Stocks to Sell Today: On 7 November 2023, the financial services firm HDFC Securities published the latest research report on Fine Organic shares, assigning a ‘Sell’ rating to the stock. The comprehensive analysis also provides valuable insights into the company’s financial health.
HDFC Securities is Bearish on Fine Organic and has recommended a ‘Sell’ rating on the stock with a target price of Rs 3809. Let’s take a closer look at their recommendations for the Fine Organic share price target set by HDFC Securities.
Fine Organics has received a SELL recommendation with a target price of INR 3,809 based on various factors such as the anticipation of long-term contract renewals, projected decreases in raw material and freight costs (which are expected to be transferred to customers), a delay in capacity expansion, weak demand in the US and European markets, and a significant drop in finished product prices.
The company’s financial performance in Q2 showed mixed results. Revenue saw a decrease both quarter-on-quarter and year-on-year by 1% and 41% respectively, dropping to approximately INR 5.4 billion. This decrease was largely due to a significant fall in exports (18% QoQ and 61% YoY), influenced by a lack of demand from the US and Europe, coupled with lower product realisations.
EBITDA for Q2 stood at INR 1.3 billion, marking a decline from previous quarters and the same period last year by 7.2% and 48.4% respectively, with the EBITDA margin eroding by 156 and 338 basis points quarter-on-quarter and year-on-year to 24.2%. However, Adjusted PAT (APAT) showed an increase by 3.6% quarter-on-quarter, though it fell by 49% year-on-year, reaching INR 1.33 billion.
During the conference call, several key points were highlighted:
- The company anticipates that the upcoming quarters will see renewals of long-term contracts and benefits from decreased raw material and freight costs will be extended to customers, leading to further adjustments in realisations.
- Exports, which now contribute 50% to total revenue in Q2FY24 (down from 68% in FY23), have suffered due to a decrease in demand from US and European markets, causing inventory buildup.
- All plants, except the Patalganga plant, are operating at optimal levels, supported by strong domestic demand.
- Fine Organics is planning an expansion with an application for land in an SEZ in Maharashtra and has also incorporated a subsidiary for operating within the SEZ.
- The domestic market showed solid growth in Q1FY24, and the company has relocated its R&D centre to streamline operations.
Taking into account these developments, forecast changes for FY24/25 EPS have been adjusted by +12/-1% to INR 130, reflecting the softening of demand and correction in realisations. The DCF-based valuation leading to the target price factors in a weighted average cost of capital (WACC) of 12% and a terminal growth rate of 6.0%. Currently, the stock trades at 32 times the FY25E EPS.
- Promoters: 75.00% (June 2023) and 75.00% (September 2023)
- FIs & Local MFs (Financial Institutions & Local Mutual Funds): 12.24% (June 2023) and 12.17% (September 2023)
- FPIs (Foreign Portfolio Investors): 3.78% (June 2023) and 3.78% (September 2023)
- Public & Others: 8.98% (June 2023) and 9.05% (September 2023)
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