the overall demand for specialty chemicals, leading to reduced sales and potential revenue decline for Fineotex. Additionally, geopolitical factors such as trade disputes, regulatory changes, and political instability can disrupt global markets and affect the companys international operations, including its supply chain and customer base. However, the fineotex chemical is a debt free company and having an enough resources to overcome the situations.

Outlook

Indias economy has been steadily growing due to strong domestic demand, robust investment activity, and buoyant private consumption. This growth, coupled with Indias vast consumer market and affordable labor, is attracting global brands and trading partners, presenting opportunities for long-term growth and transformation. The International Monetary Fund expects India to grow by 5.9% in FY 2023-24 and maintain an average rate of 6.1% over the medium term. With its stable growth, favorable domestic conditions, and growing attractiveness to investors, India continues to navigate the challenges of the global economic landscape, positioning itself as a destination for investment and trade. Indias economic outlook underscores its potential for sustained development and a positive future.

The Indian Home Care market is currently valued at INR 35,000 Crores and is expected to grow at a good pace in the next 5 years. The Indian per capita annual consumption of detergent is 2.7-3 Kg which is still lower than those of developed countries and is expected to see usage of quality and premium products due to its rapid urbanisation, rising nuclear family structures and increase in disposable income.

Meanwhile, we at Fineotex are at the forefront to capitalise on the emerging opportunities by developing a newer range of products that will serve the ever-changing customer needs. We recently introduced 5 innovative solutions including the few in newer liquid format. These solutions offer safety and convenience to the consumers while optimising the cost and increasing the customer delight.

We continue to reinforce our established market leader position by investing in technology, infrastructure, manufacturing, product development and market.

Production

During the FY 2022-23, the fineotex achieved remarkable progress in production and sales. The increase in production reflected a significant growth of 81.96% compared to the previous years production of 30,612 MT. Similarly, the sales volume witnessed a substantial increase, marking a growth rate of 84.77% compared to the previous years sales of 29,910 MT.

Particulars	2022-2023	2021-2022	Increase
Production MT	55,702	30,612	81.96%
Sales MT	55,265	29,910	84.77%
Income from Operation (Rs. In Lakhs)	51,700	36,823	40.40%

This performance translated into improved financial results, as evidenced by the income from operations, which amounted to Rs. 51,700 Lakhs. This represents a notable increase of 40.40% compared to the previous years income of Rs. 36,823 Lakhs. Our state-of-the- art facility has significantly enhanced our production capabilities and enables us to cater to the increasing market demand. The strategic location of Ambernath provides logistical advantages and allows us to efficiently serve our customers. With the operationalization of this facility, we have strengthened our ability to manufacture a wide range of products, including disinfectant/antimicrobial hygiene and cleaning products. This positions us to capitalize on the opportunities in the market and deliver high-quality solutions to our valued customers.

The remarkable performance in FY2023 reaffirms our commitment to driving growth, capturing market opportunities, and delivering value to our stakeholders. Our continuous focus on innovation, diversification, and operational excellence positions us for sustained success in the future.

DISCUSSSION ON FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONS

The consolidated Profit After Tax (PAT) for FY2023 increased to Rs. 8,955 lakhs from Rs. 5,689 lakhs, registering a growth of 57.4%. Income from Operations reached Rs. 51,700 lakhs, reflecting an impressive year-on-year growth of 40.40%. Similarly, EBITDA amounted to Rs. 11,259 lakhs, marking a remarkable growth rate of 58.12%.

The company accomplished exceptional results by surpassing financial targets and achieving robust growth in the cleaning and hygiene segment. The salient indicators are as under: -

1. Standalone Operations:

(Rs. in lakhs)

Particulars	2022-2023	2021-2022	Increase %
Income from Operations	29,555	25,008	18.18
Profit before Tax	6,771	5,676	19.29
Profit after Tax	5,202	4,398	18.28
EPS (FV Rs. 2/ Share) (Rs)	4.70	3.97	18.39

Increase due to expansion and diversification.

Cash/ Fund management:

Particulars	2022-2023	2021-2022	Increase	Comments
Cash from Operating activities	6,629	1,347	5,282	Effective working capital management, increased sales, and revenue generation
Cash from Investing activities	(6,858)	710	(7,568)	Profit earned saved for future growth
Cash from Financing activities	(500)	(384)	(116)	Dividend paid during the year
Net Cash Flow for the Year	(729)	1674

2. Consolidated

The Income from Operations constitutes as under on Individual Standalone Results as under:

(Rs. in lakhs)

Company	2022-2023	2021-2022	Increase %	Comments
Fineotex Chemical Limited	29,555	25,008	18.18	Growth and Product
Fineotex Malaysia Limited	7,545	11,777	(35.93)	Expansion
Fineotex Biotex HealthGuard FZE	27	97	(72.16)
Fineotex Specialities Private Limited	16,218	3,358	382.97
Manya Manufacturing India Private Limited
Elimination and adjustments	(1,645)	(3,417)
Total Group Turnover	51,700	36,823

Operations:

Particulars	2022-2023 (Rs. In lakhs)	2021-2022 (Rs. In lakhs)	Increase %
Income from Operations	51,700	36,823	40.40%
Profit before Tax	11,480	7,329	56.64%
Profit after Tax	8,955	5,689	57.41%
EPS (FV Rs. 2/ Share) (Rs)	7.97	4.98	60.04%

Strategic initiatives led to impressive growth and successful portfolio diversification, enabling it to capture new market opportunities and mitigate risks

Cash/ Fund management:

Particulars	2022-2023	2021-2022	Increase	Comments
Cash from Operating activities	10,728	1,338	9,390	The company having an effective cash utilization, which fulfilling the working capital requirements
Cash from Investing activities	(10,184)	(74)	(10,110)
Cash from Financing activities	(644)	(566)	(78)
Effect of Foreign Exchange differences	237	141	96
Net Cash Flow for the Year	136	839	(703)

Financial Ratios and Analysis

Most of the parameter indicators of financial performance show the improvement in this area:

Working Capital Management

The working capital ratios are given below:

	2022-2023	2021-2022	Variance
Current Ratio	2.96%	3.44%	(13.95)%
Inventory Turnover Ratio	6.86%	7.09%	(3.24)%
Debtors Turnover Ratio	3.97%	3.74%	6.15%
Creditors Turnover Ratio	4.15%	5.59%	(25.76)%

The above shows an improved working capital management with faster collections matched by faster settlement of dues to suppliers.

Profitability performances

	2022-2023	2021-2022	Variance
Return on Equity	21.17%	21.83%	(3.02)%
Net Profit Ratio	17.60%	17.59%	0.06%
Return on Capital Employed	24.49%	25.49%	(3.92)%

ROC and ROE were 24.49% and 21.17% respectively, underscoring the success of strategic initiatives and efficient capital allocation

Long Term Financing	2022-2023	2021-2022	Variance
Debt Equity Ratio	0.03	0.01	200.00%
Debt Service Coverage Ratio	97.48	91.09	7.02%

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

Fineotex lays great emphasis and strict compliance on the policies related to critical functions like production, project, finance, supply chain, human resources, etc. These policies are periodically reviewed to ensure the same are aligned to prevailing policies of the government and regulatory authorities. The internal checks and balances help the Fineotex to assure the safety and security of all the infrastructure and assets and its authorized use through control documents. Fineotex has tight Internal Control Systems which are monitored on a regular basis by the management. On the external front, the Company monitors the conformity to all environmental regulations prevailing as on date. The Audit Committee is empowered to evaluate policy adequacy and to initiate measures to strengthen them.

The Internal Control System is reviewed on a continuous basis in light of changed circumstances and way of conducting business due to changing systems and procedures. Based on the recommendary and statutory directions of the Government, the Company had to revisit the controls repeatedly as a business necessity. As result of the amendment to the Schedule HI of the Companies Act 2013 and reporting requirements of CARO 2020 the Board has looked into the controls and brought in line to comply with the Act. The management is also in touch with stakeholders, experts and auditors. Necessary provision has been made based on such interaction.

Fineotex has laid down adequate internal financial controls and checks which are effective and operational. These systems are designed in a manner which provides assurance about maintenance of strict accounting control, optimum efficiency in operations and utilization of resources as well as financial reporting, protection of Companys tangible and intangible assets and compliance with policies, applicable laws, rules and regulations. The Audit Committee regularly interacts with the Internal Auditors, the Statutory Auditors and Senior Executives of the Company responsible for financial management and other relevant areas. The Audit Committee evaluates the internal control systems and checks and balances for continuous updating and improvements therein. The Audit Committee also regularly reviews and monitors the budgetary control system of the Company as well as the system for cost control, financial and accounting controls, physical verification and other related areas. The Audit Committee regularly ensures that proper internal financial controls are in place, including with reference to financial statements. During the year, such controls were reviewed, and no reportable material weakness was observed.

HUMAN RESOURCE

Fineotex has total 278 employees out of which 201 are permanent employees and 77 are contract worker at the year end. From the total permanent employees, over 23.30% are women.

We consider the employees as our most asset and help them realize their full potential through our strong HR policy. Fineotexs robust performance and goals management system is crafted to ensure our employees performance is assessed and appraised annually based on agreed upon goals aligned with the Companys overall business targets. The performance driven culture and Risk & Reward HR policy will help to inculcate a sense of ownership and accountability amongst our employees.

The HR function is tightly integrated and takes care of recruitment, training, performance management, compensation and the overall well-being of all our employees. Fineotexs strong belief in employee empowerment and thus the efforts are focused on creating an employee- friendly environment. The testimony to this is our recent certification of ‘Great Place to Work.

SAFETY AND HEALTH

Fineotex is firmly committed to the policy of utmost safety in workplaces. The Company has all the required safety systems in place at all our facilities to ensure a high standard of safety and health of employees as well as the factory infrastructure. We have established all possible measures to remove/reduce risks to the health, safety and welfare of all the personnel at our facilities. The Company ensures all the safety equipment are in working condition, installed at appropriate locations and along with its user manual. All the employees are also periodically trained on health and safety initiatives. Our workplace

culture promotes the use of personal protection equipment and apparel, as well as strict adherence to managements health and safety directives.

We at Fineotex believe in developing our processes and products in a manner such that no harm is caused to life and nature. We believe in being ecologically conscious and providing our customers with not only the best but also the most eco-friendly products and we consider this a serious social responsibility. All the effluents created during various processes are disposed of carefully without causing any harm to the surroundings.

It may be surprising the amount of good that can come out of implementing a resilient Safety and Health Program. Workplace safety promotes the wellness of employees and employers alike. Improved safety translates to better health. Healthier employees perform tasks more efficiently and are generally happier. In a safe working environment, the incidence of accidents become zero. A safe and healthy workplace safeguards workers from injuries and illnesses. Additionally, it can lower costs associated with injuries/illnesses, reduce absenteeism and turnover, increase productivity and quality, and boost employee morale. In other words, safety is good for business. Health and Safety initiatives include: the installation of Eye Washers & Body Showers in the Factory; conducting Mock Drills; Tool Box Talks; Earth Pit Testing; Safety Induction Training; Spillage Kit Training; Mobile Hazard Due to Radiation Training; Thermal Monitoring of Electrical Appliances; and Medical Check-up Camps approved by the Directorate of Industrial Safety and Health (DISH).