Stocks from the specialty chemicals space have been consistent outperformers, giving massive returns to their long-term investors. Over 35 stocks from the space have rallied over 1000 percent in the last 10 years.
Alkyl Amines Chemicals have skyrocketed over 18,000 percent, making it the best performing chemical stock in the last 10 years. It has risen from around ₹16 in March 2012 to over ₹2,900 currently. an investment of ₹1,00,000 ten years ago would have turned to around ₹1.8 crore now.
Deepak Nitrite has also surged 14,700 percent from around ₹15 in March 2012 to ₹2,223 currently. Other stocks like Jyoti Resins and Sadhna Nitro have also jumped over 12,000 percent each in the last 10 years. Meanwhile, stocks like Balaji Amines, SRF, Navin Fluorine, Vinati Organics, Atul, Aarti Industries, Mangalam Organics, etc have jumped between 3,500-7,500 percent in 10 years.
In comparison, the benchmark Sensex has added over 220 percent in this period.
In a report on the specialty chemicals space, domestic brokerage house Motilal Oswal Financial Services said, “After holding the centre stage for the past couple of quarters, amid high margins, high growth and China+1 prospects – the multiples of most of the chemical companies have started contracting along with the EBITDA margin erosion.”
It added that the escalating Brent prices along with elevated key raw material prices contracted the gross margins of the specialty chemical companies under its coverage by as much as 14.4 percent during April 2020-December 2021.
However, it noted that the companies, which have a higher contribution from specialty chemicals, were able to manage their gross margins much better than the ones that have a higher contribution from commodity chemicals. Its top picks in the space remain include Galaxy Surfactants, Vinati Organics and NOCIL.
Since its listing in 2018, Galaxy Surfactants has risen around 80 percent while NOCIL has added 1,322 percent in the past 10 years.
Meanwhile, Kotak Institutional Equities believes that the fundamentals of specialty chemicals companies continue to be strong.
"Valuations may see some correction as CoE reverts closer to pre-Covid levels. Companies are better placed to handle the current increase in crude prices (last seen in FY2013-14) given presence in more downstream products, volume-led growth and improved competitiveness versus Chinese peers,” it stated in a note.
The brokerage highlighted that Aarti Industries continues to be its top pick given visibility on volume-led growth and multiples closer to pre-Covid levels. It is also bullish on SRF and believes any meaningful correction may provide good entry points.
The sector is also one of the favorites of Life Insurance Corporation (LIC), which holds a 3 percent stake in Deepak Nitrite as per the December quarter data. Meanwhile, it also has a 2 percent stake in other specialty chemical firms companies like Aarti Industries, Atul Limited, GHCL, etc.