“India has been among the beneficiaries where revenue growth of fluorochemistry majors has far outstripped that of Chinese majors over the past five years,” Jefferies said in a client note.
Indian players directed a majority of their capex into higher value complex chemistry and backward integration into key feedstock. This helped increase the share of specialty chemicals to overall revenue from 55% in FY17 to 63% in FY23, driving a 211 bps expansion in EBITDA margin to 24% over the same period.
“Improving profitability, judicious fund-raising and prudent capital allocation have led to improved balance sheet health with net debt to equity at multi-year low of 0.2,” it said.
Jefferies prefers to bet on the sector through Navin Fluorine. It has set a target price of Rs 5,610 on the stock, which translates into a 27% upside from the current levels. On Monday, shares of Navin Fluorine closed at Rs 4,405 a piece on the NSE, down 1.21% from Friday’s close. The stock has declined over 6% in the last one month, narrowing its returns to roughly 7% since the beginning of calendar 2023.
The bullish call is based on the company’s growing contribution of specialty chemicals to its overall revenue and industry leading growth of 35% EPS (CAGR) over FY23-25e.“Outlook for high value segments of specialty chemicals, CRAMS and HPP remains strong, underpinning our growth forecast,” Jefferies said. “We see upside risk to our best if Honeywell upsizes the HPP contract.”Jefferies also likes speciality chemicals company SRF and advised clients to ‘hold’ the stock as it sees limited upside from the current levels.
The brokerage firm said it is impressed by SRF’s management depth, top-notch execution and its entry into new specialty verticals places the company in a strong position for multi-year compounding. However, it waits for a pullback in SRF’s life-high chemical margins to potentially turn more constructive.
