The pandemic bought to light the importance of various industries in India. One of them is the Chemical industry which remains among the prime focus to support agriculture, pharma, food processing among many others. This realisation has also turned many chemical sector stocks in India into multi-baggers in the last 1 year. Be it large-cap stocks or small caps, the chemical sector index has outperformed other sectors by a wide margin. In this article, we take a look at the chemical sector and also focus on the best stocks present in this sector. Keep Reading to find out!
Indian Chemical Industry – Overview
The Indian chemical industry covers over 80,000 products and this has allowed it to be worth well over US$ 178 billion in 2019. The chemical sector has still displayed exceptional potential and is further expected to reach US$ 304 billion by 2025. The sector is expected to register a CAGR of 9.3% by 2025.
SOURCE – IBEF
In addition to this, India also holds a strong position in exports and imports of chemicals at a global level. India currently ranks 14th in exports and 8th in imports at the global level. If we take a look at specific niches in the sector, India is the fourth-largest producer of agrochemicals in the world.
If we take a look at our domestic chemicals sector, small and medium enterprises are expected to showcase 18-23% revenue growth in FY22. This is owing to an increase in domestic demand and improved realizations due to higher prices.
SOURCE – IBEF
The pandemic also exposed cracks in India’s chemical sector. At present India imports about $56 billion worth of chemicals from China. This was primarily due to the lack of economies of scale in our country which is required to bring down the cost of chemicals at international prices. Economies of scale make a big difference in chemicals as by-products of one plant become raw materials for other plants. As the dependency on Chinese suppliers reduces the integration opportunities in the chemicals space increase multifold.
SOURCE – IBEF
The 6 major factors that are driving the growth in the chemical industry in India are:
- Over the past one year, companies’ in the space have logged substantial improvement in earnings and profitability
- India’s specialty chemicals industry has emerged as the biggest beneficiary of the shift in global supply chain from China
- On a more recent basis, the power crisis in China is also auguring well for India’s chemical manufacturers.
- The growing costs within China (capital, operational, compliances) and Chinese factories closing due to environmental concerns.
- The currency benefit India holds due to depreciation of rupee and appreciation of Chinese currency against US dollars.
- The growing demand from end-user industries, especially from food processing and personal care is driving the demand for a variety of speciality chemicals.
QUICK READ – Top Stocks in the Nifty SmallCap 50 Index
Best Chemical Sector Stocks in India
Now let’s take a look at the top 5 best chemical sector stocks and try to dive into their businesses.
Pidilite Industries Limited is a leading manufacturer of adhesives and sealants, construction chemicals, craftsmen products in India. The company’s brand Fevicol has become synonymous with various adhesives in India. Apart from this the company also has major brands like M-Seal, Fevikwik, Fevistik, Roff, Dr Fixit, Fevicryl, Motomax, Hobby Ideas, Araldite in its portfolio.
The company earns more than 50% of its revenue through its adhesives division. The adhesive division commands a market share of 70% in India. The company enjoys one of the largest distribution networks in India along with its presence in around 80 countries globally.
Pidilite is a debt-free company with a high ROE of 24.45%. The company has been growing its sales by 11% CAGR and profits over 14% in a span of 10 years. The company has been one of the biggest wealth creators in India. It continues to generate a free cash flow of 15-20% which is an outstanding accomplishment for any company.
The company’s strong track record of growth, RoCE, client relationships and significantly differentiated R&D investment has and is driving its growth
Established in 1970, SRF is engaged primarily in the manufacturing of industrial and speciality chemical intermediates. The company has diversified into packaging films, technical textiles and coated and laminated fabrics.
SRF gets 43% of its revenue from the chemical business. Fluorochemicals and Speciality chemicals are the main two components of its chemical business. Next comes the packaging film business which contributes around 40% of the total revenue. The company manufactures products that cater to a whole variety of FMCG and industrial products.
The company used to get more than 50% revenues through textiles 10 years back, since then the company has diversified into other products and segments. At present, the textile business makes up around 14% of the income and the other businesses contribute the remaining 3%.
SRF believes that 5 years down the line, both chemicals and packaging films will be the growth drivers. The company further anticipates major demand for chemicals arising due to a shift in global supply chain market share from China over the next 5-10 years.
The company has grown sales at 13% CAGR in the last 5 years with profits growing at 23% CAGR in the same period. SRF has a high return on equity of 19% in the 5 year period.
Overall SRF is a good bet in the speciality chemicals & packaging industry. However, high valuations of the stock are the only area of concern. The company definitely ranks as among the best chemical sector stocks in India.
Aarti Industries is a leading Indian manufacturer of Speciality Chemicals and Pharmaceuticals. The company is a manufacturer of pharmaceuticals, agrochemicals, polymers, additives, surfactants, pigments, dyes, etc. The company has a total of 200+ products in production, which diversifies its exposure to many industries. It has a 25-30% exposure in agro-chemicals, 25-30% in pharmaceuticals, 15-20% in polymers & additives, 15-20% in Dyes, Pigments and printing inks & 10-20% in FMCG, fuel additives.
Speciality chemicals contribute to around 83% of the revenue and the remaining comes from the pharmaceutical business.
The pharmaceutical division of the company stands to grow immensely from the shift in API production from China to India. The company has added capacity, and with increasing utilization of the facilities, the brokerage firms expect the company to clock 25-34% CAGR over FY 21-24.
Some factors which have not worked in the favour of the company are the poor sales growth of just 8.43% over the past 5 years along with the promoters having reduced their stake in the company.
Deepak Nitrite is a chemical manufacturing company based out of Gujarat, India. It is a leading manufacturer of organic, inorganic, fine, and speciality chemicals. It also manufactures a wide range of intermediates for use in industrial explosives, paints, cosmetics, polymers, optical brighteners, and others.
The company primarily has three primarily three categories of product offerings through which it makes most of its revenues. Phenolics (58%), speciality & basic chemicals (35%) and performance products.
Deepak Nitrite has a 70% market share in sodium nitrite, sodium nitrate and NitroToluenes in India which makes it a top player in this segment. Deepak Nitrite caters to over 700 customers in 6 continents with more than 100 products. This data shows the vast revenue diversification of the company, further making it less reliant on the Indian Economy.
The company has become debt-free recently. Additionally, the company has delivered a profit growth of 64.84%CAGR in the last 5 years. The company also has a high ROCE of 36.65% in the past 3 years making it one of the best chemical sector stocks in India.
Atul Ltd is a diversified and integrated Indian chemical company. The products of the company are used in various Industries and come mainly under two segments, Life Science Chemicals and Performance and Other Chemicals.
The company at one point was the largest dyestuff manufacturing company in India. However, through its strong R&D initiatives, mergers & acquisitions Atul has expanded its product portfolio in recent years. The company has ventured into the areas of aromatics, crop protection, polymers and pharma intermediates. These are speciality chemicals as compared to conventional dyestuff products.
This shift in product mix has led to better profitability which has also shown a greater degree of resilience compared to the scenario of around a decade back. The company has a product portfolio of around 900 products and 140 brands.
Exports contributed to 49% of its sales in 2020. The company also plans to shift to retail from its BTB business( 94% of revenue) where margins are better. Higher revenues from exports make the company less prone to the domestic economy.
The company is debt-free and is growing profits at an 18.38% CAGR over the last 5 years. However, the sales growth of the company is a meagre 7.54% CAGR in the past 5 years.
List of All Chemical Sector Stocks in India
|COMPANY||MARKET CAP (RS CR)||DIVIDEND YIELD(%)|
|Pidilite Industries Ltd.||123364.4||0.35|
|Deepak Nitrite Ltd.||33196.02||0.23|
|Aarti Industries Ltd.||32837.43||0.17|
|Clean Science And Technology Ltd.||22339.97||0.01|
|Tata Chemicals Ltd.||20436.55||1.25|
|Alkyl Amines Chemicals Ltd.||20275.54||0.1|
|Navin Fluorine International Ltd.||19150.81||0.28|
|Gujarat Fluorochemicals Ltd.||18759.63||0|
|Vinati Organics Ltd.||18740.77||0.33|
|Godrej Industries Ltd.||18698.9||0|
|Solar Industries India Ltd.||17676.78||0.31|
|Balaji Amines Ltd.||15080.88||0.09|
|Laxmi Organic Industries Ltd.||14198.24||0.09|
|Fine Organic Industries Ltd.||9599.33||0.35|
|Chemplast Sanmar Ltd.||8641.48||0|
|Rossari Biotech Ltd.||7825.73||0.04|
|Anupam Rasayan India Ltd.||7559.63||0.07|
|Privi Speciality Chemicals Ltd.||7340.66||0.11|
|Supreme Petrochem Ltd.||6488.84||2.17|
|Tatva Chintan Pharma Chem Ltd.||4733.68||0|
|Valiant Organics Ltd.||3767.55||0.36|
|Gujarat Alkalies And Chemicals Ltd.||3562.06||1.65|
|Oriental Aromatics Ltd.||3227.55||0.26|
|Neogen Chemicals Ltd.||3090.32||0.17|
|Meghmani Finechem Ltd||2959.62||0|
|Sharda Cropchem Ltd.||2953.82||1.53|
|Meghmani Organics Ltd.||2939.87||1.21|
|Bhansali Engineering Polymers Ltd.||2919.94||0.57|
|Thirumalai Chemicals Ltd.||2790.59||0.81|
|INEOS Styrolution India Ltd.||2350.76||0.75|
|SH Kelkar And Company Ltd.||2257.6||1.1|
|Himadri Speciality Chemical Ltd.||2218.42||0.28|
|IG Petrochemicals Ltd.||2198.14||1.05|
|Camlin Fine Sciences Ltd.||2184.54||0|
|India Glycols Ltd.||2128.14||0.87|
|Manali Petrochemicals Ltd.||1795.67||1.44|
|Fineotex Chemical Ltd.||1479.05||0.22|
|Ultramarine & Pigments Ltd.||1381.6||1.06|
|Grauer & Weil (India) Ltd.||1367.04||0.83|
|GOCL Corporation Ltd.||1290.12||1.54|
|National Peroxide Ltd.||1280.17||0.56|
|Clariant Chemicals (India) Ltd.||1271.69||37.21|
|Oriental Carbon & Chemicals Ltd.||1084.92||1.29|
|Dhunseri Ventures Ltd.||987.7||0.89|
|Kanoria Chemicals & Industries Ltd.||914.28||0|
|Indo Amines Ltd.||906.52||0.43|
|Vishnu Chemicals Ltd.||880.96||0.14|
|Dharamsi Morarji Chemical Company Ltd.||802.07||0|
|Jayant Agro-Organics Ltd.||747.3||0.4|
|Jubilant Industries Ltd.||739.3||0|
|Sadhana Nitro Chem Ltd.||672.93||0|
|Amines & Plasticizers Ltd.||648.14||0.34|
|Indo Borax & Chemicals Ltd.||574.23||0.11|
|Sree Rayalaseema Hi-Strength Hypo Ltd.||553.05||0.93|
|Punjab Alkalies & Chemicals Ltd.||550.6||0|
|Ganesh Benzoplast Ltd.||525.69||0|
|DIC India Ltd.||438.11||1.26|
|Nikhil Adhesives Ltd.||339.98||0.2|
|Jyoti Resins & Adhesives Ltd.||317.4||0.32|
|Chembond Chemicals Ltd.||308.03||0.98|
|Dai-Ichi Karkaria Ltd.||292.95||0.76|
|Diamines & Chemicals Ltd.||287.04||1.36|
|Titan Bio-Tech Ltd.||274.48||0.45|
|Hindustan Organic Chemicals Ltd.||262.31||0|
|Premier Explosives Ltd.||248.38||0|
|Deep Polymers Ltd.||234.17||0|
|Chemfab Alkalis Ltd.||215.76||0|
|Nitta Gelatin India Ltd.||213.54||1.28|
|Seya Industries Ltd.||185.2||2.15|
|Indian Toners & Developers Ltd.||164.49||1.98|
|Vikas EcoTech Ltd.||128.75||0|
|Narmada Gelatines Ltd.||116.52||5.19|
|Archit Organosys Ltd.||88.24||0|
|Tinna Rubber And Infrastructure Ltd.||77.34||0|
|Mysore Petro Chemicals Ltd.||71.23||1.85|
|Hindcon Chemicals Ltd.||62.96||1.46|
|Sunil Healthcare Ltd.||38.1||0|
|Omkar Speciality Chemicals Ltd.||32.92||0|
|Jayshree Chemicals Ltd.||19.62||0|
|Daikaffil Chemicals India Ltd.||18.33||2.29|
|Refnol Resins & Chemicals Ltd.||9.98||0|
|Span Divergent Ltd.||7.8||0|
|Chromatic India Ltd.||6.25||0|
The Covid pandemic has shifted the paradigm of the chemical industry in India. Earlier companies competed with each other for a higher share of exports. Now these companies are producing chemicals in India and catering to the wide untapped Indian markets.
As per the brokerage house Sharekhan, given the massive revenue opportunity due to import substitution (India’s speciality chemical imports are $56 billion) will give a huge opportunity to Indian companies to capture the market share in India.
Further, the potential increase in exports given the ‘China Plus One’ strategy being adopted by global customers will lead to a major shift in the chemicals supply chain to India. Additionally with favourable government policies such as tax incentives and production-linked incentive schemes similar to the pharma sector,
Conducive government policies, product innovation, massive export opportunities and low input prices will help the sector witness high double-digit earnings growth on a sustained basis over the next two to three years. The best chemical sector stocks in India are bound to benefit from the increase in opportunity and wider market share from the above-discussed policies of the government and the supply chain shift.
That’s all for this post. Let us know what you think about the chemical sector. Also, let us know about your top picks in the comments below. Happy Investing!