Fineotex Chemical Limited IPO

Business of Fineotex Chemical

Fineotex chemical is engaged in the business of manufacturing specialty chemicals and enzymes for the textile and garment industry, construction industry, leather industry, water treatment industry, agrochemicals, adhesives and others.

Specialty chemicals are usually based on customer specification which cater to specific needs of an industry and thereby are low volume and high price business.

Fineotex was incorporated in 2004 and the company has its manufacturing unit in Mahape in Navi Mumbai. Some of the major customers of Fineotex are Clariant India Limited, BASF group, Pidilite, Bombay Dyeing, Raymond, Grasim among others.

Financials of Fineotex Chemical

The turnover for the period ending 31st March 2007 was Rs. 105.07 lakhs and for the nine months ended 30.09.07 was Rs.1364.90 lakhs. The profit after tax for the corresponding period was Rs.0.26 lakhs and Rs.179.90 lakhs. The EPS of Fineotex for the year 2006-07 was Rs.1.77 and there was a loss for the prior two years for which the EPS was Rs. (0.30) and Rs. (0.40).

Fineotex is offering its shares between Rs.35 and Rs.42. So the P/E multiple would be roughly 24 based on the last year’s EPS and the higher end of the band of Rs.42.

Objects of the Issue

Fineotex is raising money in the IPO to set up a manufacturing facility of 13,125 MT / annum which will produce specialty chemicals targeted at construction, textile and garment, leather and water treatment industry. The estimated expense for this facility is Rs. 714 lakhs.

Other than this the company plans to set up a sales office in Mumbai which is estimated to cost Rs.180 lakhs and raising margin money for the working capital requirements which is expected to be Rs.208 lakhs.

Key Risk facing Fineotex

The key risks facing Fineotex is that the company has been making negative cash flows since its inception in 2004 and losses from inception till the year 2006.

Essentially the limited history of operations of the company makes it harder for investors to accurately judge the real potential of growth of the company and what would a fair price for such a company be.

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