Top stock picks: Sharekhan says to BUY these agri & specialty chemical stocks

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After agriculture companies revealed solid earnings growth headed by price hikes, high export growth, and margin improvement, and specialty chemical companies reported strong revenue/earnings growth as high raw material/logistics/energy costs prevailed in Q4FY2022, brokerage firm Sharekhan has maintained its bullish phase on some quality agri and specialty chemicals stocks.

Top agri stocks to buy

For the agriculture space, Sharekhan has said that “Agriinput players benefitted from sustained price hike to pass on raw material cost and higher volume supported by high global crop prices. This led to better-than-expected aggregate revenue growth of 27% and margin improvement of 42 bps y-o-y (as against an expectation of y-o-y decline and despite elevated input/logistic cost) for agri-input companies our coverage. UPL (volumes/prices up 3%/19% y-o-y), and Sumitomo Chemical India (domestic/ export revenue growth of 11%/64% y-o-y) performed well with stellar y-o-y revenue growth of 24% and 24.5% respectively in Q4FY22. Coromandel International also posted strong 50% y-o-y revenue growth led by higher realisations. Aggregate PAT of agri-input companies in our coverage grew strongly by 37.5% y-o-y and beat our expectation of 16.8% y-o-y. UPL/PI guided for strong revenue growth of over 10%/18-20% for FY23.”

Companies Recommendation Target Price Last traded price Potential upide in %
Coromandel International Buy 1,070 922 16%
Insecticides (India) Buy 900 798.75 12%
PI Industries Buy 3,300 2,590.95 27%
UPL Buy 930 733 26%
Sumitomo Chemical India Buy 540 476.20 13%

Top speciality chemical stocks to buy

For the speciality chemical space the brokerage claims that “Aggregate revenue growth of 35% y-o-y was marginally higher as compared to our estimate with large beat for NOCIL (revenue up by 44% y-o-y) and Vinati Organics (revenue up 74% y-o-y) reflecting price hike and ramp-up of new projects. Aggregate OPM improved 290 q-o-q but still remain lower on y-o-y basis due to continued high raw material cost and logistic issues. Having said that, NOCIL and SRF reported a rise in margins both y-o-y and q-o-q led by better pricing environment. Consequently, PAT growth of 34.5% y-o-y was much ahead of expectations led by better margin performance and good revenue growth. SRF, NOCIL and Vinati Organics were the best performers while Atul missed our estimate. SRF guided for robust revenue growth of 20% y-o-y for specialty chemical and sustained strong margin for chemical segment while Aarti Industries EBITDA growth guidance of high single digit disappointed.”

Companies Recommendation Target Price In Rs Last traded price Upside potential in %
Aarti Industries Buy 1,000 697.90 43%
Atul Limited Buy 11,000 8,041.00 36%
NOCIL Buy 348 264.05 31%
SRF Buy 2,800 2,250.40 24%
Sudarshan Chemical Buy 550 455.60 20%
Vinati Organics Buy 2,450 2,019 21%

Valuation and recommendation by Sharekhan

The brokerage has said that “Agri-input space is in a sweet spot and had revenue/margin tailwinds from high global crop prices. Thus, agri-input players under our coverage reported sharp beat on both revenue growth and margin front. Specialty chemical players witnessed robust revenue growth and sequential improvement in margin but the same still remain below Q4FY21 levels given challenges of logistic/energy cost. Aggregate PAT for agri-input/specialty chemical companies in our coverage grew by 38%/35% y-o-y with outperformance shown by UPL, Sumitomo Chemical India, SRF, NOCIL and Vinati Organics.”

The Indian specialty chemicals sector is well poised to capitalise on global tailwinds and expand its global market share to 7-8% in the next few years from 4% currently, supported by structural drivers, including China Plus One strategy, import substitution, and opportunities emerging from the recent supply chain disruption in China. Agri-input companies are also well poised to reap benefits of high global crop prices as the same would aid demand and support realisations. Thus, the recent correction in broader markets due to global geopolitical tensions provides a good opportunity to invest in quality stocks as we see structural tailwinds for sustained doubledigit earnings growth going forward, said Sharekhan.

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

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