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Top 4 specialty chemical stocks to buy, accumulate as recommended by Prabhudas Lilladher

Domestic brokerage and research firm Prabhudas Lilladher is of the view that while sharp correction in prices and muted demand led by global slowdown and de-inventorisation are impacting performance of most chemical companies in the near term, but a normalized and stable price environment augurs well for the sector over medium-long term. 

“Adverse operating leverage because of slowdown in discretionary end user industries’ demand led to QoQ decline in profitability. Companies which largely cater to essential end use applications like agro chemicals are relatively better placed. So also, overall Indian manufacturers are better placed vs. European counterparts and are likely to benefit from shift in manufacturing to India over the long term,” the note stated.

The brokerage house hosted 10 specialty chemical companies for PL Specialty & Agro Chemicals Conference over 2 days. It has shared Jubilant Ingrevia and Fine Organics as its top stock picks in the specialty chemicals space. 

The brokerage has Buy tag on Jubilant Ingrevia (TP: 860). It has Accumulate ratings on Aarti Industries (TP: 775), Nocil (TP: 275) and Fine Organic Industries (TP: 7,000) whereas has given Hold tag on Laxmi Organic Industries (TP: 335). 

“Near term demand pressure owing to global slowdown (led by Europe and China) and price correction led by moderation in raw material prices, logistics cost and de-inventorisation. Demand for essentials like agrochemicals continues to be steady,” Prabhudas Lilladher added.

The companies remain optimistic on medium to long term opportunities emanating from Europe energy crisis and China+1 and capex intensity continues to remain high (no deferments/ cancellations), given optimum capacity utilization across most plants.

Further, the companies evaluating/completed backward integration capex/ tie-ups for key raw materials, given supply disturbances witnessed or as part of long term strategy. 

For instance, Aarti Industries tie-up with Deepak Fertilizers for Nitric Acid, Laxmi Organics securing Hydrofluoric Acid supplies (multi-year contracts) for FI business, GHCL evaluating industrial salt works acquisition etc, VCL recently completed Soda Ash capex etc.

“Working capital position for most companies normalizing now (got stretched on supply chain issues). Balance Sheet remains healthy for most participating companies, enabling capacity expansion projects undertaken,” it added.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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