Star SME: Fine Organic Industries sets its sights firmly on the future

Fine Organic Industries' R&D strengths have helped it forge ahead in the chemicals business

At 68, Mukesh M Shah, chairman and managing director of Fine Organic Industries, a manufacturer of “green” additives, spends two hours of his work-day with his research and development (R&D) colleagues, and routinely interviews candidates.

“Ours is a highly technical business, and we need sharp minds that can think out of the box and develop solutions for the future. Our R&D is our strength,” says Shah, at his office in Mumbai.

Additives are substances that are added to products in very small quantities for a special purpose.

Shah, a chemist by training, joined Fine Organic, which his brother Ramesh Shah had started, as the “second employee”. The first was Prakash Kamat, then a researcher at the Institution of Chemical Technology (ICT), who was recruited in 1971 and went on to serve as chairman and executive director until his demise last year.

Ramesh Shah, a trader, dealt in food emulsifiers. Finding it difficult to import them during the licensing regime, he decided to make them in the country itself, which at that time no one was doing.

The production of food emulsifiers (molecules that act as stabilisers) began at the company’s Dombivli plant (Thane district), and between 1971 and 1985 the company expanded its product portfolio in oleochemical derivatives — chemical compounds derived from natural fats and oils that can be used as raw materials in a variety of industries.

Until 1999, Fine Organic focused only on the Indian market. “We then started exploring foreign shores for some of our surplus production in plastic packaging additives, starting with Iran,” says Shah.

Since imported machines for making specialised additives were expensive, they developed them in-house. “These came at one-tenth the cost of European machines, which has ever since helped us to save capex costs,” explains Shah.

The company focuses on niche products that can be made in non-hazardous ways. “People are talking about ‘green’ chemicals now; we started off with green chemicals in the 1970s and are now thinking of green surfactants, which will change the paradigm for the cosmetics, personal care and home care industries,” says Shah.  

Shah says that their additives are used in very small quantities in several user industries, but they are as vital as “salt and pepper in our food”.

“I call it a technical pinch of salt,” he adds. One needs it in small quantities, but the product cannot be made without it. The focus on niche products, safe and green chemistry, and a threefold R&D strategy (product, engineering, and application) has paid off.

The Rs 1,876-crore company has clocked a 21 per cent compound annual growth rate (CAGR) in revenues from operations since 2017-18 (the year it listed), and 25 per cent in profit after tax (PAT). The Ebitda CAGR is 21 per cent, with Ebitda margins at around 20 per cent.

Only during the Covid-19 year (2020-21) did the Ebitda margin dip to 17.1 per cent when prices of vegetable oils, their main raw material, doubled and shipment costs almost trebled. 

In 2021-22 (FY22), the company recorded its highest year-on-year revenue growth of 66 per cent (Rs 1,876 crore), while PAT (Rs 260 crore) and Ebitda (Rs 349 crore) witnessed 82 per cent and 118 per cent growth, respectively.

Fine Organic is now charting out plans to set up plants in the US, to be closer to its customers there. The company that saw 55 per cent of its FY22 revenues coming from exports (which in FY23 is likely to touch 70 per cent) already has plants in Thailand and Malaysia. It is also eyeing a plant in Gujarat, says Shah. 

The next generation of Shahs has also joined the business — Bimal, Mukesh’s son, heads the engineering R&D division, while Ramesh’s son Jayen is the company’s CEO. Jayen’s brother Tushar is the chief financial officer. Jayen’s two daughters have also joined the family business.

Inducting the “next gen” with an eye on next-generation products, Fine Organic has its sights firmly set on the future.