ValuePickr Forum

Fairchem Speciality - Previously "Adi Finechem"

Fairfax India’s Annual report is out. U can access it here

I found the following about Fairchem interesting…

Fairchem(Adi Finechem): In 2018, Fairchem implemented changes in its plant that further debottlenecked its operation and optimized the production process. These changes have resulted in increasing installed capacity from 45,000 to 72,000 metric tons per annum (MTPA) of raw material that can be processed. In 2018 Fairchem processed 39,000 MTPA implying a capacity utilization to year end capacity of 54%. This provides considerable room to grow since the plant can operate at up to 90% of installed capacity. Fairchem has also initiated two capital expenditure projects: both will be financed
by a mix of term borrowings and internal accruals and are expected to enter production in 2020:
• a plant to manufacture sterols and higher concentration tochopherols; and
• a plant to manufacture bio-diesel using three by-products of its manufacturing process: palmitic acid,
monomer acid and residue.


This same report also states something very special about its Aroma business i am copying those lines below

Based on IFRS, for the year ended December 31, 2018 Privi revenue grew 48% to $157 million, net earnings grew 59%
to $6 million, and shareholders’ equity grew 11% to $60 million, generating an ROE of 10%.
This is quite a remarkable result when you consider that on April 26, 2018 there was a major fire at Privi’s main
production facility. While it is fortunate that there were no injuries as a result of the fire, the fire completely gutted
critical production units that impacted all production, all of the raw material and finished goods warehouses and the
administrative offices. The entire plant including the production units that were not affected by the fire had to be
temporarily shut down. However, Privi was able to open the facility and start operating the plants not affected by the
fire in a record time of 29 days. Using third party production facilities in combination with its own production units
unaffected by the fire, Privi was able to start supplying all of its products by June 2018.
Around the same time there were fires in two other plants that produce products similar to Privi’s, resulting in an
acute shortage of certain aroma chemicals and consequently in much higher prices and margins.

Above lines suggests that Q3 profit was a one time affair means this profit wont be possible in future.

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Privi used third party facilities for some of the production. So, this should have reduced some margin. Once the Privi restores the plant, normal margins should come back(like the 2018 March quarter??). BTW, 20 crores has come to the company from insurance in the 4th quarter as per the notes in the last quarterly results


Good results by Fairchem:

Particulars(Crs.) Q4FY19 Q4FY18 Y-0-Y Change% FY19 FY18 Y-0-Y Change%
total income 445 319 39 1346 1055 28
raw materials 266 179 49 924 633 46
employee expense 22 15 47 71 56 27
others expenses 64 33 94 159 105 51
total expenses 375 281 33 1204 976 23
PBEI&T 70 37 89 142 79 80
PBT Margin% 15.7 11.6 36 10.5 7.5 41
exceptional item 19 0 9 0
PBT 90 37 143 151 79 91
Tax expense 37 11 236 57 26 119
PAT 53 26 104 94 53 77
EPS 13.5 6.8 99 24 13.6 76

Fixed assets increased to 489Cr and CWIP of 94Cr.
Receivable increased to 89 days v/s 79 days(fy18).
Inventories increased to 364 cr v/s 234 cr.
Value of assets lost due to fire at Purvi LTD was 73 cr for fy19.
Insurance claim received till now? 81 cr.(How it can be more than 73 cr ?)
Dividend Rs.2.50 for fy19.
Q4 FY19 FAIRCHEM.pdf (526.8 KB)
Discl: invested


One of the key raw materials of the company Crude Sulphate Turpentine Oil has appreciated a lot in terms of both value and volume in the past one year as evident by the price chart below. Company has the largest single CST processing site in Asia, this was also mentioned by the management of the company in last year’s annual report as one of the main reasons for survival of the company. This could be one of the reasons for improved margins by the company as company is self sufficient for this key material.



Two flagship products of the company Dihydromyrcenol and Amber Fleur falls under HS Code 29052290 and HS Code 29142990 category in export data. There must be other chemicals in this category also but following charts give a rough idea about the recent price and volume movements of chemicals in these categories.



Given that there has been substantial increase in price of products, is part of the growth in company and margins temporary? How should one think about cases where substantial change in product prices happen? Cause when they revert…we also see pain in terms of fall in numbers and margins and several erosion happens (eg. Thirumalai, GNFC etc)

Disc: Invested


The key here is pinenes that come from Turpentine - this is where the current dislocation is. It appears to me to be structural rather than cyclical. Privi is backward integrated through its CST (Crude sulphate turpentine) plant and is thus immune to RM price fluctuations. It is enjoying a tailwind at present as it can charge market rates for its products with great margins due to the backward integration. I believe this is here to stay though there might be fluctuations quarter on quarter, the numbers of the past might be irrelevant.

For eg. di-dydro mercenol has apparently softened in price in May. However, it is still significantly higher than where it was a couple of years back.


Disc: Have a trading position from March post flag-breakout


PFA EC documents signaling upcoming expansion. Maybe over the next 1-2 years.

Also, it would be of great help if someone could point out what’s the 95cr Capital Work in Progress pertaining to in the recently released consolidated Balance Sheet. Privi Organics TOR Unit 2 MIDC Mahad Feb 2018.pdf (604.4 KB)
Privi Organics PFR Unit 3 MIDC Mahad Feb 2018.pdf (1.7 MB)
Privi Organics PFR Unit 1 MIDC Mahad Feb 2018.pdf (1.8 MB)

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Most of the revenue growth seems to be from price increase in products rather than growth in production. Power and fuel expenses which roughly reflects the production has not changed much for quarter. For financial year it may be less due to outsourcing of production when Privi unit got fire.

Q4FY19 Q4FY18 Q3FY19 FY19 FY18
Revenue from operations 441 378 315 1310 1039
power and fuel expenses 19.4 19.3 18.7 70.5 69.6
% of revenue 4.4 5.1 5.9 5.4 6.7

Restructuring in the works.

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Fairchem Speciality AR 2019 Notes

These guys don’t give any data or any info regarding the business in AR. A lot of industry information but very limited (and nothing new) data on company. Surprised to see no comment on fire by the management in Management Discussion and Director’s Report, it was mentioned in notes to financial statements. Focus seems to be on setting offices in export markets. They did well in US and UK and now focusing South America and other regions.

Key points

  • Financials
    • India Sale - 42% - Rs. 56,210.64 lac (44,528.13 Fy18)
      Outside India - 58% - Rs. 76,321.15 lac (58,244.71 FY 18)
    • Sales region wise (Rs. in lac). Company showed good growth in US and Europe.
      India 58,314.31 (45,708.69)
      Middle East 9,657.42 (4,697.27)
      North America 23,421.52 (6,482.57)
      South America 3,492.91 (3,522.38)
      United Kingdom 3,573.61 (1,998.19)
      Austrila and New Zealand 51.02 (103.36)
      Africa 3,220.07 15,(777.32)
      Asia (Excluding India) 10,315.97 (13,529.33)
      Europe(excluding UK) 20,500.49 (10,953.73)
    • During the year, 1,452,949 Compulsorily Convertible Preference Shares of Rs. 10/- each were converted, as per the terms of their issue, in equal number of Equity Shares of Rs. 10/- each fully paid.
    • Cash flow from operations were Rs. 20.95 cr which are quite less this year compared to net profit. Main reason was increased requirement of working capital for inventory and debtors. Inventory and debtor were higher due to extra ordinary growth in sales in Q4FY19, this should stabilize going forward.
    • Capex of Rs. 151 cr. done during the year.
    • Total borrowing as on 31.03.2019 is Rs. 490.75 cr. (In FY18 Rs. 329.45 cr). Interest paid during the year 33 cr i.e. 8% on average yearly loan. Total forex loan around 98 cr. which is at reduced rates and working capital loan at 8-9.5% explains the low interest amount.
    • R&D exp at Rs. 6.60 cr in FY19. (Rs. 6.03 cr in FY18).
    • Despite 29% growth in sales, Power Cost was stagnant at Rs. 70.58 cr in FY19 compared to Rs. 69.64 cr in FY18. This indicates stagnancy in volumes and growth coming from price increase. But the biggest plant was closed for few months due to fire and company supplied the materials through Job Work during this time. Job work charges have increased from Rs. 8 cr in FY18 to Rs. 29 cr in FY19. Company gained by both volumes and value in FY19.
    • On April 26, 2018 a major fire broke out at Privi Organics India Limited’s (POIL) Unit 2 Plant located at MIDC, Mahad, Maharashtra. There has been loss to assets comprising of Inventories, Buildings , Plant and Machinery and other Fixed Assets etc. which were adequately insured including coverage towards loss of profit and replacement cost of fixed assets. As per POIL Management`s best estimate, the book value of the assets lost due to fire (including incidental cost of Rs. 299.57 lakhs) is Rs.7,282.27 lakhs for the year ended March 31, 2019, which has been debited to the the statement of profit and loss and disclosed as an Exceptional item. Insurance claim of Rs. 8,187.05 lakhs received from the insurance companies which has been recognised as per the requirement of the accounting standards and netted off with the Exceptional items. The final settlement is still pending with the insurance company.
  • Aroma Chemical
    In the aroma chemicals space, some large Indian players are Privi Organics India Limited and Eternis. For both these players, the majority of the revenue is contributed by exports. This is common across most scaled up Indian players.
  • Your Company is now a leading producer globally in two of its flagship products - Dihydromyrcenol and Amber Fleur, which are important ingredients in the manufacture of Fragrances. This will help the Company to increase its market share not only for its key products but also for the new products as its key customers would prefer to buy a basket of products from one stop shop.
  • Your company continues to be the largest single CST processing site in Asia, which is invariably the reason for survival and growth under the current volatile situation in respect of raw materials. CST also allows us to be selfsufficient on Key Raw Materials.
  • Your company has been investing and will continue to invest in forward looking technologies (like biotechnology) for future from the point of view of expanding into other industry segments.
  • Registration, Evaluation, Authorization and Restriction of Chemicals (REACH): Your Company has registered 12 products and will be registering 3 more products under REACH. Your Company has already pre- registered all the products. This would provide an advantage to the Company over its competitors for sale in Europe.
  • Your Company has exported its first consignment of Terpene-4-OL TO BASF which would be used in the production of Herbicides, which going forward would add a lot of value to the Top Line as well as Bottom line of the company.
  • Your Company has moved ahead on the path of expanding its global presence by way of setting up own office in Netherlands, which is a valuable step forward from strategic point of view for future growth.
  • Establishing an office in South American region.
  • Your Company has made inroads into the developing markets (Nigeria, Egypt, UAE, Pakistan, South Africa) by seeking more and more customers
  • Your Company has started to sell value added products from backward integrated feedstocks, thus contributing to enhance the revenues.
  • Your company continues to establish strategic long-term business relations with global leading companies in F&F industry, like Givaudan, Firmenich, IFF and with well-known global leading FMCG producers, like P&G, Henkel, Colgate and the latest acquisition of Reckitt Benckiser as a customer that has the potential to contribute to an approximate topline revenue of USD 40 million going forward.
  • Nutraceutical
    The Company is mainly in the business of (natural) Tocopherols and Sterols – intermediate nutraceuticals and they are exclusively exported. Tocopherols have anti-oxidant properties. Tocopherols, after they are further concentrated by customers, are then used in (a) Pet Food, (b) food as it prevents rancidity. Tocopherols when converted into Natural Vitamin E finds the application in Pharmaceutical, cosmetic etc… Sterols after they are further concentrated, finds its use in making of Cortico Steroids and as food additive. During the F.Y. 2019-20, the Company has planned to focus on this segment. It has carried out lab trials for achieving higher concentration of tocopherols and as a result thereof obtain separate stream of sterols which can further be processed for getting highly concentrated sterols.
    *** Oleo Chemicals**
    • Fatty Acids, methyl esters and fatty alcohols are major oleo chemicals manufactured in India. The Company is mainly in the business of Fatty Acids which is one of the largest segments in Oleo Chemicals. Dimer Acid, Linoleic Acid / Soya Fatty Acid, other Distilled Fatty Acids are the main products of the Company in Oleo Chemical segment.
    • Responding to the demand pull of Dimer Acid, the Company had increased its dimerizing capacity before the commencement of financial year 2017-18. The Company achieved a marked volume growth of about 35 % in sale of Dimer Acid during F.Y. 2017-18, inter alia, capturing a dominant share of Dimer Acid market in India. The Company was able to maintain the said volume during F.Y. 2018-19 which indicates that the quality of Company’s Dimer Acid is well accepted by one and all in India. During F.Y. 2018-19, the Company has made a small beginning of exporting Dimer Acid to nearby country also.
    • Linoleic Acid / Soya Fatty Acid : While Dimer Acid was the focused product during F.Y. 2017-18, during F.Y. 2018-19, the Company worked on improvement in quality of Soya Fatty Acid and a result was able to push the sales of said product. Linoleic Acid is a better product compared to Soya Fatty Acid and is preferred when premium / decorative grade paint is needed.
  • The growth is driven by the following major factors
    • Developing countries are witnessing growth of 13% in this category compared to the global growth of 4%. Large global players traditionally from developed countries are now targeting these geographies and expanding the market.
    • Higher consumer willingness to experiment with new flavours and fragrances.
    • A shift in perception of fragrance from being a nonessential attribute to an indispensable part of personal care: Global market growth is primarily driven by Asian markets. These markets are expected to grow at 6.5% over the next 5 years, constituting ~ 30% of the global market by 2020.
    • Rural Penetration of FMCG: Marketing by FMCG companies has created demand for categories like deodorants, room fresheners and perfumed soaps in rural markets.
    • Premiumisation: As Indian consumers graduate from using basic soaps and detergents to higher end products such as skin creams, lotions, hair gels and other specialized cosmetics products, the quality and value of the flavors and fragrances used in these products is expected to increase. The air care market in India is expected to grow at 40% p.a.
    • Moving up the value chain: Most of the Indian ingredient providers are suppliers of oleoresins or aroma chemicals to the Flavours& Fragrances houses in India or exporters of the same. Many of the synthetic aroma chemicals are not differentiated and as a result there is stiff price competition in this space. Some natural extracts and oleoresins may command a premium; however, they are seasonal in nature and are beginning to face price competition from the Chinese. As a result, manufacturers of bulk aroma chemicals or oleoresins typically experience relatively low margins (15-25% gross margins) compared to the global Flavours& Fragrances houses which have much higher profitability. Moving up the value chain may not be an urgent imperative for Indian ingredient manufacturers, but may be a key differentiator in the long term.
    • Building barriers to entry: There are no significant technology barriers in the space. However, established players have a critical advantage in terms of client relationships.
  • Fragrances are an important part of FMCG products. Despite constituting less than 1% of a product’s volume and under 10% of its total cost of production, fragrances are instrumental in creating a distinct product association with the consumers.
  • Currently the Indian consumption of naturals is very small due to price sensitivity of the Indian consumer. Natural ingredients may cost anywhere between 10-100 times that of their synthetic counterparts. Due to consumer demand for more healthy products, some natural-like products (refer to the next section for details) are entering the market. However, we expect synthetics to continue to dominate the segment in the near future.

Harshit Goel

Disclosure: Invested


Another interesting point to add is only 5.8% of outstanding shares is held in quantities less than 10,000 shares category and only 1.71% of shareholders hold 1-500 shares (that forms total 5,850 in count). Indicating low float and high institution + HNI + NRI holding (which is in a way good for retail shareholders).

Observation from working capital: Revenues have increased YoY by ~30% but trade receivables on BS has increased by ~40% which needs to be monitored.

Consolidated cashflow statement shows 25 cr receipt from insurance company for fire, any idea about remaining amount’s accounting entry? In note 33, they have mentioned “Stock lost by fire of ~27 cr” but unable to tie back with their statement below:

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Interesting snippet about Privi’s competitor.

Anthea Aromatics Pvt. Ltd. (AAPL) was founded by Dr. Vincent Paul in 1991 for manufacturing of chemical intermediaries used in Flavor and fragrances. AAPL has its in-house research and development center located in Rabale, Navi Mumbai which is headed by Dr. Vincent Paul. Through its in-house R&D and tie-ups with various research organizations, AAPL has been able to develop processes for a large basket of synthetic chemicals which find its applications in flavor & fragrances, Pharmaceuticals, and agrochemicals. AAPL has its manufacturing plant for Shanol, Trycyclodecane ketone, Ethyl Methyl Pentenoate, and other chemicals with total in-house manufacturing capacity of 120 MTPA; while other chemicals such as Anthember, Dihydromyrcenol, Piperonal etc. are manufactured by group companies DRT-Anthea Aroma Pvt. Ltd. (50-50 JV between AAAPL and DRT (France))and Crown Chemicals Pvt. Ltd. (JV between AAAPL and DRT (France)).

Disc: Not invested or have any tracking positions.