Fineotex Chemicals IPO Analysis- Strict No to Investors & Flippers

February 24, 2011   ·   0 Comments

www.stockssavvy.comIncorporated in 2004, Fineotex Chemical Limited is an ISO 9001:2000 certified Company engaged in business of Specialty Chemicals and Enzymes for various industries.

Fineotex Chemical produces and provides Specialty Chemicals and Enzymes to Textile & Garment Industry, Construction Industry, Leather Industry, Water Treatment Industry, Agrochemicals, Adhesives and others. FCL manufactures over 100 products for various Industries. Company’s manufacturing facilities situated at Mahape in Navi Mumbai.

IPO Snapshot:

»»  Issue Open: Feb 23, 2011 – Feb 25, 2011
  »»  Issue Type: 100% Book Built Issue IPO
  »»  Issue Size: 4,211,160 Equity Shares of Rs. 10
  »»  Issue Size: Rs. 25.27 – 30.32 Crore
  »»  Face Value: Rs. 10 Per Equity Share
  »»  Issue Price: Rs. 60 – Rs. 72 Per Equity Share
  »»  Market Lot: 90 Shares
  »»  Minimum Order Quantity: 90 Shares
  »»  Listing At: BSE

Rating by CARE:

CARE Limited has assigned an IPO Grade 2 to Fineotex Chemical Ltd IPO. This means as per CARE, company has ‘Below Average Fundamentals‘. CARE assigns IPO grading on a scale of 5 to 1, with Grade 5 indicating strong fundamentals and Grade 1 indicating poor fundamentals

Objects of the Issue:

The objects of the Issue are to:

1. Setting up of Manufacturing facility for production of specialty chemicals;
2. Setting up of Sales Office in Mumbai;
3. Margin Money for Working Capital;
4. Meeting Public Issue Expenses;
5. General Corporate Purpose.

Company Analysis:

 On the pricing front, at the upper end of the price band of Rs. 72, share is being issued at a PE multiple of 11.8 times, which is ridiculously expensive for a small speciality chemicals player.  The company is seeking a market cap of close to Rs. 81 crore (at upper band), having a sales run-rate of Rs. 26 crore, indicating price to sales multiple of 3x. This is unheard of in the chemicals industry.

 Competition:

 Leading MNC player like BASF India, with expected FY11 sales of over Rs. 2,500 crore and net profit of about Rs. 185 crore, is ruling at a market cap of Rs. 1,950 crore, resulting in price to sales multiple of 0.78x and PE multiple of 10.5x. Taking this as a benchmark, Fineotex does not deserve a PE multiple even half of BASF, which is an MNC market leader, been in existence for many years.

 Also, fate of recent listing in the same space, Omkar Speciality, is well-known. Share is currently quoting at 37, almost one-third its IPO price of Rs. 98, in barely 10 trading days from listing.

 Verdict: Company has nothing to Boast Of. Weak fundamentals, steep valuations, High Competition, High Collection Period, issue is a clear avoid. We can give 100 Reasons for not Subscribing to the Stock whereas One good Reason to Subscribe to this IPO is actually very Difficult.Strict No to Investors & Specially Traders. Don’t get trapped in these Kind Of Stock. Stock should actually deserve a Valuation of 1/3of the Offer Price. Wait for ONGC FPO. That should prove to be Stellar.

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Rajesh Singla

Rajesh is the founder & CEO of Stockssavvy, Stocks analyst,financial advisor by choice,software engineer by fate,biker,gamer,cricket lover n enthusiastic person. He believes in doing things not just to get by but to get Ahead...

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