The Hindu Business Line : HK Finechem's robust bottomline woos investors

THE HK Finechem stock made a smart move to close at Rs 54.50 today with a gain of around 4.71 per cent on the BSE. In the last one week it has improved by 17.33 per cent on the exchange.

The Ahmedabad-based company manufactures oleo chemicals and raw materials for natural oils, fats, and the nutraceutical industry.

According to analysts, jump in operating margin this fiscal and capacity expansion plans have attracted a section of investors to the stock.

In the first two quarters the current year, the operating margin improved from 13.86 per cent to 25.45 per cent.

The company exports mixed tocopherol concentrate and sterols to vitamin E manufacturers in the US and Japan.

Mr N.J. Zariwala, Executive Director, told Business Line that margin improvement was the result of savings on account of stoppage of raw materials import and improvement in plant efficiency.

In 2004-05, it invested around Rs 2.61 crore in R&D, changing fuel and adding balancing equipment.

In the current fiscal, it is expanding capacity by 50 per cent and bringing in flexibility in raw material usage at a cost of about Rs 4 crore. The programme is expected to be completed by April this year.

In the next phase, the company intends to go into value-added products like vitamin E. Mr Zariwala indicated that operating margin growth is likely to be maintained through the current fiscal.

However, according to analysts, quantum jump in sales and profit growth in the next two years following implementation of expansion and value-addition plans.

In the three years of its presence in dimer acid, HK Finechem has been able to acquire about one-third share of the domestic demand.

Owing to its aggressive product pricing strategy, near that of final cost of imported dimer to the local users, the company does not face any difficulty in marketing and could increase market share with ease.

According to vegetable oil industry sources, the Gujarat Government's policy of excise sops in the Kutch region had attracted many vegetable oil refineries, resulting in easy availability of required raw materials for oleo chemicals makers.

According to Mr Rajesh Agarwal of CD Equisearch, the fatty acids products of the company are well accepted by the domestic resin/paint manufacturing companies.

The products meant for export are also looking up. "With raw material prices stabilising at normal levels with increased availability, the company is well placed to derive the benefit by going for controlled expansion," he added.