1350% Returns: Ashish Kacholia Backed Multibagger Smallcap Stock Jumps; Nirmal Bang Sees 26% Upside

Fineotex Chemical, a specialty chemicals producer, has recently caught the bullish eye of domestic brokerage firm Nirmal Bang. Known for catering to the textile chemicals and cleaning & hygiene sectors, Fineotex is projected to see a significant upside potential of 26%, according to a report published on June 28. Analysts have recommended a share price target of Rs 483 per share, highlighting a promising future for the company.

Despite facing macroeconomic headwinds that have impacted the broader chemical industry, Fineotex Chemical has demonstrated remarkable financial resilience. The company reported a healthy volume growth of approximately 25% in FY24, with capacity utilization standing at around 72%. The industry at large has seen volume impacts due to subdued global demand, yet Fineotex managed to maintain international revenue contributions at 22% of FY24 revenue.

Nirmal Bang's analysts have modelled a 20% compound annual growth rate (CAGR) for Fineotex's topline from FY24 to FY26, with operating margins expected to remain in the 27-28% range. The stock is currently trading at 29x and 24x to FY25E and FY26E earnings per share (EPS), respectively. By assigning a 30x multiple to FY26E EPS, analysts arrive at the Rs 483/share target, reflecting the 26% upside potential from the current market price.

Fineotex Chemical recently secured approval for fundraising through the issuance of share warrants and equity shares worth Rs 218 crore. This capital will support the company's business expansion, both organically and inorganically, and meet working capital requirements. The issue price of Rs 387.4 per unit signals positive market sentiment and is expected to result in an 11.6% equity dilution.

The company's focus on sustainability is evident through its recent ESG badge from Dun & Bradstreet, recognizing Fineotex's dedication to environmentally sustainable products. New product launches, cost-saving measures, and an improved working capital cycle have contributed to the company's robust financial health. Fineotex delivered a return on capital employed (ROCE) of 34.3% and a return on equity (ROE) of 29.9% for FY24.

The textile chemicals segment of Fineotex witnessed a 20% volume growth in FY24, while the cleaning and hygiene segment saw a 25% increase. Despite industry challenges such as the Ukraine-Russia war and the Red Sea issue, Fineotex achieved growth in both volume and value terms. The company's revenue grew at a 24% CAGR between FY22 and FY24, with operating margins improving from 19.3% in FY22 to 26.1% in FY24.

Fineotex's expansion strategy includes a phased capacity increase. Phase I, expected to be completed by the end of FY25, will add 20,000 metric tons per annum (MTPA). Phase II plans another 20,000 MTPA expansion. The company is also in the advanced stages of an international acquisition, having raised Rs 120 crore for this purpose in May 2024.

Compared to its peers, Fineotex has outpaced many in terms of topline growth between FY20 and FY24. The company's profitability is notable, with a 26.1% EBITDA margin in FY24, outperforming the 14.9% average of its peers. Despite its strong financial performance, Fineotex is valued similarly to its competitors, suggesting potential for stock re-rating due to its robust growth drivers.

Fineotex Chemical's share price has been on a consistent upward trajectory, appreciated significantly over the past year. The stock, held by prominent investor Ashish Kacholia, has risen from around Rs 266 to Rs 459 per share, reflecting a substantial 72% increase. Over the past five years, the stock has surged more than 1350%, from Rs 12.45 to Rs 458.85 per share.

Since entering 2024, Fineotex Chemical's stock has been in a base-building phase. The stock has increased by 11% in the past month and delivered approximately a 16% return over the last six months. Year-to-date (YTD), the stock has risen by about 9%, and over the past year, it has appreciated nearly 32%. In the last three years, Fineotex Chemical's stock has soared over 350%.

As of 12:30 pm on the National Stock Exchange (NSE), Fineotex Chemical shares were trading at Rs 394.95, up more than 2%.

Renowned investor Ashish Kacholia has shown confidence in Fineotex Chemical, maintaining his stake in the company during the January to March 2024 quarter. He holds 31,35,568 shares, constituting 2.83% of the company's total paid-up capital.

Founded in 1979, Fineotex Chemical has built a reputation as a premier manufacturer of specialty chemicals, primarily for the textile industry. The company's dedication to research and development, particularly through its subsidiary Biotex Malaysia, has enabled it to offer over 470 product categories. These products range from chemicals for all stages of textile production to oil and water-based drilling fluids and home care disinfectants.

Fineotex Chemical's presence spans over 70 countries, supported by a robust network of more than 100 dealers. Major clients include industry giants such as Nahar Group and Raymond, further solidifying Fineotex's position as a reliable and innovative chemical manufacturer.