These specialty chemical stocks are Kotak's top picks in the sector

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Indian specialty chemicals companies are poised to ride tailwinds from macro drivers including ‘China+1’, import substitution, growing costs within China (capital, operational, compliances) and currency benefits, analysts at Kotak Institutional Equities said.

The brokerage firm has initiated coverage on specialty chemicals companies at a time of exciting visibility on sector opportunities across the next decade. Its top stock picks include Aarti Industries, Vinati Organics, PI Industries and SRF.

It has initiated coverage on specialty chemicals space with a Buy rating on Aarti (FV: 1,080, upside: 18%), Vinati (FV: 2,200, Upside: 19%) and Add rating on Atul (FV: 10,000, Upside: 5%), while it initiates with a Reduce rating on Clean Science and Navin Fluorine (NFIL) as the brokerage awaits a correction in valuations. 

Additionally, Kotak retains its Add rating on PI Industries (FV: 3,500, Upside: 9%) and SRF (FV: 12,000, Upside: 9%).

It finds Aarti among the most scalable chemical companies given its presence across basic-to-specialty products, favorable macro factors like depreciation of INR versus RMB, import substitution and ‘China+1’ support overall growth. Though, it sees global economic slowdown and raw material inflation as key risks.

Vinati’s business model has been built on identifying niche products and gradually attaining global leadership in them, the note stated. Whereas, PI’s rich valuations, Kotak noted, reflects its track record of growth, RoCE, client relationships and significantly differentiated R&D investment driving success in innovator partnerships.

For SRF, the company’s strength lies in its “ability to incubate new businesses at a global scale through R&D- led superior product grades and cost efficiencies. SRF’s leadership and global scale in multiple businesses like specialty chemicals, refrigerants and packaging films picked up pace after Ashish Bharat Ram took the helm as Managing Director,” Kotak Institutional Equities note highlighted.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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