PL Sector Report: Chemicals - Sector Report – Small volume, high margin products key for success

Chemicals - Swarnendu Bhushan - Co-Head of Research, Prabhudas Lilladher Pvt Ltd

Sector Report – Small volume, high margin products key for success

We hosted an Industry expert on 30th August, 2023 and following are the key takeaways 1) high margin & low volume chemistries are expected to drive long term profits, 2) Bio-based chemistries, polymer additives and performance chemical products can be potentially manufactured in India for maximum gains, 3) China is a global dominant player due to lack of qualitative engineers/professionals in countries such as India, 4) battery chemistry is a difficult and complex process, thus difficult for small manufacturers to penetrate the market and 5) fluoroploymers industry will likely see consolidation over next few years.

The discussion reinforced our belief that companies which are high on technology and R&D would continue to deliver sustainably. While companies like Fine Organics, Clean Science and Vinati Organics among our coverage fall into this category, valuations aren’t compelling for the first two. We still believe that amidst strong oil prices, rising demand of rigs would result in increased demand of ATBS, the main product of Vinati Organics. We reiterate our ‘Accumulate’ rating on the stock with a target price of Rs 1955, valuing it at 40P/E on FY25 EPS of Rs49. We are placing Fine Organic, Jubilant Ingrevia & Laxmi Organic ‘Under Review’ currently and would come back with revised valuations and view.

(Click on the Link for Detailed Report)