08 Jul , 2022 By : Kanchan Joshi
Having delivered strong revenue growth driven by both volume and pricing power for the last three–four quarters, specialty chemicals companies in Edelweiss' coverage might face moderation in Q1FY23 as prices are now stabilising, the brokerage said in a note.
“Since input prices have started softening in the wake of softer crude and palm oil prices, revenue growth is likely to moderate. Margins may continue to hold though. We maintain the bullish view on the sector," said the brokerage in a note on specialty chemicals.
Anticipating strong results, the brokerage has Buy ratings on specialty chemical stocks Gujarat Fluorochemicals (GFL) with target price of Rs3,676, SRF (TP: Rs3,072), Fine Organics, Galaxy Surfactants (TP: Rs4,159), Deepak Nitrite whereas it has Hold stance on Fine Organics. Its top stock picks are GFL, Fine Organics (TP: Rs5,521), Galaxy Surfactants and Deepak Nitrite (TP: Rs3,127).
“Refrigerant gases SRF (BUY) and fluoropolymers players GFL (BUY) will continue to reap the benefit of strong pricing environment in FY23. While players such as Aarti Industries (BUY) and Deepak Nitrite (BUY) may have to contend with some volatility due to large capex commissioning. FMCG/niche chemicals’ players such as Galaxy Surfactants (BUY) and Fine Organics (HOLD) shall benefit from margin expansion," Edelweiss added.
Meanwhile, another brokerage ICICI Securities has Buy ratings on Gujarat Fluorochem, Chemplast Sanmar, EPL, Sudarshan Chemical, Tatva Chintan, Phillips Carbon Black (PCBL). It has Hold ratings on Navin Fluorine, Galaxy Surfactants, Rossari Biotech whereas reduce stance on Clean Science and add tag on SRF.
“We estimate our specialty chemical coverage universe revenue to grow 18% YoY in Q1FY23, partly on rise in prices due to input cost inflation. Gross profit to grow 20% YoY, which indicates strong underlying trend led by 1) SRF’s robust growth on pricing benefit in ref-gas, 2) Gujarat Fluorochemicals’ (48% YoY) turnaround in fluoropolymers, and 3) Clean Science’s (38% YoY) on low base," the note stated. Gujarat Fluorochemicals and PCBL are ICICI Securities top stock picks in the specialty chemicals sector.
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