Deepak Nitrite, Vinati Organics among Motilal Oswal’s top picks in Specialty Chemicals space
- The brokerage expects India’s share in specialty chemicals to double over the next five years
Domestic brokerage Motilal Oswal has initiated coverage with a positive outlook on the Specialty Chemicals space. From having an insignificant presence (4.5%) in this segment, Motilal expects India’s share in specialty chemicals to double over the next five years at around 12% Compound Annual Growth Rate (CAGR) to $64 billion by CY25.
Various factors that favor this industry in India includes strong domestic consumption – led by a young population, favorable labor cost (one-third that of China/half that of Vietnam), and government impetus, Motilal Oswal said in a note.
The brokerage has assigned a 'Buy' rating to Deepak Nitrite (its top pick in the sector), Vinati Organics, Galaxy Surfactants, and NOCIL. It has a Neutral rating on Atul, Alkyl Amines, Navin Fluorine (NFIL), and Fine Organic.
Globally, the specialty chemicals business accounts for around 20% of the $4 trillion chemicals industry. India’s ranking in specialty chemicals is not available; however, it is said to be the sixth largest producer of chemicals globally.
''With 18% market share in global exports, China is the leading specialty chemicals exporter. As nations look for alternatives away from China, India stands to benefit from lower labor cost and a large consumer base,'' the report said.
Domestic players (such as Navin Fluorine, Vinati Organics, and NOCIL) are benefitting from the China+1 strategy with new orders and capex plans. The new projects would primarily be export orders, which would enable Indian companies to capture a larger global market share in the Specialty Chemicals space, it said.
''Others players (such as Deepak Nitrite) have quickly turned around their newly commissioned plants, in line with the rise in domestic demand, which has resulted in import substitution,'' Motilal Oswal's report noted.
Pointing out the key risks, the brokerage said that these companies have been on a high growth trajectory and seen margin expansion through backward integration as well as value-added products. Any slowdown in either of the factors may result in the de-rating of the stocks.
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