413989 SIP myths you must know!

Many investors believe that they have missed the bus when it comes to investing in the specialty chemicals sector. However, domestic brokerage firm JM Financial thinks otherwise. The brokerage believes that the sector is shaking up the status quo and is of a view that India’s specialty chemicals industry is a decadal growth story; hence, it is still not late to participate in the value-creation process.

“India’s specialty chemicals industry is expected to continue to clock a 12% CAGR (compounded annual growth rate) until CY25. Led by robust domestic consumption growth given India’s low per capita consumption; rising import substitution on account of the government’s favourable policy measures; and strong growth in exports due to rising adoption of the ‘China plus one strategy by global MNCs,” said JM Financial in a report.

Within the speacialty chemical industry, the brokerage house prefers CRAMS (contract research and manufacturing services)/CSM (custom synthesis and manufacturing) players. Since they are poised to benefit as more innovators shift to focus on core competencies and outsource production via long-term contracts to low-cost manufacturing destinations such as India. Here are its top picks from the sector.

UPL | Target price: Rs 1,000
UPL became the fifth largest global agrochemical company post Arysta acquisition. It has presence in over 138 countries with strong domain expertise in complex synthesis and sourcing of Active Ingredients; burgeoning presence in branded generics; and farmer logistics and distribution services. UPL is uniquely placed to register a healthy 13%/23% EBITDA (earnings before interest tax depreciation and ammortisation)/PAT (profit after tax) CAGR over FY21-23E on account of revenue and cost synergies arising out of the Arysta acquisition; robust 9% revenue CAGR over FY21-23E aided by R&D backed product pipeline coupled with new product launches from recent collaborations; and lower interest cost led by reduced debt.

PI Industries | Target price: Rs 2,995
PI currently is India’s largest CSM player in the agrochemicals space. Its order book size has grown ~15X over the last 10 years. Due to its impeccable execution capabilities in this space, it has become a preferred CSM partner for global agrochemicals innovators. Moreover, its entry into performance, fine chemicals along with pharma APIs/intermediates would likely put it in the league of global CSM players offering services across segments.

Navin Fluorine | Target price: Rs 3,760
Over the years, Navin Fluorine has emerged as a preferred partner when it comes to fluorination chemistry in both agrochemicals and pharma spaces. Its timely diversification from the legacy refrigerant and inorganic fluoride business has driven margin expansion and overall growth. Navin Fluorine growth prospects seem even brighter with higher contribution from specialty chemicals and CRAMS segments on account of long-term contract and capacity expansions.

SRF | Target price: Rs 7,600
SRF has over the years adapted well from being a tyre cord fabrics manufacturer to become one of the leading fluorine-based specialty chemicals player. Its continuous investments in the chemicals business and R&D have laid a good platform for future growth. Increasing contribution from the chemicals business is likely to improve overall earnings growth. SRF to demonstrate Revenue/EBITDA/PAT CAGR of 25%/19%/18% over FY21-23E.

(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.)