Why Fine Organic Share Price is Falling

Shares of leading specialty chemical producer in India, Fine Organic Industries have been experiencing persistent downtrend since the beginning of 2023.

In 2023 so far, the company's shares have tumbled around 26% and over the past five days.

This decline comes despite a decent recovery in overall market sentiment.

Here's why shares of Fine Organic Industries have encountered a decline despite a positive outlook in the smallcap space.

#1 Muted outlook for the upcoming quarters

Fine Organic Industries has fixed 10 June 2023 as the date to consider and approve the audited standalone and consolidated financial results for the March 2023 quarter.

For the December 2022 quarter, the company reported a 63.9% YoY jump in revenue to Rs 7.6 billion (bn) and a 104% YoY jump in net profit at Rs 1.1 bn, driven by higher sales.

However, on a sequential basis, both revenue and profit witnessed declines of 17.3% and 47%, respectively, mainly due to lower realisation. This was the primary factor contributing to this downturn, which has resulted in a downward pull in the stock.

Industry experts are of the view that going forward for the next couple of quarters, factors such as industry-wide inflation, sustainability concerns, supply chain disruptions, and demographic challenges, will dent the profit margins of companies.

Additionally, concerns about global economic slowdown persist for specialty chemical firms that are heavily reliant on exports or discretionary sectors.

Exports for Indian companies are expected to remain subdued due to inventory destocking, weak demand, and inflationary pressures.

Although the first quarter of the year may bring some relief in terms of input cost pressures and logistics costs, inventory destocking and sluggish exports remain short-term challenges.

This underwhelming outlook for the upcoming quarter has continued to exert downward pressure on the shares in 2023.

Update: Adding to the weak sentiment, the company as expected posted subdued earnings for the second quarter of Fy24.

On 30 October 2023, Fine Organic Industries reported a 49% YoY decline in its consolidated net profit at Rs 1 bn.

Revenue slipped 41% to Rs 5.4 bn compared to Rs 9.2 bn reported in the same quarter last year.

Operating margin contracted 370 bps to 22.1%. This trend could continue in the coming quarters as the company is facing input cost pressures.

#2 Consistent selling by FIIs

Another reason behind the decline is continuous selling by foreign institutional investors (FIIs).

FIIs have continuously sold stakes from Fine Organic Industries in the last five quarters. FII holding stood at 7.25% in the December 2021 quarter. It now stands at 4.8%.

Look at the table below.

Quarter ending	21-Dec	22-Mar	22-Jun	22-Sep	22-Dec	23-Mar
Stake (%)	7.26	7.25	7.2	6.74	5.91	4.84

Data Source: Equitymaster

For more details, check out the latest shareholding pattern of Fine Organic Industries.

Update: The FII selling trend continued in the June 2023 quarter before stopping in the most recent September 2023 quarter.

FII holding in the company now stands at 3.78%.

What Next?

Going forward, the company could benefit from optimum utilization of its legacy plans and also because it recently ramped up its Ambernath-3 and Patalganga capacities.

The company has also incorporated Fine Organic Industries (SEZ), a wholly owned subsidiary for the purpose of carrying on the business of manufacturing specialty chemical products.

It faced volatility in raw material prices till September 2023 but prices have started to stabilized since then.

Its long term relations with suppliers and strong R&D facilities make it compete better with established giants like Pidilite, SRF and Tata Chemicals.

How Fine Organic shares have performed recently

Fine Organic share price is down 26% in 2023 so far. In the past six months, the shares have delivered a negative return of 6%.

In the past five days, shares of Laxmi Organic have declined by 1.9%.

Fine Organic touched its 52-week high of Rs 6,310 on 30 November 2022. Its 52-week low was Rs 4,030 touched on 21 March 2023.

It is currently trading at a PE (Price to Earnings) multiple of 28.2, while PB (Price to Book) ratio stands at 7.7x.

About Fine Organic Industries

Fine Organic Industries is a leading specialty chemical producer based in India. The company specialises in the manufacturing and distribution of additives, surfactants, and polymers used in a wide range of industries, including food, plastics, cosmetics, textiles, and agriculture.

The company has a diverse product portfolio and operates through multiple business segments, including polymer additives and specialty additives.

The company produces additives for coatings that act as anti-settling agents, emulsifiers, thickening/anti-sagging agents, wetting and dispersing agents, and anti-mar waxes used in coating applications.

Food additives are used in dairy and frozen food products, bakeries and confectionery, beverages, and other processed foods. Plastic additives include stabilisers, lubricants, plasticisers, and more.

It serves domestic and international markets, with a global presence across more than 80 countries.

For more details, see the Fine Organic Industries company fact sheet and quarterly results.

You can also compare Fine Organic with its peers.

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