Adi Finechem is in the business of manufacturing of specialty fine chemicals namely Oleochemicals & Neutraceuticals.
Oleochemicals are chemicals derived from Plant and Animal Fats. This includesFatty Acids, Fatty Acid Methyl Esters (FAME), Fatty Alcohols, Fatty Amines and Glycerol. Adi Fine is a leader in this segment. These products find applications inPaints, ink, Liquid Soap,Amines, Amides etc.
This segment contributed 97 crs revenues in FY14.
Nutraceutical is the term appliedto products that range from isolated nutrients, dietary supplements and herbal products, specificdiets, genetically modified food, and processed foods such as cereals, soups, and beverages. This finds application inFood Industry,Pharmaceuticals,Cosmetic Industry,Natural Vitamin E etc.
This segment contributed 55 crs revenues in FY14.
**Monopoly- **Company claims to be sole manufacturer of oleochemicals in India. They even talk of business having high entry barriers thanks to sourcing advantage, having m/c which can take inferior raw materials but still gives high quality product.
**Pricing Power- **They also claim to be having pricing power- having ability to pass on raw material price increases to the customers.
In FY14, raw material prices fell but this wasn’t passed to the customers, hence Pat grew much more than sales, 3 year revenue growth is higher than volume growth… so seems either their claim is true or they are having a good time.
- **Capacity Expansion- **They are going to increase their capacity from25,000 MT p.a. to45,000 MT p.a in next 2 years (18K to 25K was done in FY14).
Wheat or Chaff- Without the benefit of management interview or research reports, its tough to say whether this a Wheat or Chaff looking like Wheat.
One ex-promoter is selling his stake through open-market sale. That may put pressure on the stock.
My View)- Numbers look good. Not even 1 year of sales de-growth in the last 10 years indicate that the demand is there. With nearly doubling of capacity, stock has potential to double in 2 years provided margins sustain at current levels.
PS- AR14 is out. Please read especially Page 6 & 7.
Disclosure- Bought recently & looking to add in case of more clarity.