The chemical industry is currently grappling with several challenges, including volatile raw material prices and supply chain disruptions exacerbated by geopolitical tensions and the pandemic. Additionally, increased competition from China and weaker demand in key segments have contributed to the negative outlook.
Here are two chemical stocks that are downgraded by brokerages:
Deepak Nitrite Ltd
With a market capitalization of Rs.39,029 crore, the share price of Deepak Nitrite is currently trading at Rs.2,864.00 per share on Thursday, falling 4.5 percent from its previous close of Rs.2,999.50 apiece.
Prabhudas Lilladher has downgraded Deepak Nitrite, setting a target price of Rs.2,582, indicating a potential 10 percent downside. The company’s plans to double its phenol capacity over the next 4-5 years face margin pressure due to rising capacity additions in China, which may exceed demand.
Deepak Phenolics’ EBIT per kg has dropped from Rs.23 to Rs.17, and is expected to stay in the Rs.16-17 range until FY27. Cheaper imports from China pose further risks, despite Deepak Nitrite’s efforts in import substitution through polycarbonates and methyl methacrylate (MMA).
Prabhudas Lilladher expects an EPS CAGR of approximately 8.7 percent over FY24-27 for Deepak Nitrite. Given the largely commodity-driven nature of the business, they value the stock at 36x FY27 EPS and maintain a ‘Reduce’ rating with a target price (TP) of Rs.2,582 per share. The firm highlights key risks to this outlook, including the imposition of anti-dumping duties and potential diversification into value-added specialty chemicals.
In Q1 FY25, the company reported 23 percent YoY increase in revenue to Rs.2,167 crore and net profits increased 35 percent to Rs.203 crore in the same period.
SRF Ltd
With a market capitalization of Rs.66,632 crore, the share price of SRF Ltd is currently trading at Rs.2,257.00 per share on Thursday, falling 2.3 percent from its previous close of Rs.2,306.10 apiece.
Global brokerage UBS downgraded SRF Ltd. from ‘Buy’ to ‘Sell’ on October 17, cutting the price target from Rs.2,700 to Rs.2,100, indicating a potential 7 percent downside. The downgrade is due to ongoing growth challenges, weak demand in agrochemicals, and softening refrigerant gas demand, especially in the US, where Chinese manufacturers are gaining market share.
UBS also reduced its EPS estimates for FY25 and FY26 by 20 percent and 22 percent, respectively, aligning the stock’s valuation closer to its five-year average P/E ratio based on FY26 estimates.
In Q1 FY25, the company reported a 4 percent YoY increase in revenue to Rs.3,464 crore, but net profits declined by 30 percent to Rs.203 crore during the same period.
Written by – Siddesh S Raskar
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