Despite overall growth across segments of the Indian market, certain chemical and specialty chemical stocks faced major declines.
In today’s article, we’ll take a look at five such chemical industry players and examine whether they’re poised for a potential comeback.
#1 Paushak
Paushak is the leading Phosgene specialty chemical manufacturer based in India.
The company has a rich history dating back to 1972. It has navigated through various phases, adapting to changing financial conditions in the chemical industry.
Over the years, Paushak diversified its product portfolio and specialized in isocyanates, chloroformates, carbamoyl chlorides, carbamates and protectants, among others.
In the past year, Paushak shares have fallen about 30%. The drop is more severe if you compare it to its peak of ₹12,000 affected in 2022.
The downward trend began in 2022, when the management of the company led that the high profit experienced in the previous years was not sustainable and it expects it to decline.
To be sure, worried investors questioned Paushak’s ability to sustain such rapid growth in the future. This tempered outlook disappointed investors.
However, the company shows promising growth prospects to diversify its customer base and product portfolio.
The company has also undertaken various debottlenecking exercises and capacity expansion in the past two years. This capital investment could materialize soon.
In the first quarter of FY24, Paushak’s net margins fell to their lowest in years, but the company has since staged a recovery and its operating margin in Q3 stood at 36%.
Apart from improving demand scenario, it should also be noted that Paushak has strong support from its parent company Nirayu.
#2 Pure Science and Technology
Pure Science stands out because it has a unique focus on clean and ecological production processes.
The company has three production facilities consisting of 16 plants with a total capacity of 44 billion tonnes per annum (MTPA).
In 2023, the company invested ₹1.9 billion (bn) in capex, the highest since its inception, mainly to expand its production capacity by 2,000 MTPA in one of its plants.
In FY23, the company reported an impressive ROE of 34% and ROCE of 45.4% reflecting efficient utilization of resources.
The growth was helped by low raw material costs and a better product mix.
The graph below shows the 3-year share price of Pure Science. In the past three years, its share price has fallen approximately 40%.
Usually, after an Initial Public Offering (IPO), investors may choose to take short-term profits by selling shares.
The decline in shares in FY22 was due to profit booking by investors after the company’s successful IPO.
The current decline, however, is attributed to weak Q3 results.
Pure Science and Technology reported an 18% YoY decline in revenue for the December 2023 quarter due to lower volumes and lower prices.
Revenue contribution from performance chemicals, pharma, and agro-intermediates and FMCG stood at 67%, 19%, and 13% respectively.
Due to the decline in revenue, the company’s operating profit fell 20% YoY. Operating profit margins also fell 1.1% YoY to 44.5%, even as raw material, fuel and other expenses fell.
Management said it hoped to increase margins despite pricing pressure and new investments.
Overall, the company is working to add more products in its business portfolio to recover its profit margins.
For FY24, it led for a total income of ₹3.8 billion for developing and manufacturing hindered amine light stabilizers (HALS) and new performance chemicals.
Despite investing heavily in capex, the company has remained debt-free because it finances its capex through internal cash accumulation.
As the world looks for alternatives to China to de-risk its supply chain, India is considered a reliable supplier of specialty chemicals.
This bodes well for Pure Science and Technology as it focuses on import substitution and adds export customers across geographies while expanding its product portfolio and developing new products.
#3 Alkyl Amines Chemicals
Alkyl Amines Chemicals is a global leader in the production of aliphatic amines, specialty amines and amine derivatives.
Its diverse portfolio includes DEHA, DMAHCL, synthetic acetonitrile and triethylamine, which position the company as a key player in the specialty chemicals market.
Over two years, shares of the company experienced a decline of approximately 40%.
The decline could be attributed to the reduced consumption of existing inventories in storage units and adverse market conditions since FY22.
The company saw peak profit margins in the financial year 2021. Due to high inflation, the input prices increased, and the margins contracted in the next two financial years.
However, the company is responding to the current growing demand by FY23 by investing heavily INR 4 Bn to expand its Aliphatic Amines capacity at its Kurumba site in Maharashtra.
With inflation falling, input prices are expected to stabilize, and profit margins are expected to improve.
Alkyl Amines also pay consistent dividends.
It has a leading position in several product categories, giving it an edge over its competitors. It is currently focusing on the specialty chemicals segment and is setting up two new plants for the same.
In addition, it is also expanding capabilities across all its product categories to remain competitive and capture the demand for chemicals.
#4 Transpek Industry
Fourth on this list is Transpek Industries, which has evolved into a prominent player in the chemical manufacturing industry.
The company is based in Gujarat and specializes in the production of inorganic and specialty chemicals.
It serves industries such as textiles, agrochemicals, pharmaceuticals, advanced polymers and paper.
In terms of financials, Transpek Industries maintained a solid performance, with ROE of 15.6% and ROCE of 20.7% in FY23.
From top of ₹2,500 touched in 2021, the company’s stock has underperformed since then.
The company is beginning an expansion of its global presence by forming partnerships with new customers in South America, Eurasia and Japan.
The company is currently working on the pipeline of new products in chlorine and non-chlorine chemistry. It sees a strong opportunity in multi-synthetic products.
Transpek undertook a capex of ₹300 m to replace an old plant to accommodate new products for which the demand is expected to be higher. Along with the focus on new products, there is good visibility in growth.
Overall, the company’s solid financial performance and conservative capital structure provide a promising outlook with expansion plans in place. Transpek’s products even find applications in electric vehicles (EV) and defense applications.
#5 Meghmani Organics Ltd.
Last on the list is Meghmani Organics, a leading agrochemical based in Gujarat, which has three state-of-the-art pigment manufacturing facilities in Vatva, Dahej SEZ, and Panoli.
Meghmani Organics is renowned for its global footprint, as 75% of pigment revenues come from exports, reaching more than 75 countries worldwide.
The share price of Meghmani witnessed a peak of ₹130 in 2022 before experiencing a decline, hitting its lowest point at ₹77 per share. The drop represents about a 35% decrease.
The company’s shares experienced a decline in 2023 as it disclosed that a fire had occurred at its finished goods warehouse of its pigment factory located at Panoli.
The stock is currently trading at ₹85 per share, indicating a modest recovery from its previous low.
Underscoring its commitment to innovation, Meghmani Organics through its subsidiary Meghmani Crop Nutrition (MCNL), has entered into a license agreement with a leading domestic fertilizer producer, to exploit their patented technology for the production of Nano-urea (liquid) fertilizer.
A state-of-the-art factory located in Gujarat, has been commissioned with an annual capacity of 50 million Nano-urea bottles (500 ml), ready to meet the growing demand both domestically and internationally.
This strategic initiative is expected to boost the company’s revenue generation.
In particular, the company is venturing into international markets by establishing a subsidiary in Brazil and a representative office in China, in line with its goal of serving various markets.
In 2023, Meghmani Organics also entered the competitive landscape with a universal manufacturing plant, positioning itself against multinational corporations (MNCs) and securing a first-mover advantage.
Looking ahead, the company remains committed to expansion plans, further enhancing its presence in the global market and consolidating its position as a key player in the agricultural solutions industry.
Snapshot of Best Specialty Chemicals Stocks in Equitymaster Stock Screener
Here is a table showing the top companies on various important parameters –
Investment Performance
The five stocks explored in this article show promise for a potential rebound.
Despite recent share price declines, these companies show strong fundamentals, efficient operations and growth prospects.
Note that fundamentally strong stocks can experience fluctuations, but history shows that they often reward shareholders in the long run.
Keep your focus sharp.
Happy Investing!
Disclaimer: This article is for informational purposes only. It is not a stock recommendation and should not be treated as such.
This article is syndicated from Equitymaster.com
(tagsTranslate)Chemical Stocks in India