Our recommendation on Fine Organic Industries (FOIL) with a target price of INR 3,500 is premised on (1) constant focus on R&D, (2) diversified product portfolio, (3) capacity-led expansion growth opportunity, and (4) leadership in oleo-chemical based additives in the domestic and global market with a loyal customer base. We expect FOIL's PAT to grow at a 33% CAGR over FY21-23E, led by a 20% CAGR in revenue. In the absence of major Capex over the next two years, the RoCE would expand from 17.8% in FY21E to 23.2% in FY23E. 4Q EBITDA was 3% above our estimate owing to a 20% rise in revenue offset by higher-than-anticipated raw material costs. 4Q APAT was 25% below our estimate owing to higher-than-anticipated depreciation and finance cost, lower-than-anticipated other income, offset by lower-than- anticipated tax outgo.

Higher raw material costs dent profitability for Fine Organic Industries: HDFC SecuritiesRevenue grew 8/31% QoQ/YoY to INR 3.2bn. Gross margin came in at 33.4% (-129/-806bps QoQ/YoY) in 4Q on account of higher raw material costs. EBITDA came at INR 5bn, +3/-16% QoQ/YoY with EBITDA margin coming in at 15.0% (-78/-820bps QoQ/YoY) in 4Q. We expect the current EBITDA margin to rise to 15.6/18.6% in FY22/23E. APAT came at INR 3bn (+11/-7% QoQ/YoY) in 4Q.

Joint venture: FOIL entered into a JV agreement in May'21 in Thailand with Oleofine Organics Thailand Co. Ltd. and Oleofine Organics Sdn Bhd for the purpose of operating business, which will be mainly engaged in manufacturing of Speciality Chemical products and supplying, exporting and distribution of such products. FOIL holds a 45% stake in this JV.

Dividend: The Board has declared a final dividend at INR 11/sh for FY21, which includes a one-time special dividend of INR 5/sh on the account of the company's golden jubilee year.