Small cap expert investor Ashish Kacholia has recently picked up substantial equity stake in specialty chemical player Fineotex Chemical. According to the latest release of shareholding patterns for the quarter ended 31st March 2022, Kacholia has entered this multibagger chemical stock with 1.8% stake. In addition, Kacholia’s portfolio includes Vishnu Chemicals where he owns 4.2% of the company’s shares, although this is down from 4.8% in the previous quarter.
Fineotex Chemical is involved in the production of speciality chemicals and Enzymes for Textile and Garment Industry, Water Treatment Industry, Leather Industry, Construction Industry, Paint Industry Agro chemicals, Adhesives and others. While this is a fairly long list of industries, the company’s mainstay is the textile industry.
The stock currently trades at INR205 and has already gained 27% in the last 30 days. Its gains in the last year stands at a staggering 226% making it a multibagger chemical stock. Despite the sharp run up in the stock price, Fineotex Chemical has a market cap of only INR 2,275 crore offering a long runway of growth from even current levels.
It is not difficult to see why the stock has caught attention of the ace investor. It is practically a debt free company with a debt equity ratio of just 0.03 and boasts of high return on capital employed (ROCE) of 29.4%. What’s more interesting and impressive is the fact that the company has managed to keep its ROCE above 20% for the last 7 years. Since the company has got no meaningful debt on its books, its return on equity (ROE) is also not behind at 22.5%.
Since the company is a small cap stock there are not many analysts tracking it. Nevertheless, the reasons to be positive about the company are many. For once, exports account for nearly 43% of its total revenues and domestic business has also seen strong structural demand. Fineotex Chemical is likely to post strong performance in domestic operations thanks to the improvement in domestic demand and higher utilization due to a surge in chemical prices. This is also visible in the 74% growth in turnover in second quarter and 81% growth in revenues in the third quarter.
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Long-term tailwinds for multibagger chemical stock
Some of the factors working in favour of Fineotex Chemical are fairly long term in nature. For example, China plus one strategy in textiles as well as chemical industry isn’t likely to change in a hurry. Similarly, the Indian government’s PLI scheme to promote production and exports in chemical and textile industries is likely to remain in place for at least next few years. What also works in Fineotex Chemical’s favour is the fact that the company is a specialty performance chemical manufacturer. In this sense, it is somewhat shielded by the changes in raw material prices which greatly impact commodities chemical companies.
The company competes with the likes of Huntsman, Archroma, CHT Group, Rudolph at the global level while its domestic competitors include Pidilite, Atul, and Rossari Biotech. Fineotex Chemical has increased its wallet share among its customers and is hopeful of not only sustaining its margins but also gain from the recent capacity expansion at its Ambernath facility, according to CFO Sanjay Tibrewala in the latest earnings conference call.
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Considering these huge positives and the expected continuation of the industry tailwinds, it is expected that Kacholia will continue his long position in this multibagger chemical stock for considerable future. It also helps that chemical space is an area of special interest for Kacholia who had earlier initiated a new position in Ami Organics.
