Fairchem Organics Ltd Full fledged analysis & Share Price

Fairchem Organics Ltd:

Today we’ll discuss in detail about the Fairchem Organics Ltd and Already we’ve been covered the complete analysis of Praj Industries in the series of Stocks analysis.

Introduction of Fairchem Organics Ltd:

Fairchem Organics Ltd which has great potential to grow and the business they are doing is having great acceptance by Multi National Companies and their products are completely friendly to the environment and their raw material also co see from wastage. This company name is FairChem Organics Ltd which manufactures Oleochemicals and they had also another business which deals with Neutraceuticals. Simply they are in two businesses One is Oleo chemicals and Neutraceuticals, but they are earning 97% of revenues from Oleo chemicals.

Oleochemicals

These chemicals basically derived from natural sources like plants oils processed through and end products are different fatty acids and are used for the production of Paints, Ink, Cosmetics, Amines, Detergents soaps and many more personal care.

This is the only company who mastered and developed innovative manufacturing process to produce fatty acids by using the by products or waste generated by vegetable edible oils. They basically manufacture Oleochemicals from the waste products. So naturally their cost of producing is at the lowest as compared to any other competitors and this is their moat. The main Two chemicals the produces are Linolic Acid and Dimer Acid.

Linolic Acid :

For Paint manufacturers, This chemical acts as a key Ingredient for fast protective coating. Hence their end product has critical application in paint industry and big players obviously do not want to compromise on quality. Asian paints is the biggest and main client for this chemical Linolic Acid.

Dimer Acid :

Dimer Acid is used in anti corrosion coating it also used in stabilisation of lubricants used in rolling mills. This is the only company that manufactures this chemical in India.

Positives of Fairchem Organics Ltd:

Major player in the Indian Oleo chemical market that uses Renewable resources.
Enjoying Leadership position in the industry due to barriers to entry.
Focus on green manufacturing process which reduces effluents to ensure sustainability.
Low cost of raw material enables the company to be in price competitive.
Long lasting pan India raw material sourcing capabilities with diversified vegetable oil refineries.
Well enriched customer relationships in high growth industries like Paints, Inks and Printing.
Ongoing capacity expansion to increase capacity by more than 2.5x by end of FY22 with minimal CAPEX.
The company is completely backward integrated because it uses the waste as its raw material for its main products hence margins are not fluctuating.

Financials of Fairchem Organics Ltd:

The company market cap is 2000 Cr, if you look at sales they did 400Cr and 700 Cr in in FY22E. Here the big attractive valuation is market cap to sales is 3x. In last 5 years companies revenue has grown by with 14% CAGR, Profit after Tax grown with 36% CAGR and if you look at return ratios ROCE is at 30%. Debt to Equity is 0.28. It is just a normal debt which we can’t see it as negative. Currently trading around 2060 levels. This company consistently generating positive cash flows from its operations and have been generating good free cash flows from last 3 years. If you look at their shareholding pattern Promoters are holding 74%, Public holding 24% and paid up capital is 13 Cr.

Conclusion :

This company Fairchem Organics Ltd is really a good small cap company having strong moat in their manufacturing process, their products having critical application in end use of industry. Most importantly new CAPEX and Experienced and effective management. All these things making and ensuring this company as a good company for long term. As usual don’t invest all the money at a single time. Start with 20% of capital that you want to invest and try to add in every 10 – 15% fall.

Also Focus this debt free Pharma Stock which is undervalued, Promoters are increasing their stake significantly.

This small cap Pharmaceutical company is rallying continuously as this company is having multiple positive reasons . The market is took these as positive and trying to reward the stock. The key positives of this company are the change in management and the continuous buying of stake from promoters.

Though company posting good results and profitability the stock was not grown as much as enough because the older management. but when the younger management took the leading role, market is expecting some decent growth.

That to the younger management of this company continuously acquiring the stake in the company aggressively even in the current price. It indicates the potentiality of the stock and it builds the confidence in the investor mind as management is how strongly they are believing their growth.

Also company has been trading at lower PE levels than industry. we can also take it as positive that the pharma industry grown multiple times but this stock was not grown that much.

Now market is seeing this company positive as this company having new younger management, continuous acquisition of stake by management and the lower PE. This company name is Lincoln Pharmaceuticals Ltd.

Stock Analysis :

This company was incorporated in 1979 and in 2015 – 16, listed in NSE. this company has huge product range that includes 1700+ registerd products and 700 other products in pipeline.

They mainly focused manufacturing products related to Anti Infective, Respiratory, Gynaecology, Cardio and CNS, anti bacterial, anti diabetic, anti malaria are key products among other products they manufacture as they have lot of growth potential in coming years as our lifestyle is changing. Also

This company is having presence in 70+ countries across the world.

This company introduced NDDS – Novel Drug Delivery System, first ever in india.The NDDS is refers to, this technology builds the environment in the human body that can transfer the madicine to desired place safely. They are also manufactured few drugs with this technology,

They are like anti fungal vaginal spray, diclofenac rectal spray, PROLIN, Namcold DX and first one to introduce TINNEX for the relief of Tinnitus.

Products under NDDS :

Key Positives :

1. Management Change

2. Debt free company

3. Undervalued Stock in pharma industry

4. Management continuously acquiring the stake in the company.

Financials of Fairchem Organics Ltd:

Lincoln Pharmaceuticals Ltd. is a Small cap pharma company as this company is having the market cap of 794 Cr.. This stock currently trading around 390 levels.

The revenue breakup s given in the below picture and thery are also earning more than 70% of their revenues from the exports. the exports percentage is continuously growing from last few years, so that we can understand that acceptace of their products is increasing significantly. if look at the return ratios of this company based on last 3 years average,

The ROE is at 18.4%, the ROCE is 23.2% and the Net Profit Margin is at 14.7%. If look at Shareholding pattern the promoters are holding 37.8% and remaining with public. This company is a debt free company and this stock is trading under valuation as compare to pharma industry.

Conclusion :

I am seeing this stock positive as this company is debt free Pharma Stock and it’s having a lot of potential to grow. and i am seeing the stake acquisition by management is positive that can builds the confidence. Financials wise they are delivering continuous growth. But before investing please do your own research.

Disclaimer : The analysis on this company purely based on my view. So before investing try to analyse yourself else take an advice from your financial advisor.