Will the FPO fund infusion solve Vodafone Idea’s problems?

It’s little things that matter in life. For instance, small actions make up our attitude and behaviour. Small things grow and are more efficient over time. Similarly, to achieve financial freedom one needs to make small yet steady contributions to build a portfolio. A portfolio is a collection of financial investments like stocks, bonds, commodities, cash, and cash equivalents, as well as their fund counterparts.

Stocks have become a preferred asset class for investors in India as 1-1.2 crore new demat accounts were opened in FY21. Now the key for these investors is to pick the right stocks that can create wealth over the long term. One way to do that is to focus on specialty ingredients as these are items that are added in very small quantities in various products across the end-user industries and add significant value in terms of the functionalities of the final products. According to Nirmal Bang Equities key sub-segments of the specialty ingredients market are expected to grow at ~5% CAGR globally over the next 5 years. Indian companies can easily grow in mid-teens on a consistent basis considering their size. Also, within the overall ingredients space, the premium ingredients portfolio should grow ahead of the base portfolio.

“Global players with oleochemicals presence and strong R&D expertise claim premium valuations as they are expected to be key beneficiaries of market development,” said Abhishek Navalgund, Research Analyst at Nirmal Bang Equities.

Camlin Fine Sciences | Target Price – Rs 180 | Upside – 29%
Camlin Fine Sciences is the leading integrated manufacturer of the most preferred traditional antioxidants (AO), which is part of shelf-life solutions. Its other key business verticals include aroma ingredients (Vanillin) and performance chemicals. In AO and Vanillin, the company is the leading player in terms of capacity and the lowest cost manufacturer in the world.

“Camlin Fine Sciences focuses on backward as well as forward integration within the segments it operates in. Earnings underperformance in the last 4-5 years was on account of internal inefficiencies and the company has taken necessary steps post the loss of customer (revenue exposure cap of 5% per group). AO blends business is at the cusp of strong growth, in our view. Also, with Dahej commercialization, we expect a turnaround in earnings performance from FY22 onwards. While the stock is trading at ~13x PE FY23E, we believe that it has re-rating potential based on these growth drivers,” noted the report by Nirmal Bang Securities.

Fine Organic Industries | Target Price – Rs 2,700 | Upside – 18%
Fine Organics (FINEORG) is a key manufacturer of oleochemical-based additives. While polymer additives and food additives are key segments for the company (~65-70% of revenue as per our estimates), it supplies specialty additives to other industries like Cosmetics, Pharma, Paints & Coatings, Rubber, Construction, etc as well. As per the management, there is no direct competition from Indian players. Its focus on customer-centric solutions, R&D expertise in oleochemicals, and strong engineering R&D capabilities with indigenous technology make it a formidable partner of choice in the oleochemicals space.

“While there have been short-term challenges due to Covid-19 and abnormal surge in raw material prices, Fine Organics is a structural story and would benefit from market development and innovation in green additives. This market will remain oligopolistic and select players should grow substantially over the next decade. Premium valuation compared to other chemical companies is justified based on greater visibility on long-term growth for oleochemicals, deeper client engagements, earnings quality and strong balance sheet,” mentioned the report.

Rossari Biotech | Target Price – Rs 1,230 | Upside – 15%
Rossari Biotech is a leading specialty ingredients player operating in Home, Personal Care and Performance Chemicals (HPPC), Textile Chemicals, and Animal Health & Nutrition (AHN) segments. Formulation and application are the key forte of the company as against manufacturing and the company closely engages with clients by adopting a problem-solving approach. Predominantly, it has a stronghold on four chemistries – acrylic polymers, surfactants, silicones and enzymes.

“Rossari Biotech operates in, direct competition is very limited on account of the company’s sharp focus on customer-driven strategy and formulation & application focus. In all the segments, there is a long runway for growth for the company since market participation is low and the company offers differentiated product applications,” added the report.

Advanced Enzyme Technologies | Target Price – Rs 400 | Upside – 13%
Advanced Enzymes Technologies is a research-driven company and manufactures enzymes and probiotics that play a crucial role in health and nutrition globally and has applications in various other end-user industries. The company offers 400+ proprietary products developed from 68 enzymes.

“Enzymes industry has very high entry barriers on account of extensive R&D focus and long gestation period before getting registration approvals for products in USA and EU. Most companies are now moving away from synthetic products to eco-friendly solutions and enzymes, in our view is a sunrise industry with significant growth potential across various industries. Therefore, pure enzymes players claim premium valuations over other companies,” said the report.

Galaxy Surfactants | Target Price – Rs 2,800 | Upside – 10%
Galaxy Surfactants is one of the leading players in the surfactants and specialty care ingredients market and it is focused on only Home and Personal Care (HPC) industry across the globe, unlike peers that are having presence across various end-user industries. Performance Surfactants and Specialty Care are the two segments where the company is highly focused on green technology, innovation and marketing.

“Galaxy Surfactants is a perfect proxy to play the Global HPC story and expect it to continuously outperform the HPC industry growth, led by its sharp focus on R&D & premiumisation trend,” stated the report.

(Disclaimer: The recommendations in this story are by the respective research and brokerage firm. Money9 & its management do not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)