Chemical stocks in focus; Alkyl Amines, Gujarat Fluorochem at new highs

Shares of Gujarat Fluorochemicals soared 9 per cent to Rs 1,730, hitting a new high today

Shares of chemicals companies were on a roll in Monday's intra-day trade. Shares of Alkyl Amines Chemicals, Gujarat Fluorochemicals, Balaji Amines and Navin Fluorine International hit their respective new highs on the BSE in an otherwise subdued market on expectations of strong earnings. These stocks rallied up to 11 per cent in intra-day trade today. In comparison, the S&P BSE Sensex was down 0.05 per cent at 52,948 points at 01:54 pm.

Besides these four stocks, Gujarat Alkalies and Chemicals, NOCIL, Gujarat Heavy Chemicals, Sudarshan Chemical Industries, Deepak Nitrite and Pidilite Industries also outperformed the market by gaining over 8 per cent in the past one month, against a marginal 0.02 per cent rise in the benchmark index.

Analysts expect double-digit volume growth for most companies in the April-June quarter (Q1FY22). The majority of companies are expected to report inventory gains on the back of higher-end product prices, which should support better gross margins this quarter. Further, operating leverage will likely aid operating profit margin (OPM) for the quarter.

“We witnessed a recovery in demand for sectors such as textile, paper, metals, auto to name a few along with sectors immune to the Covid-19 impact such as agrochemicals, pharma, etc. This should support higher volume growth for most of our coverage companies especially from pigments, dyes, soda ash industries. Further, companies in specialty chemicals that have a large order backlog in place, should likely sustain similar momentum as witnessed in the last quarter. We expect companies like PI Industries and Navin Fluorine to report strong revenue growth in the CRAMS portfolio,” ICICI Securities said in a chemicals sector update.

The price of crude derivatives (used as building blocks) for specialty chemicals moved up in tandem with the spurt in oil prices during the quarter. Furthermore, the price of vegetable oils also continued the quarterly uptrend in 1QFY22. As a result, we expect margin contraction of 50–200bps QoQ for our universe in 1QFY22, Motilal Oswal Securities said.

Among individual stocks, Alkyl Amines Chemicals hit a new high of Rs 4,490 after surging 11 per cent in intra-day trade. The company was one of the prime beneficiaries of Covid-19 as demand for Aliphatic Amines increased. It is mainly used as a solvent in the pharmaceutical industry. Demand for its products is expected to remain strong in the aftermath of the pandemic.

Shares of Gujarat Fluorochemicals, meanwhile, soared 9 per cent to Rs 1,730, hitting a new high today. The stock has zoomed 60 per cent in the past one month. For the April-June quarter, the company had posted over two-fold increase in consolidated net profit at Rs 110.26 crore as against Rs 46.79 crore in the year-ago quarter.