Fairchem Organic

Fairchem Organics reported a revenue from operations of INR 131 crores for Q1 FY26, marking an 8.5% increase quarter-on-quarter but a 21% decrease year-on-year. EBITDA stood at approximately INR 5 crores, with the EBITDA margin improving slightly to 3.97% from 3.64% in the previous quarter. The company achieved a net profit after tax of approximately INR 1.2 crores, which doubled sequentially, primarily driven by a 7.5% growth in volumes and savings in power and fuel costs.

The company continues to face challenges from high raw material prices, which remain firm due to elevated global vegetable oil prices. Despite a partial rollback of additional custom duties in May, the net impact of an 11% duty still remains, affecting the cost structure. The basic custom duty on imported dimer acid is 7.5%, and the differential on raw material due to vegetable oil duty hikes is 22.5%. Management noted that the duty rollback has not positively impacted raw material prices.

The Dimer Acid market segment is under significant pressure due to aggressive price competition from Chinese suppliers and insufficient relief in raw material costs. Management highlighted that the rolling dimer acid price has dropped by approximately 20% over the last 24 months, from INR 180,000 per metric ton to less than INR 145,000 per ton. The company has made representations to the government regarding dumping but expects no short-term relief.

Isostearic acid is identified as a key value-added product with promising growth prospects, and the company is one of only three global manufacturers. Fairchem's current capacity for isostearic acid is estimated to be 10-15% of the total world demand. However, the customer validation process for this product, particularly for cosmetics applications, is taking longer than expected as the company, being an Indian entrant, works to build trust in the market. Export volumes are expected to increase gradually over the coming quarters, with sales already made to more than 7-8 countries.

Fairchem Organics is actively working on developing an alternative raw material to reduce its dependence on imports and improve spreads. Initial trial runs for this new raw material have been positive, and management anticipates making a decision on commercialization by November. This initiative is expected to offer lower costs compared to current raw materials, providing a positive sign to address the ongoing duty and raw material price challenges.

The company's total installed raw material throughput capacity is 120,000 metric tons per annum. Of this, 40,000 metric tons are earmarked for new raw materials and finished products currently under developmental work, leaving 80,000 metric tons for existing products. The current capacity utilization stands at approximately 70% for the reported revenue levels. The sales mix for prime products (dimer acid, linoleic acid, and isostearic acid) remains between 70% and 75% of total sales value, with linoleic acid contributing around 40%, dimer acid 24-25%, and isostearic acid 6-7%.