Buy Fairchem Speciality, target Rs 595: KR Choksey Securities

KR Choksey Securities has a buy call on Fairchem Speciality with a target price of Rs 595.

The current market price of Fairchem Speciality is Rs 471.70.

Time period given by the brokerage is one year when Fairchem Speciality price can reach the defined target.


Investment rationale by KR Choksey Securities
Privi Organics India Ltd is the largest aroma chemical manufacturer in India with a production capacity of 22,000 MTPA spread across four manufacturing facilities in Maharashtra and Gujarat.

The company has a strong clientele base including the likes of Givaudan, Firmenich, IFF, Symrise and so on with exports accounting for nearly 68 per cent of its revenues. Aroma chemicals form the building blocks of Flavors & Fragrance (F&F) and are used in a variety of sectors.

These aroma chemicals are blended to develop a particular flavor or fragrance, which are used in consumer goods like soaps, perfumes, deodorants, air fresheners, detergents and so on.

The aroma chemicals market is dominated by players like Privi, Renessenz, Arizona, IFF, DRT and Takasago and attributes to nearly 16 per cent of the total F&F industry.

Currently, the global market size of aroma chemicals stands at USD nearly 5,200 mn and registered a growth of nearly 5.8 per cent CAGR over FY10-FY18.

Interestingly, the market grew at a robust pace of nearly 8 per cent over FY14-FY18 on the back of i.) healthy growth momentum of FMCG market, ii.) consistent surge in disposable incomes, and iii.) increase in urbanization in the emerging economies.

Going ahead, the global aroma chemical market is estimated to sustain its growth momentum and deliver nearly 7 per cent CAGR over FY17-FY20.

In terms of consumption, North America accounts for majority (30 per cent) of consumption of overall F&F market followed by Europe and Asia Pacific region. However going forward, we believe, Asia Pacific region to register highest growth owing to increasing domestic demand in developing countries like India and China.

Compared to global market, the Indian market size of aroma chemicals (consumption) currently stands at USD 200 mn (nearly 3.85 per cent of global market) and is expected to grow at nearly 15 per cent over FY17-FY20 owing to (i) Increasing per capita income, (ii) growing urban population share, (iii) deeper penetration of FMCG products in rural areas and (iv) expansion of organized retail in tier II & III cities.