Why HDFC Securities has a 'Buy' on this Saurabh Mukherjea chemical stock pick

Brokerages are bullish on chemical manufacturer Fine Organic and see upside in the chemical stock. HDFC Securities' Buy recommendation on Fine Organic Industries (FOIL) with a target price of ₹3,480 per share is premised on constant focus on R&D, diversified product portfolio, capacity-led expansion growth opportunity, and leadership in oleo-chemical based additives in the domestic and global markets with a loyal customer base. 

The company's exports continued to gain strong traction, while domestic business is impacted by the lockdown restrictions. The contribution of exports to the total revenue increased from 55% to 62% currently. Gross margin contracted in Q1 on account of higher raw material costs and higher freight costs. HDFC Securities said that FOIL has been instrumental in passing through the hike in raw material prices to its customers, and has now reworked contracts where the customers pay freight rate existing as on the shipping date.

Another brokerage firm Motilal Oswal believes that a ramp-up in the utilization levels of additional capacities by FY23 to optimal levels as well as the strong demand outlook for the Indian Food Emulsifiers market should help Fine Organic grow at a faster rate than the industry.

Fine Organic Industries produces oleo-chemical based food, polymer and certain special additives in India and amongst the leading players globally. It is is a leading producer of specialty additives for foods, plastics, rubbers, paints, inks, cosmetics, coatings, textile auxiliaries, lubes and several other specialty applications.

Fine Organic is setting up a new joint venture facility in Thailand, with Oleofine Organics Thailand Co. (OFT) and Oleofine Organics Sdn. (OFM) – Malaysia. “Once the JV is set up, the company would have easier access to its primary raw material, palm oil – Indonesia, Malaysia, and Thailand are the major (88%) producers of palm oil globally,'' Motilal said in a note.

The brokerage has a Neutral rating on Fine Organic stock with a target price of ₹3,134 per share. Motilal said that the demand outlook looks strong however expects margins to remain subdued.

Money manager Saurabh Mukherjea is the Founder and Chief Investment Officer of Marcellus Investment Managers. Fine Organic is part of Marcellus Investment's Little Champs Portfolio.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.