Fineotex Chemical - IPO Note - AVOID (Keynote Capitals)

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note of the IPO of Fineotex Chemical Ltd.

Issue Highlights

Price Band                                                 :        Rs60 - 72 per share                                                                          

Minimum Bid Lot Size                               :        90 Equity Shares

Maximum Bid Lot Size                               :        2,700 Equity Shares

IPO open during                                        :        February 23 - 25, 2011

Book Running Lead Managers                   :        IndBank Merchant Banking Services Ltd.

To list on                                                   :        BSE

IPO Grading                                               :        2 / 5 (CARE)

PE                                                              :        11.65x (based on base price)*

                                                                  :        13.98x (based on cap price)*

Market Cap post-listing                              :        Rs80.85Cr or $17.96mn (based on the cap price)

Market Cap of Free Float                            :        Rs30.32Cr or $6.74mn (based on the cap price)

*Based on FY10 EPS

IPO of 4.21mn equity shares of `10 each, aggregating to Rs30.32Cr or $6.73mn (at the cap price)

Executive Summery

Ø   Fineotex Chemical Ltd. (FCL) engaged in business of specialty chemicals consumed by Textile & Garment, Leather, Construction, Adhesives Paper, Water Treatment, Agrochemicals, Paint and other industries.

Ø   FCL’s products have an established international market in countries like Bangladesh, Indonesia, Bulgaria, Pakistan, Colombia, Singapore, etc. In domestic markets also, FCL sold its products in Indian cities like Mumbai, Balotra Bhilwara, Delhi, Ludhiana, Tirupur, Karur, Erode, etc.

Ø   The company plans to set up a manufacturing facility for the production of specialty chemicals and enzymes with a capacity of 13,125 MT per annum in and around Khopoli in Maharashtra.

Ø   FCL has a strong and varied customer base from various sectors. Thus, the business of the company is not cyclical in nature and a decline in a sector will not have an impact on its business as it supply to varied sectors.

Ø   FCL offer tailor-make products to meet the customer’s needs & requirements, not deviating from the quality, packaging and pricing.

Ø   FCL has the latest technology required in this industry and are continually updated with its in-house R&D at Mahape unit which comprises 2 laboratories.

Our View

The company's IPO priced at 18.8x its annualized earnings for FY11 based on post issue capital. Considering the weak fundamentals of FCL and its small size of operations coupled with many unorganized players in the markets, it is advisable for the investors to skip the IPO.