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Fine Organic Industries Ltd.’s overall Q3 FY23 Ebitda came in ~18% below our estimate on account of lower-than-expected revenue growth and margin normalisation after three consecutive quarters of above-average Ebitda margin.
Revenue came in lower than estimate on account of lower raw material prices and significant decline in freight costs. Also, production loss due to annual maintenance shutdown also impacted growth.
Exports business continued its growth momentum and formed ~69% of overall sales. The management does not see demand challenges in USA and Europe markets for Fine Organics’ portfolio.
Domestic business is also showing some promise after a relative underperformance in the past. Exports business has a higher share of premium products. Existing capacity is operating at optimum capacity, except the recently commissioned last phase of Patalganga unit, which is expected to fully ramp up in FY24.
There would be capacity constraints from the end of FY24 as the Thailand joint venture’s current capacity is lower and the new project is getting delayed because of bureaucratic issues.
We expect Ebitda margin normalisation in FY24 and FY25 from the current levels and hence key profit parameters will be at lower levels versus FY23E.
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