Fineotex Chemical Limited (FCL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Fineotex Chemical Limited Q1 FY '25 Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Aarti Jhunjhunwala. Thank you, and over to you, ma'am.

Good evening, everyone. We are delighted to welcome you to the Q1 FY 2025 Earnings Conference Call of Fineotex Chemical Limited. The financial statements and the presentation have been uploaded on the stock exchange and our website for your thorough review. As we navigate the current economic and geopolitical environment, I'm pleased to report that Fineotex Chemical Limited has continued to progress, building on the strong foundation made in the previous quarter. Our focus remains on advancing our capabilities in the specialty chemical sector while adhering to our commitment to innovation and sustainability. I'm pleased to share that Fineotex has been certified as a Great Place to Work in the mid-size organizations category for the third consecutive year. This recognition is a testament to our consistent effort in cultivating the work environment that fosters strategic advantages, recognizes outstanding performance and nurtures leadership potential across the organization. It underscores our dedication to maintaining a high environmental, social and governance standards and creating a workplace where innovation thrives. In addition to this achievement, we are excited to welcome Dr. Amit Prabhakar Pratap, –Ph.D. Technology as our additional director. Dr. Pratap is the Head of Department at the Institute of Chemical Technology Mumbai, formally known as UDCT, and has covered over 20 years of expertise in oil, oleochemicals and surfactants technology. His distinguished career and international research engagement along with the fellowships from the Indian Chemical Society and the Maharashtra Academy of Science highlight his dedication to advancing chemical sciences. We look forward to leveraging his extensive knowledge and strategic insights as we continue to drive innovation and afford our position as a leader in the Specialty Chemical sector. Fineotex's journey is defined by our unwavering commitment to excellence, innovation and the creation of sustainable solutions. As we move forward, we remain focused on delivering value to our customers and stakeholders while expanding our portfolio and enhancing our market presence. With this, I would like to request Arindam Ji to provide us insight into our operations.

Thank you, Aarti Ji, and a warm welcome to all. As you know, over the years, Fineotex Chemical has strategically diverse its product offerings. What began as a focus on specialty chemicals for the textile industry has expanded to include complementary products for sectors such as hygiene, oil and gases among others. This diversification has allowed us to be better serve our customers by providing high-end customized solution that add significant value to their businesses. Our dedication to customer satisfaction is reinforced by the trust our clients have in our products and the strength of our brand reputation. As you know, in today's fast-paced market environment, agility and responsiveness are the key. Our streamline operation enabled us to adapt quickly to changing market dynamics, ensuring that we can meet customer demands with very short lead times and increase volumes. This operational efficiency is cornerstone of our strategy, allowing us to maintain a very competitive edge. Reflecting on our journey, Fineotex Chemical has made significant strides in research and development, particularly in the creation of eco-friendly and sustainable product line. This innovation manufactured at our overseas facilities have been instrumental in our expansion into key international textile hubs over the past 3 years. As we look ahead, our commitment to quality, innovation and customer satisfaction remains very strong. These principles will continue to guide us as we explore new opportunities and navigate the challenges of the market. I now request Sanjay Ji to present our quarterly performance and other recent strategic developments. Over to you, Sanjay Ji.

Thank you, Arindam Ji, and good evening, everyone. I'm pleased to present the financial highlights for quarter 1 financial year 2025. Fineotex Chemical has reported a consolidated revenue of INR 1,419 million for quarter 1 financial year '25, reflecting a growth of 7.3% Y-o-Y basis. The increase was driven primarily by a higher share of business from our core clients across key divisions. Our EBITDA for the quarter amounted to INR 353 million, demonstrating a year-on-year growth of 11.8% and yielding a margin of 24.8%. Our PAT has reached INR 292 million, an increase of 11.7% Y-o-Y basis. PAT margin standing at 20.6%. On quarter 1 financial year, Fineotex has successfully raised a total of INR 3,425 million through preferential allotment. The funds raised will be utilized strategically to support both organic and inorganic growth opportunities, including expansion initiatives and operation needs as outlined in our offer document. The fundraising was executed in 2 phases. Phase 1 was involved by the allotment of equity and convertible warrants totaling to INR 124.4 crores with upfront of INR 22.72 crores. Phase 2 involves further equity and convertible warrants totaling to INR 218 crores with upfront payment of INR 27.26 crores. To date, the total fund raised by the company is amounting to INR 342.6 crores with INR 192 crores received through equity allotment and warrant subscription. In conclusion, quarter 1 financial year '25 has been a period of strong performance and strategic advancement of Fineotex Chemical. Our revenue growth, improved profitability and successful fundraising, well -- positions us well for the continuous progress and value creation in the coming quarters. With this, we close our opening remarks, and we will open the call for interactive question and answer session. Thanks. Over you, Sagar.

[Operator Instructions] Our first question is from the line of Karan Kamdar from DR Choksey Finserv Private Limited.

Mr. Karan, I cannot hear you.

There is no response from the line of current participant. We'll move on to our next question. The next question is from the line of Kush Tandon from Ananta Capital.

It is good to see the performance of the company continuously improving on a quarter-on-quarter basis. Sir, just to understand a few bookkeeping questions to start with, what is the volume mix between textile and home care in this quarter?

For the volume mix, textile has been 46%, and the cleaning, hygiene division has been 54% broadly. So it is in the similar lines of the previous quarters, more or less.

Okay. And sir, what is the total volume that we achieved in this quarter?

The total volume which we have achieved in this quarter is around 16,700 approximately.

Okay. Okay. Sir, this quarter, was there a slowdown in the market or the industry in general, sir, any views on that?

See, as such, the textile has picked up. Actually, it could have picked up more. This was the first quarter where you had internationally -- like, there were 2 Eid's in this same, the Ramadan Eid and Bakri both. In those times, most of the countries, which are highly depending on textiles like Bangladesh, Turkey and other things, they are all on holiday. So the production generally dips whenever these things happen. This is the first time that both the Eid happened in the same quarter, so the impact was slightly higher.

Okay. Okay. Okay. And sir, in these recent events in Bangladesh will have any impact on our operations in terms of consistency of manufacturing -- of inconsistency of sales?

Actually Bangladesh, we have an office also. We have a company in Bangladesh. We have our team also. As such, Bangladesh is back to normal in terms of the production I'm talking about, in terms of the factory running and other things. And I would -- it is not right to assume that Bangladesh will be left behind because of these kind of incidences, which has happened. Of course, it can take a little bit time to recover, time in the sense a couple of weeks or 1 month to get to things to normalcy, but that is a part of the thing, it doesn't matter a lot. On the long-term basis, Bangladesh will not lose its shine.

Okay. Understood. So no impact on our sales or operation, sir?

No, no. These things, see, what happens at the most is that, the -- it takes a long time to really get the LC and things like that. But that is already sorted out. It's now -- already we have started beginning the business very well there in the last 5, 6 days itself.

Okay. And sir, as the raw material -- my last question is on the raw material prices sir, what is the trend that you are seeing?

And what is again happening is there is a big shortage of containers, freight charges, again, the geopolitical situations are not okay. So the shipping liners take a longer route, longer route means less availability of the containers. At the same time, the cost is going up for that. So these are kind of, again, unpredictability, we don't know -- nobody will know how much inventory to keep in the pipeline to cater to a particular volume. So again, yes, it has its challenges, but let's see it settles down going ahead. It's not anything, which is a significant point to mention about.

Okay, okay. Understood. Congratulations once again. All the best, sir.

[Operator Instructions] We'll the next question from the line of Karan Kamdar from DR Choksey Finserv Private Limited.

So a great set of numbers on the margin front, we've been able to maintain our margins. Can you guide us on some realization and what kind of volume growth has been like?

See, as such, there has been a volume growth of around, let's say, 4% to 5%, let's say from the year-on-year basis. And in terms of the turnover also, it is reflecting almost the same. However, our focus on textiles, our core business is also going higher and textile has been doing much better than where it was in the last calendar year. So this is the position where we are today.

Okay, sir. Sir, can you give us an update on the acquisition which you announced a couple of months ago, where that is and where can we have more details about it?

We did mention that we are in the discussion stage. This status is still the same and as and when we have something informative to share, we'll be sharing with everyone on the -- with the help of the stock exchanges. And yes, so things are going still on the same direction.

Okay. My last question on the oil and gas side, where are we that? I think last we were doing some trial orders, so any progress in that segment?

There are a lot of actions which are going on in those directions. And this industry is a very -- the decision period is very, very long, because when we are talking about the biggest companies like Aramcos and all these big names, it takes many, many years for people to get into. So the actions are on, and we are expecting some nice development to happen in the coming -- current financial year.

[Operator Instructions] Our next question is from the line of Vinay Nadkarni from Hathway Investments.

Sanjay Ji, good numbers. Just wanted to know couple of things. In terms of this growth of 7.6% that we have seen. How much of is it because of volume? And is there any price changes during this quarter?

As such, everything has been almost the same. There has been no -- in fact, if you have noticed that way, textile realization has come slightly lower compared to the last quarter year-on-year basis. So it's not about -- it's about volume has gone up, the product mix has changed. We are getting into more profitable product lines about sustainability, which we always mention about to all our participants and the trend is towards the sustainability, and which has also helped us to gain the volumes substantially in textiles also.

Okay. So basically the difference between 7.5% and 4% to 5% growth in volume is because of the product mix, is what you're saying?

Yes, because the product mix is correct. Absolutely. And our major sector -- finishing is still our major focus area, which is our main -- which is the most sustainable business line for the textile chemical company to be in, because ultimately their fabrics have been bought on the basis of the finishes and there is a lot of technical value addition, which we keep adding on, on the fabrics. That is still our major areas of development.

Any new customers added during this quarter, sir?

No, actually, we keep adding a lot of customers day-in, day-out, but also see actually, as such, you must be aware about we are present in almost all the substrates, all the kind of machineries from North to East, everywhere, we have 100 distributors. We have 36 technologists who are servicing the customers. Our major products -- I mean, as such, we are working with almost all the biggest textile corporates of India. Now the trick here is that our focus is to win the wallet shares, now that's what we have been doing, and that is the places which will be helping us to grow our businesses more like that.

Okay. And even in cleaning and hygiene, there is a new customer of any big name that has gotten added, right?

Not exactly a very big names to be mentioned here. But then on and off, there are a lot of semi-corporate customers which keep adding on and a lot of sustainable solutions have been demanded by that industry as well, and we being quite early movers in this business line for sustainability. I think we have a fair chances of more successful going forward and excite the customers with these solutions.

Just 2 more questions, if I'm permitted.

Yes, yes, please go ahead.

Yes. One thing is on this contribution from the strategic partnerships with Eurodye and HealthGuard, how much of our revenues come from this large partnership?

So it is not yet substantial at all. In fact, we are discussing with them to make in a better -- much better way, where we can really make the use of this tie up in a better way. As such, as you know, there has been again, a problem with Europe because of the Red Sea issues and this and that and the Eurodye being located in Belgium, they are facing a hard time to make their products in Belgium, and firstly, they bring the raw materials from Asia, then to Belgium and then back to India -- I mean, back to Asia. So we are discussing with them on certain ways of doing certain associations, which can be more rewarding to both sides, so those things are under progress.

That would include manufacturing for them here?

Yes, yes, absolutely.

Lastly, on this raw material prices, was there any changes in raw material prices during this quarter because you had a good run because of lower raw material prices for the last years, right?

We are actually, that is -- you can say so, but if you notice even in this year, in the first quarter, we had a great increase in the freight cost and things like container shortages, inventory controls and other things, but still we are able to maintain our GP of almost 38.58%, which is, in fact, as I see, it's higher than the -- which the last quarter also higher than the year-on-year also higher than the last year's weighted average also maybe. So things are in line. I mean, that will not -- so it -- yes.

So can I assume that the raw material prices have dropped further this quarter? Or is it the correct...

Not at all. Nothing has dropped. There is nothing which has dropped now in this quarter, also not because the freight cost has gone up, and the currency is also not supporting anything. It's in fact going ahead only. But in spite of that, we are able to do it because we have been able to focus more on sustainable solutions and the more sustainable solutions we offer to the customers, the margin -- those will have more returns as such, the margins are more. And hence, we are able to cover it up from that end.

[Operator Instructions] Our next question is from the line of [ Abhijit from Pi ] Asset Management.

I just wanted to know how the demand is shaping up because it would seem that there are a lot of headwinds and -- yes, this is my first question.

Demand in textile has been increasing. I can say the worst is behind us, like 2023 was one of the bottom year for the textiles. I think going forward, things are going to be much better, whether it's in India or Bangladesh or wherever. Because there has been a lot of inventory unlocking which has happened already last year [Foreign Language] or this year beginning from the Walmarts of the world, the buying houses. So I think now there is the time to refill stocks, inventories and other things. Things are going well in terms of textiles.

Okay. And there's a shortage of -- container shortage and cost is going up. So will it be fair to assume that we can expect the raw material prices to increase in the coming quarters?

Prices of the raw materials will be at least the level where it was in quarter 1. It will not go down. And because the heat is still being felt now more because of the -- like we discussed about all these points of the geopolitical situations and all. So I don't think there has to be there -- the situation will not become much better in the raw material pricing.

So, if the raw material prices are increasing, so how fast we can pass on that to our customers?

See, actually, we are not into -- we are like as you can see, like for the last 54 quarters are being listed, we have been -- our EBITDAs have always been minimum 17%. I'm talking of the last 13 years of being listed. Because in true sense, our company is into totally a solution-driven technical services, and we don't -- not only produce performance, specialty chemicals, but we provide a lot of solutions and services. Along with this, what happens is we are able to give products to the customers, which really excites them. And there is -- and these businesses are not like a commodity businesses. It's not like a soda ash or acetic acid businesses. These are all solutions and where the customer is bothered about the performance which they get. So going forward, I can tell you that we are always being, having comfortable EBITDA margins and gross margins, minus -- plus minus 0.5% here and there in raw material doesn't really have any significant effect on our performance.

[Operator Instructions] The next question is from the line of Vinay Nadkarni from Hathway Investments.

Sanjay, just one, what is the target you have set for yourself of Fineotex in the next 2, 3 years in terms of topline and EBITDA?

Actually, Vinay Ji, we cannot -- I can just share with you how we look at our company is that what we have done in the last, let's say, 3, 4 years, we are looking to repeat the same thing in the coming couple of years and the times to come. So this is the broad answer I can give you. And we are very hopeful about the kind of opportunities which are coming to us in all the fields. I think we'll be in a good position to deliver what we are expecting.

Any new products in the pipeline, which you would like to introduce?

There are so many products going on day-in, day-out because this is -- because in this business where we are there is a new trend coming up, there is always a new demand from the end user. Let's say Walmarts of the world, they will always keep sharing up their challenges or something which they want us to achieve for. So we always keep getting our challenges and we keep working towards it in order to get them the right results and translates into the business. So it's a total ongoing process -- totally ongoing process. We cannot -- in fact, even -- every month, there has to be something added on not even every quarter.

[Operator Instructions] The next follow-up question is from the line of Kush Tandon from Ananta Capital.

Yes. Sir, just a follow-up on our completion of preference issue. Sir, any time lines on the utilization of the funds in terms of any expansion plans or any inorganic activities, any timelines that you can give us?

As such, the official document, which we had submitted, we have taken a sufficient time line of around 3 to 4 years for that. However, that is not what we meant, but we will try to utilize and channelize these funds for the growth of the company, and we are working towards it.

Okay. And sir, how is the CapEx at the new facility coming on, sir? When can we expect that to be online? Is it on track?

It is on track, but in any chemical plant to be commissioned in India, it's a very long process, as you know, and we had just started this action from the April month only from the current financial year. So it's only 4, 5 months yet. And yes, we acquired it in January then 2, 3 months will go for the planning and other things. So ground actions started in April only. And we are trying to rush it up and as you know, the monsoons are also there, and things go very slow. So anyhow, we aim that by the end of this financial year, we should be up -- more or less.

[Operator Instructions] Ladies and gentlemen, we would take that as the last question for today. I would now like to hand the conference over to Mr. Sanjay Tibrewala for closing comments.

Thank you participants for joining in. And if you have any further questions, we always delighted to reply to all your questions, you can contact our Churchgate Partners, Investor Relations or you can write to us as well on the company's designated e-mail ID. Thank you very much. See you soon. Thank you. Have a good evening.

Thank you. On behalf of Fineotex Chemical Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.