Specialty chemical stocks: Buy Aarti shares, add SRF, Deepak Nitrite & Anupam Rasayan, says Emkay Global

Emkay Global has come out with its review note on specialty chemical stocks, with the brokerage suggesting 'Buy' on Aarti Industries Ltd, 'Sell' on Gujarat Fluorochemicals Ltd and 'Add' on three shares namely Deepak Nitrite Ltd, SRF Ltd and Anupam Rasayan Ltd. Emkay suggested a 'Reduce' rating on Navin Fluorine International Ltd. Emkay's target prices on the seven stocks suggests up to 24 per cent downside potential for four stocks, and up to 14 per cent upside potential for the rest three.

Emkay said the December quarter was a subdued quarter owing to demand slowdown in chemicals due to destocking of channel inventory build-up and rescheduling of orders at the customers’ end. There was pricing pressure across chemicals on Chinese dumping and cyclical slowdown in discretionary spends in certain geographies like Europe and China.

"Bulk chemical players having a relatively diversified end-user market have started seeing some recovery; however, non-discretionary spends like agro and pharma still remain weak and broad-based recovery is expected from H1CY25," Emkay said.

 

SRF

SRF’s chemicals business continued witnessing headwinds in Q3 due to inventory rationalisation in the specialty chemicals business, and pricing pressure in the refrigerant gas business.  Packaging Films Business continued to face an oversupply overhang, resulting in pressure on margins (to persist for a few more quarters), while Technical Textiles Business is seeing relatively stable performance, Emkay Global said.

Gujarat Fluorochemicals

Gujarat Fluorochemicals’ Q3 Ebitda fell 58 per cent YoY due to lower pricing/volumes in the fluoropolymers business amid a holiday season in the USA and Europe. The pricing pressure in refrigerant gases, Chinese dumping in the specialty chemicals business and subdued pricing in bulk chemicals also hurt Ebitda, Emkay Global said.

The company management expects Q4 to be better for fluoropolymers on completion of destocking, while refrigerant gas business is still witnessing volume/pricing pressure, Emkay said.

Deepak Nitrite

Deepak Nitrite Q3 Ebitda was flat YoY amid higher volumes in phenolics business. The Advanced Intermediates segment was muted on subdued demand recovery in end-use industries; though volumes grew YoY, pricing environment remained subdued.  "Higher volumes in Phenolics (on conducive season), coupled with operating leverage, contributed to a steady performance in this business," Emkay Global said.

Aarti Industries

Aarti’s Q3 Ebitda was up 11 per cent sequentially. This was a second quarter of sequential improvement, driven by higher volume growth (while pricing remained stable) and operating leverage. The management maintained FY24/25 Ebitda guidance at Rs 1,000 crore/Rs1,450-1,700 crore with improved visibility.  "Aarti is seeing better demand recovery in discretionary spends (after sluggishness of 6-8 quarters), while agro and pharma are still muted due to weak macros," Emkay said.

Navin Fluorine International

Navin Fluorine's Q3 revenue was impacted by slower-than-expected ramp-up in HFO plant, deferral of campaigns and channel inventory destocking in specialty chemical business, and postponement of sales for key molecules in the CDMO business to FY25 (vs. H2FY24 earlier).

"We have witnessed significant revision in guidance by NFIL’s management across projects and businesses," it said.

Anupam Rasayan

Anupam Rasayan's management, Emkay Global said, guided for a challenging H2 on destocking-led impact in agrochemicals, and are now focusing on scaling up their pharma and polymers business (eventually targets a revenue mix of 20 per cent each for pharma and polymers). The company expects a broad-based recovery starting H1FY25, supported by contribution from their LOIs.

 

 

 

 

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