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Chemical companies are expected to deliver improvement in performance QoQ on pass through of higher costs and steady demand aided by recovery post a milder wave of covid, as per brokerage and research firm Prabhudas Lilladher in a note on January-March 2022 quarter earnings preview of chemical companies.

The brokerage house has reiterated its Buy rating on chemical stocks Fine Organics with target price of 4,600 and NOCIL with price target of 285, and has Hold recommendation on Aarti Industries shares (target price: 1,040).

Nocil is well placed, as per Prabhudas Lilladher, given sufficient capacity headroom to capture demand improvement moderate competitive intensity as prices getting realigned to factor in cost inflation and net cash balance sheet and robust FCF generation of 3.5 bn over FY22-24E.

Fine Organics growth prospects look encouraging on healthy demand traction aided by improved client confidence and visible global consolidation benefits, capacity headroom helping capture demand improvement, ability to pass through higher costs to customers without any lag, protecting profitability and net cash balance sheet and healthy cash flow generation to enable self-funded growth capex, it added.

The brokerage expects expect healthy growth in Aarti Industries' revenue (+32% year-on-year) on account of pass through of higher input prices led by both chemicals and pharmaceutical segments.

"Price hikes undertaken across companies in Q4FY22 to offset surge in raw material, energy and logistics costs; to continue given further cost escalation. Demand outlook continues to be positive but extreme inflationary environment may dampen demand in discretionary end user industries," Prabhudas Lilladher said.

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

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