Chemical Stocks: Chemicals aid the ever-evolving technology in different fields and forms. The very existence of development is due to the chemicals. It is used majorly in healthcare as it has greatly impacted people’s lives. In agriculture, the use of fertilizers, and pesticides has made a development in crop yield.

In Manufacturing, it is used for raw materials during the process and in various industries like electronics, textiles, automotive components, construction materials, etc. It is also crucial in mitigating various problems arising in the environment and according to it the situation. In this article, we will look at the Chemical Industry, its future outlook, and stocks operating in that field.

A variety of sectors within the chemical industry

The chemical industry produces a wide range of products that interact with almost every area of our life. While many industry products, such as detergents, soaps, and perfumes, are purchased directly by consumers, others serve as intermediates in the development of other products, such as foods, plastics, and medications. The figure below summarises the industry’s intricacies. The sector makes use of a wide variety of raw elements, including air, minerals, and oil. 

There are Commodity Chemicals which primarily manufacture industrial and basic chemicals. Plastics, synthetic fibers, films, commodity-based paints and pigments, explosives, and petrochemicals are examples, although not exhaustive. Then there is Diversified Chemicals which is manufactures of a wide range of chemical products.

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For Agri, Fertilizers, and Agricultural Chemicals where manufacturing of fertilizers, insecticides, potash, and other agricultural chemicals are done. Under Industrial Gases, companies produce oxygen, nitrogen, helium, argon, hydrogen, etc.

There is a Specialty Chemicals segment where the businesses primarily manufacture high-value-added chemicals used in the production of a wide range of products, including but not limited to fine chemicals, additives, advanced polymers, adhesives, sealants, and specialty paints, pigments and coatings, and intermediates used in renewable materials, as well as the food, pharmaceutical, and other industries.

This type of segment is usually worked with customer’s specifications and has contracts over a period of time. The business is unique for companies operating in this segment compared to commodities.

Understanding the Impact of Industry Downturn: Implications and Strategies

In the world of chemistry, there is a change in matters. Different varieties of chemicals are suited according to the needs and based on industry. The chemical industry, amidst an economic downturn, faces profound challenges that resonate deeply within its workforce and leadership. Financial pressures often lead to cost-cutting measures and the problems from the demand side can drive down margins. A better supply chain can be managed through backward integration and widening into a new and broader range of products.

The challenges are to streamline the processes and maximize resources in lean times. Investment in research and development remains pivotal, driving the quest for breakthrough technologies and sustainable practices.

China’s Economic Deceleration: Global Effect and Challenges Ahead 

The rise in China’s economic deceleration has worldwide implications. China is the market leader in chemicals. China’s influence is immense, as the country that was previously growing in double digits may not continue to do so in the future. Any slowdown in their economy, supplies, or material production has the potential to drive global prices lower.

During economic downturns, the supply of materials from China is difficult for the domestic market to absorb, resulting in an excess supply compared to demand, driving prices lower. The longer the low prices, the tougher for other competitors on the global scale to survive longer with price pressure. China’s growth is paramount to the global supply chain.

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Some top chemical companies in India

Navin Fluorine International

Navin Fluorine is one of the top companies in the chemical space and in their recent transcript, the company’s capex in chemical charge has been initiated firm orders for dedicated capacity for FY25 are in place. The GMP4 capex of Rs. 288 crores was approved, with Phase 1 outlay of Rs. 160 crores on track to the commission by the end of CY2025.

This is intended to support the MSA with a European API customer. Rs 450 crore for setting up a new 40,000 tonnes per annum HF capacity at Dahej is expected to come on stream by the end of Q4FY25. The Additional capex of Rs. 84 crore for capacity expansion of 4,500 MT in R32, is expected to be commissioned by 2025.

For CDMO capex commercial opportunities are emerging, including New customers added recently. Validation campaign PO in hand for EU Major POs in hand for 2 RSMs for delivery in CY25 for a drug recently approved by the FDA for commercial launch for US major.

ParticularsAmountParticularsAmount
CMP₹3,536.85Market Cap (Cr.)₹18,116
Stock P/E (TTM)79.3EPS (TTM)₹46.07
RoE (%) (TTM)9.59%RoCE (%) (TTM)9.51%
Promoter Holdings (%)28.81%FII Holdings (%)15.57%
Debt to Equity Ratio (TTM)0.57Price to Book Value (TTM)7.6
Current Ratio (TTM)2.93EV to Sales (TTM)9.42

PI Industries

PI Industries in the recent transcript, the Revenue growth target of 15% for FY25, with growth expected across domestic, CSM exports and pharma segments. Capex plan of Rs. 800-900 crore for FY25, including investments in dedicated and multi-product plants.

Furthermore, with continued focus on commercializing new products, over 30% of revenue is expected to come from products launched in the last 3-4 years within the next 3 years. In addition, there will be active evaluation of inorganic acquisition opportunities, particularly to expand the pharma business.

The Ongoing development and investment in the pharma business for the next 1.5 years, aiming to achieve normalized EBITDA margins of 20%+ after 3 years and double revenues from acquired businesses in 3-4 years.

ParticularsAmountParticularsAmount
CMP₹3,784.40Market Cap (Cr.)₹57,693
Stock P/E (TTM)34.31EPS (TTM)₹110.83
RoE (%) (TTM)19.26%RoCE (%) (TTM)21.19%
Promoter Holdings (%)46.09%FII Holdings (%)20.26%
Debt to Equity Ratio (TTM)0.02Price to Book Value (TTM)6.61
Current Ratio (TTM)4.11EV to Sales (TTM)7.08

Deepak Nitrite

Deepak Nitrite in the recent transcript said it is commissioning several projects, including photo-chlorination, solvents, and acid units. Expansion projects like hydrogenation and nitration will be rolled out in phases starting Q2 FY25.

Construction of the R&D center in Vadodara is ongoing. The company is also actively working on technology discussions for polycarbonate and its downstream products.

Deepak Chem Tech Limited signed MoUs with the Gujarat Government for projects totaling about Rs. 14,000 crore, targeted to be operational by the end of 2027 or early 2028. PC compounding investments will start earliest, as a first step towards full-scale polycarbonate production and its downstream products. 

The recently commissioned fluorination plant allows participation in new contract manufacturing opportunities. The company is actively engaging with customers to develop new products utilizing fluorination chemistry over the next financial year.

ParticularsAmountParticularsAmount
CMP₹2,459.75Market Cap (Cr.)₹34,203
Stock P/E (TTM)45.47EPS (TTM)₹55.15
RoE (%) (TTM)16.91%RoCE (%) (TTM)21.91%
Promoter Holdings (%)49.13%FII Holdings (%)6.72%
Debt to Equity Ratio (TTM)0.06Price to Book Value (TTM)7.13
Current Ratio (TTM)3.65EV to Sales (TTM)4.49

GHCL

GHCL in the recent transcript said about its progress on a 5.5 lakh ton per annum greenfield soda ash project with an investment of around Rs. 4,000 crores. This is expected to be completed in about 3 years. The company is working on a vacuum salt project that is progressing as per plan, with an investment of around 150-170 crores.

GHCL is planning a new bromine project at its existing salt works, with an investment of about 120 crores to produce 2,800 tons annually. The company expects significant growth in sodium bicarbonate utilization in FY25 and may look at further capacity expansion next year.

It plans to continue expanding its product basket beyond soda ash, including potentially increasing bromine capacity further and exploring other new products.

ParticularsAmountParticularsAmount
CMP₹548.80Market Cap (Cr.)₹5,292
Stock P/E (TTM)8.84EPS (TTM)₹62.53
RoE (%) (TTM)20.76%RoCE (%) (TTM)25.02%
Promoter Holdings (%)19.04%FII Holdings (%)24.99%
Debt to Equity Ratio (TTM)0.07Price to Book Value (TTM)1.77
Current Ratio (TTM)5.39EV to Sales (TTM)1.48

Aarti Industries

Aarti Industries plans to spend Rs 1,500-1,800 crore on capex in FY25, with major projects including acid phase 2 expansion, specialty chemicals blocks, ethylation, and NT capacities.

Several new projects are expected to be commissioned in FY25, including a second ethylation block, Nitro Toluene expansion, and specialty chemical blocks. This will drive volume growth, especially in the second half of FY25.

The initial phase of the Chloro Toluene project is projected to commence by FY26. This will add new chemistries and value-added products to the portfolio.

The company is looking at sunrise sectors like battery storage, circular chemicals, and biochemistry for future growth opportunities. R&D efforts are ongoing in these areas. The company maintains its EBITDA guidance of Rs 1,450-1,700 crore for FY25, driven by volume growth, recovery in discretionary segments, and operating leverage from new capacities.

ParticularsAmountParticularsAmount
CMP₹695.20Market Cap (Cr.)₹25,543
Stock P/E (TTM)61.38EPS (TTM)₹11.48
RoE (%) (TTM)7.86%RoCE (%) (TTM)6.96%
Promoter Holdings (%)43.43%FII Holdings (%)10.93%
Debt to Equity Ratio (TTM)0.61Price to Book Value (TTM)4.83
Current Ratio (TTM)2.72EV to Sales (TTM)4.1

Conclusion

As we near the end of the article, we looked into the chemical industry in brief. The challenges faced and the prospects of some top companies indicate a future revival of the industry. The growth prospects of China can revive the Industry and can have a better outlook. Most of the companies are diversifying into different segments based on the demand and potential opportunities.

An increase in capacity during downturns can help these companies when the demand is high. Capacity utilisation also matters as productivity matters for these companies. What do you think about the future of chemical industry? Let us know your views in the comments section below.

Written by Santhosh

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