According to a recent report by McKinsey, India is likely to account for more than a fifth of incremental global consumption for chemicals over the next two decades. Domestic demand is projected to rise to $1,000 billion by 2040. The sector is projected to grow at 11-12 percent during 2021-27 and 7-10 percent during 2027-40.
Fundamentally strong stocks have strong underlying businesses. They tend to add balance to an investor’s portfolio and keep it safe amid turbulent market conditions.
Many investors closely track FII investments. FIIs have the financial muscle power at their command and can steer markets. In general, individual stocks react positively when FIIs buy them. Here are two fundamentally strong chemical stocks with high FII holdings:
UPL Ltd
With a market capitalization of ₹ 56,438 crores, UPL is a large-cap chemical stock. The company provides crop protection solutions and is engaged in the business of agrochemicals, industrial chemicals, chemical intermediates and specialty chemicals.
The company has made more than 25 successful acquisitions in the last 25 years. These companies generally have a significant presence in the industry.
UPL’s shares were trading at ₹ 745.65 apiece at 11:37 AM on Wednesday. Its share price has fallen by 9.53 percent in the past year. However, it has increased by 96.74 percent in the past three years and by 55.91 percent in the past five years.
Foreign institutions hold a massive 38.68 percent stake in the company followed by promoters with 32.35 percent, retail investors with 15.90 percent, other domestic institutional investors with 8.45 percent and mutual funds with 4.62 percent.
UPL has an ideal return on equity of 15.92 percent, a manageable debt-to-equity ratio of 1.34 and a dividend yield of 1.33 percent. Its shares were trading at a price-to-earnings ratio of 14.00, which is lower than the industry P/E of 16.83, indicating that the stock is undervalued as compared to its peers.
UPL’s revenue grew at a CAGR of 27.48 percent from ₹ 17,506 crores in 2018 to ₹ 46,240 crores in 2022. Its net profit grew at a CAGR of 15.72 percent from ₹ 2,022 crores in 2018 to ₹ 3,626 crores in 2022.
Navin Fluorine International
With a market capitalization of ₹ 23,796 crores, Navin Fluorine International is a mid-cap chemical stock. The company is focused on fluorine chemistry and produces refrigeration gases, inorganic fluorides and speciality organofluorines. It offers contract research and manufacturing services and serves industries like stainless steel, glass, oil and gas, abrasives, electronic products and so on.
In 2020, the company signed a seven-year contract of ~USD 410 mn with Honeywell International to manufacture and supply high-performance products in the fluorochemical space. In 2021, it signed a 5-year contract of value ~800 crores for the supply of key agrochemical fluoro-intermediate.
The company’s shares were trading at ₹ 4800.00 apiece at 11:42 AM on Wednesday. Its share price climbed 24.91 percent in the past year and the stock has given multibagger returns of 230.50 percent in the past three years and a whopping 526.15 percent in the past five years.
According to the shareholding pattern of the company, foreign institutions hold a 19.58 percent stake in the company. Retail investors hold a 32.32 percent stake, followed by promoters with 28.81 percent, mutual funds with 19.28 percent and other domestic institutions with 0.01 percent.
Navin Fluorine International has an ideal return on equity of 15.13 percent, an ideal debt-to-equity ratio of 0.31 and a dividend yield of 0.23 percent. Its shares were trading at a price-to-earnings ratio of 75.81, which is significantly higher than the industry P/E of 16.83, indicating that the stock is overvalued as compared to its peers.
The company’s revenue grew at a CAGR of 11.94 percent from ₹ 925.34 crores in 2018 to ₹ 1453.00 crores in 2022. Its net profit grew at a CAGR of 9.98 percent from ₹ 179.787 crores in 2018 to ₹ 263.07 crores in 2022.
Written by Simran Bafna
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