New Delhi: The initial public offering (IPO) of Fine Organic Industries Ltd, the largest manufacturer of oleochemical-based additives in India, opened on Wednesday. The price band of Fine Organic issue was 780- 783 per share, with lot size of 19. This means that bids can be made for a minimum lot of 19 shares and in multiples of 19 shares thereafter. The Fine Organic IPO entirely consisted of an offer for sale (OFS) of 0.77 crore shares (25% stake) by the promoter group. Post-IPO, the promoters holding will fall to 75%. The company shall not receive any funds from this issue.

As of 5 pm on Friday, Fine Organic Industries IPO was subscribed 8.75 times, according to NSE data.

JM Financial and Edelweiss Financial Services Ltd are the book running lead managers to the Fine Organic offer while Karvy Computershare is the registrar.

Fine Organic is also a strong player globally in oleochemical-based additive industry, selling products in 69 countries. It produces a wide range of specialty plant derived oleochemicals-based additives used in the food, plastic, cosmetics, paint, ink, coatings and other specialty application in various industries.

Fine Organics has a range of 387 different products sold under the ‘Fine Organics’ brand. Fine Organics currently has 64,300 tpa capacity and is planning to set up an additional production facility with a planned installed capacity of 32,000 tpa.

Financials

Over FY15-17, the company witnessed a revenue CAGR of 13.2% to 778 crore, from 607 crore in FY15. EBITDA or operating profit grew 13.8% during the period at 147 crore, with margins remaining in excess of 18%. Improvement in margin and reduction in debt has helped net profit to grow at CAGR of 21% during the same period from 53 crore to 78 crore.

Risk factors as highlighted by some brokerages

■ Vegetable derivative oil is the key raw material for Fine Organic so any changes in demand supply pattern of derivative oil may adversely affect operational efficiency of the company

■ Substantial increase in raw material prices may impact profitability

■ Any adverse fluctuation in movement of currency may impact earnings of Fine Organic as the company’s majority of revenue comes from export segment

■ Absence of many long-term contracts may pose risk to business in the event of customer exiting the contract

■ Increasingly stringent regulatory environment

What brokerages say

Centrum Wealth Research has a “subscribe for long term" rating on the issue. “At the higher end of the price band of 783, the issue is priced at P/E of 30.6x (post dilution) on FY17 and 29.5x on 9MFY18 (annualized) basis, which we believe is in-line with the valuation commanded by the only listed peer – Galaxy Surfactants Ltd," said Centrum Wealth in a note.

“While the company (Fine Organic) has a very low debt level, given the robust expansion plans, the company may have to raise funds for the same which may affect the balance sheet in the long run. However, as FOIL enjoys leadership position in the domestic market and is one of the leading companies globally for additives, investors may consider investing in the issue from a longer term perspective."

Another brokerage Angel Broking has “neutral" rating. “Due to lack of immediate triggers in revenue growth owing to 100% utilization of current capacity and no major capacity additions in near future, we have a neutral view on the issue," says Angel Broking in a note.

Apart from Fine Organic, the IPO from state-owned RITES Ltd also opened for subscription on Wednesday. With a price band set at 180-185 per share, the government is aiming to raise 466.2 crore by selling a 12% stake.

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