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Overview of Top 3 Chemical Stocks of India.
There are three prominent chemical stocks in India – Tata Chemicals Ltd., Deepak Nitrite Ltd., and Navin Fluorine International Limited. In this post, we are discussing their last five years’ financial journey, some important growth factors, and the future and growth of the companies. This will help you to discover investment opportunities in the fast-growing chemical industry and diversify your portfolio today.
Deepak Nitrite Limited.
This is one of the fastest-growing companies in India in the Chemical Sector. They have a 75% market share in the Sodium Nitrate segment in India and from 2019 till now they are also a market leader in the Phenol and Acetones segment.
They have more than a thousand clients with a product portfolio of more than 30 in the Phenolics, basic intermediaries and speciality chemicals segments.
Earlier in India, there used to be an import dependency in the Phenol and Acetone segment. Deepak Nitrite had a major share in decreasing this import dependency. With this, 22% of their revenues come from the Middle East, Europe and the US, via their exports.
Speaking of some of their clients, big names such as Biocon, Unilever, Rallis India, Reliance Industries Limited etc. can be seen.
Speaking of financial performance, in the last five years, their revenue has grown with a CAGR of 37% and profits have grown with a CAGR of 59%.
The company did all these things with zero reliance on debt.
With this, they acquired land in Gujarat and Hyderabad and along with this, set aside ₹700 crore to develop high-value solvents.
Speaking of valuation, the average valuation of the Chemical Industry is currently 33x earnings in the Indian market.
On the other hand, looking at Deepak Nitrite, A Price to Earnings ratio of 38- 40x is seen, which can be slightly in the overvalued territory.
This is generally the time when market participants have more expectations from a stock. But this causes another problem whereby the risk of the stock also increases.
Navin Fluorine International Ltd.
Currently, they make more than sixty products which are used in the Agrochemicals, Pharma and Refrigeration sectors.
The company is also a big player in the export market with business coming from USA, UK and the South East Asia region.
The company has also made a Capex plan of ₹2200 Crore for Green Field Projects in the Specialty Chemicals and High-Performance Chemical Segment.
For any Chemical Company, the Specialty Chemicals segment is a high-margin avenue. Now NFIL is also working towards expanding this segment by setting up five plants.
Out of these five, three plants are already operating currently and the company is also setting up a plant in the Dahej region of Gujarat, whose capacity is Forty Thousand MTPA.
According to the company, the completion date for this plant is 2026, which could make a big addition to their total capacity.
Speaking of financial performance, in the last five years they grew their revenue with a CAGR of 15% and their earnings with a CAGR of 18%.
The company’s debt is also low, as evidenced by the Debt to Equity ratio of 0.55.
But due to the growth in earnings at the same time, the company’s valuation is now at its premium and with this came another major event in the recent History of this company. That was the resignation of their MD.
But this resignation was not due to any controversy, but in fact, was due to personal reasons.
Anyway, for any company, the resignation of an MD is a very big event and this makes predicting the upcoming management direction even more difficult.
Either way, a major player in the Fluorochemicals space whose debt is low and earnings growth is also big, can be a good candidate for analysis.
Tata Chemicals.
Tata Chemicals is the Chemical arm of the Tata Group.
This is the second-largest manufacturer of Soda Ash in the world and in India, they have a market share in the branded salt segment.
This company provides Inorganic Chemistry Solutions for various companies operating in the Bakery, Glass, Detergents, Pharma and Agriculture space.
They keep all their operations spread out throughout their subsidiaries for example Tata Chemicals North America, Tata Chemicals Europe and Tata Chemicals South Africa.
The company announced that the capacity of Soda Ash in the region of Mongolia would be upgraded from 4.3 megatons to 5.3 Megatons.
With this, the management plans to grow the overall Soda Ash capacity of the entire company by 30%. alongside a 40% growth in Bicarb capacity and a 5x growth in the Silica Capacity.
Towards all these expansion activities from FY24 to FY27 the company will spend ₹2000 crore.
Now you might have noticed one thing. The valuation of Tata Chemicals is cheaper when compared to other Chemical Companies.
Let’s now see why. If we look at the record of last five years revenues and earnings, we can see that the revenues have grown at a CAGR of 15%. But the earnings growth was flat.
Management said that the reason behind this was that the global demand for Soda Ash had decreased in the last few years. And the demand for Glass had decreased in the Europe & USA region, from where the company gets a lot of revenue.
Therefore, in changing demand situations, the current focus of the company is to maintain their market share and also improve their costs so that the margins can improve.
Management was also of the opinion that the current demand situation is most likely temporary. But flat earnings are not a piece of positive news for any company.
However, already the position of the company in the market is very much established. It also has the backing of Tata Group in the form of capital. In such a situation, the potential for turnaround in future exists Making it a good candidate to study further.
You let us know via comments which is your favourite Chemical Stock.
And as Benjamin Franklin said, “An investment in knowledge pays the best interest,” so keep investing in knowledge with us.
Conclusion: Investing in chemical stocks can be a lucrative opportunity for investors looking to diversify their portfolios. Tata Chemicals Ltd., UPL Ltd., and Aarti Industries Ltd. are three prominent chemical companies in India that offer strong investment potential. From a fundamental and technical analysis perspective, these stocks have shown consistent growth and positive trends.
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DISCLAIMER: None of the financial information published herein should be construed as an offer to buy or sell securities or as advice in any way. All information published herein is for educational and informational purposes only and should not be relied upon as a basis for investment decisions under any circumstances. Any reader who makes decisions based on the information published herein does so solely at his or her own risk. Investors should be aware that any investment in equity markets is subject to unpredictable market-related risks.
FAQs
What are some of the leading chemical companies in India?
Several strong contenders exist, but some frequently mentioned names include Reliance Industries, UPL Limited, Deepak Nitrite Limited, SRF Limited, and Pidilite Industries.
Should I invest in all the “top 3” stocks?
Diversification is key! Consider spreading your investment across different chemical companies or sectors to manage risk.
Is it wise to invest based solely on online recommendations?
It’s crucial to do your own research and analysis before making any investment decisions. Online recommendations can be a starting point, but consult a financial advisor for personalized guidance.
