7000% Returns In 10 Years: Ashish Kacholia Backed Multibagger Smallcap Stock Surges On Share Allotment

The shares of Fineotex Chemical Ltd (FCL) rocketed over 5% to an intraday high of Rs 380.60 per share. This surge comes with a significant increase in trading volume, more than doubling from the previous day's close at Rs 359.80 per share. The stock, although 17% below its 52-week high of Rs 458 per share, has gained 43% from its 52-week low of Rs 265.95 per share, and it is currently trading above its 50-day and 200-day moving averages.

Adding to the positive sentiment, Fineotex's Board of Directors recently made a strategic move by allotting 9,70,000 equity shares at Rs 346 per share on a preferential basis to non-promoter entities, raising a total of Rs 33.56 crore. These shares have identical rights to the existing equity shares, indicating a vote of confidence from external investors.

Moreover, the Board allotted 26,26,600 convertible warrants at Rs 346 each, generating Rs 90.88 crore. These warrants, divided into a subscription price of Rs 86.50 and an exercise price of Rs 259.50, can be converted into equity shares within 18 months. Both the new shares and warrants will be subject to regulatory lock-in periods. This allotment has increased Fineotex's issued, subscribed, and paid-up share capital from Rs 11.07 crore to Rs 11.17 crore.

The company is in advanced discussions to acquire a speciality chemicals manufacturer that complements its existing business. This potential acquisition is poised to expand Fineotex's product portfolio and customer base, aligning perfectly with its strategic vision. However, the finalisation of this acquisition is contingent on the completion of due diligence and other relevant factors.

Fineotex operates in India's chemicals industry, which ranks 6th in production and 14th in exports globally. The industry, valued at $220 billion, is a critical component of several sectors including agrochemicals, pharmaceuticals, textiles, paper, paints, and soaps. It is projected to grow at approximately 9% per annum, potentially reaching $300 billion by FY25 and $1 trillion by FY40.

Founded in 1979, Fineotex has established itself as a leading manufacturer of speciality chemicals, primarily serving the textile industry. Its focus on research and development, particularly through its subsidiary Biotex Malaysia, has allowed it to offer over 470 product categories, including chemicals for all stages of textile production, oil and water-based drilling fluids, and home care disinfectants. The company boasts a presence in over 70 countries and maintains a robust network of over 100 dealers, serving major clients such as Nahar Group and Raymond.

Ace investor Ashish Kacholia also holds a 2.83% stake in the company. The company's stock is valued comparably to its industry peers based on its price-to-earnings ratio and demonstrates strong profitability, with a return on equity of 29% and a return on capital employed of 36%.

The company posted healthy financial results in FY23, with sales of Rs 517 crore, an operating profit of Rs 119.90 crore, and a net profit of Rs 89.55 crore. In the first three quarters of FY24, Fineotex has already achieved sales of Rs 415.95 crore, an operating profit of Rs 122.48 crore, and a net profit of Rs 90.55 crore, putting it well on track to surpass last year's figures.

Fineotex's market cap exceeds Rs 4,200 crore, and it has maintained minimal debt, showcasing strong financial health. Over the past five years, the company has achieved an average annual profit growth of 31.1%. Improvements in working capital efficiency, including reducing debtor days from 107 to 71.6 days and lowering working capital requirements from 115 to 76.1 days.

Fineotex has rewarded its investors handsomely, delivering multibagger returns of 360% over three years, 960% over five years, and 7,000% over the past decade. This performance, coupled with growth initiatives and robust financial health, positions Fineotex Chemical Ltd as a compelling player in the speciality chemicals industry.