Chemical Stocks: Motilal Oswal Recommends BUY On PI Industries, Vinati Organics, Galaxy Surfactants; WHY?

Brokerage Motilal Oswal recommended buy on three chemical stocks amidst being cautiously optimistic for the sector. This because Motilal in its research report pointed out that while destocking is over for most of the companies, pricing pressure persists in the sector. The three stocks recommended to buy are PI Industries, Vinati Organics and Galaxy Surfactants.

In its report, Motilal highlighted that despite the end of destocking, pricing pressure continues in the specialty chemical sector due to sluggish Chinese domestic consumption, with the China+1 strategy being a potential short-term solution.

In FY24, Motilal's coverage universe in specialty chemicals sector saw a decline of 8%/18%/29% YoY in revenue/EBITDA/earnings, with EBITDA down 240bp YoY.

It said, that although raw material prices and operating expenses declined YoY, it was not enough to arrest the decline in EBITDA amid severe pricing pressure. PI Industries was the only bright spot in FY24.

Motilal estimates a CAGR of 13%/17%/19% in revenue/EBITDA/earnings during FY24-26E, albeit on a lower base. EBITDA is expected to expand by 160bp by FY26 vs. FY24. AACL, ATLP, NFIL, NOCIL and VO are expected to see the highest earnings growth of
25-40% during FY24-26E.

But Motilal is optimistic about three stocks. Here's what Motilal highlighted about the stock it recommended to BUY:

1. PI Industries (PI):

PI has levers in place to sustain near-term growth, led by: 1) consistent growth momentum in the CSM business; 2) product launches in the domestic market; and 3) the recent acquisition in the pharma API and CDMO segments. We expect a CAGR of 17%/18%/9% in revenue/EBITDA/adj. PAT over FY24-26. We reiterate our BUY rating on the stock with a TP of INR4,280.

Incorporated in 1947, PI Industries Limited (PI) is a fast-growing agri-sciences company with a unique business model across the AgChem value chain.

Vinati Organics (VO):

Veeral Organics (VOL) has commissioned a couple of products (MEHQ and Guaiacol), while the rest are expected to be commissioned in 2HFY25. These products are going to be the growth drivers for the company going forward. VO is now the largest and only double-integrated manufacturer of AOs in India. We continue to believe that VO will do well in the long term. We reiterate our BUY rating on the stock with a TP of INR2,080.

Since its inception in 1989, the company has evolved from being a single-product manufacturer to an integrated business, offering a wide range of products to some of the largest industrial and chemical companies across the US, Europe and Asia.

Galaxy Surfactants (GALSURF):

We estimate a volume CAGR of 9% over FY24- 26, led by robust volumes in the domestic market and a volume recovery in speciality care products in the developed markets, which have already started growing. We reiterate our BUY rating on the stock with a TP of INR3,450.

Galaxy Surfactants is a leading manufacturer of innovative ingredients for the Personal and Home Care Industry. Founded in 1980, today Galaxy has five manufacturing plants in India and one in Egypt. The Corporate Office in Navi Mumbai also has a fully equipped Innovation Centre.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.