BackTop picks: 3 specialty chemicals stocks to buy as recommended by Motilal Oswal
The brokerage has Buy rating on NOCIL, Galaxy Surfactants and Vinati Organics under its specialty chemical stocks' coverage universe
PremiumDomestic brokerage and research firm Motilal Oswal in a note stated that its study confirms the hypothesis that the companies, which have higher contribution from specialty chemicals, were able to manage their gross margins much better than the ones that have higher contribution from commodity chemicals.
“Elevated key raw material prices contracted the gross margins of the specialty chemical companies under our coverage by as much as 14.4% during 1QFY21- 3QFY22. Further, tightening of freight rates and utility costs due to soaring energy prices resulted in an EBITDAM contraction," the note highlighted.
The brokerage house's top stock picks in the specialty chemicals space remain - Galaxy Surfactants (GALSURF), Vinati Organics (VO) & NOCIL and recommends its Buy rating on these three stocks.
With the Indian tyre industry likely to grow by 15-17% in volume terms in FY22E, tyre companies are planning to ramp up production with a planned capex of ₹200 billion over the next three years. As per the brokerage, the debottlenecking activity would be carried out at NOCIL’s existing unit in the near term, even as it evaluates its plans for the next three-to-five years, therefore, it has maintained its buy rating on the specialty chemical stock.
“Galaxy Surfactants continued focus on R&D and increased wallet share from existing customers are likely to drive volume growth and expand EBITDA margin. It has capex plans of INR4b over FY22-24E. We maintain our BUY rating on the stock," Motilal Oswal's note added.
Further, Vinati Organics' sales are expected to grow 50% year-on-year (YoY) in FY22 and 25-30% YoY in FY23 and FY24, as per management guidance. The growth will be led by recovery in IBB demand, commissioning of an antioxidant plant, and foray into niche chemicals through Veeral Organics, the brokerage stated.
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
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