Specialty chemicals shares rally; Navin, SRF, Alkyl Amines rally up to 14%

Overall, the order book remains strong for H2, and a better performance is anticipated, SRF's management had said while announcing Q2 results in October

Shares of specialty chemicals companies rallied up to 14 per cent on the BSE in Thursday's intraday trade, in an otherwise weak market, on expectations of earnings improvement.

 

SRF share price, Navin Fluorine International share price, and Balaji Amines share price today rallied between 10 per cent and 14 per cent. Alkyl Amines Chemicals share price, Vinati Organics share price, Gujarat Fluorochemicals share price, Fine Organic Industries share price, Fineotex Chemical share price, BASF India share price, and Clean Science and Technology  share price from the sector, meanwhile, were up in the range of 4 per cent to 5 per cent. In comparison, the BSE Sensex was down 0.32 per cent at 77,898 at 09:40 AM.

 

 

In the October to December quarter (Q3FY25), most chemical companies under coverage are likely to witness sales recovery on a year-on-year (Y-o-Y) basis, JM Financial said in a report.

 

For SRF, fluoro specialty chemicals sales could see an uptick given a likely pick-up of existing products. Clean Science Tech, on the other hand, will benefit from volume pick-up of Hindered Amine Light Stabilisers (HALS) along with other new products.

 

"SRF's Q3FY25 Ebitda (earnings before interest, tax, depreciation and amortisation) is likely to be up 6 per cent Y-o-Y on account of improved performance in the chemicals business, owing to recovery in the specialty chemicals business. Chemicals sales are likely to be up 3 per cent Y-o-Y. Further, owing to positive operating leverage, we expect chemicals Ebit margin to come in at 19 per cent (vs. 18.1 per cent in Q2FY25)," the brokerage firm said in its Q3 result preview.

 

However, analysts at Elara Capital said SRF is likely to post a 12 per cent quarter-on-quarter (Q-o-Q) deceleration in Ebitda due to flat exports demand and a 12 per cent correction anticipated in realisation due to oversupply in agrochem and refrigerants by China.

 

The brokerage firm has a cautious stance on the Chemicals sector. Commentaries by global chemical companies suggest less visibility on price recovery and weak demand recovery for most segments (until H1FY26). However, some relief may materialise, subject to recovery in the Chinese economy and normalisation of the agriculture season in Latin America, analysts said in their chemical sector report.

 

On the bourses, SRF shares rallied 14 per cent to Rs 2,674.90, inching towards its 52-week high of Rs 2,697.45, which it touched on May 3, 2024. Over the past three days, the stock has surged 18 per cent.

 

Overall, the order book remains strong for H2, and a better performance is anticipated, SRF's management had said while announcing Q2 results on October 22, 2024.  "The Fluorochemicals Business saw healthy performance in the domestic market, with an increase in overall volumes. However, reduced export realisations put pressure on margins. The H2 performance of the Fluorochemicals Business is expected to be better as volumes in export markets ramp-up and the domestic season kicks-in", the management said.

 

SRF's growth story extends beyond Contract Development and Manufacturing Organisation (CDMO) opportunities in agrochemicals. Even as the management sees agro-chemicals to continue to be a growing area, they see opportunities in Pharmaceuticals burgeoning. The ambition is to derive ~25 per cent sales from pharmaceutical intermediates, ~65 per cent from agrochemicals and ~10 per cent from others in the specialty chemical business mix over the next five years, analysts at Nuvama Wealth Management said.

 

SRF's entry into material sciences through fluoropolymers is also backed by growing demand in battery chemicals, semiconductors and renewable energy. SRF is now in the process of installing 10,000TPA capacity in HFO (4th generation refrigerant gases). Management also believes in playing the growth story embedded via ancillaries in sunrise sectors such as battery chemicals, electronics and renewable energy, the brokerage firm said. It has a ‘BUY’ rating on SRF with a target price of Rs 2,672.

 

Meanwhile, shares of Navin Fluorine hit a 52-week high of Rs 3,974.15, as they soared 14 per cent on the back of heavy volumes. In the past eight trading days, the stock has surged 24 per cent.

 

The order book visibility is strong across segments with significant ongoing capex- 1) HPP- Anhydrous hydrogen fluoride (AHF) Rs 450 crore on schedule to commission by end FY25/ early FY26, Additional R32 capacity at a capex of Rs 84 crore by Q4FY25, Specialty Chemicals- Rs 570 crore at Dahej and Surat in FY25 /26. 3) CDMO- Rs 288 crore- Phase 1 capex with Rs 160 crore outlays is likely to get commissioned by Q3FY26. 

 

The management's confidence is stemming from the past execution track record and most importantly the customer visits over the past few months. In Specialty Chemicals, the company introduced one new molecule from Surat and it is on track to launch 2 additional molecules. In CDMO, the company has made significant progress for EU and US based clients especially towards late-stage molecules. In HPP, the company expects better capacity utilisation for new capex based on firm commitments from existing and new customers. The management has set an aspirational Ebitda target of 24-25 per cent in the long run and better ROCE, analysts at ICICI Securities had said in their Q2 result update. However, currently the stock is trading above their share price target of Rs 3,830 per share.