Chemical companies react well to Harvey, stocks to rise more

Optimistic Organic, has recently completed expansion of maleic anhydride capacity to 45,000 tonne. NSEBSEThirumalai ChemicalsLoading data…

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            ChartsValuation & Peer ComparisonCommunity BuzzPEER COMPANIESMeghmani OrganicsKiri IndustriesEXPAND TO VIEW ALL Stocks of speciality and commodity chemical makers have been in demand for the past few weeks partly due to the disruption caused by tropical storm Harvey, which has affected about 30-40 per cent of the US Chemicals capacity. According to reports, the disruption has threatened shortages of chlorine, ethylene, sodium, soda ash and other chemicals, and has resulted in a sharp increase in their prices.

            India, the fastest growing chemicals industry in the world, has emerged as an alternative hub of chemicals manufacturing to China due to its low cost advantage, and MNCs’ focus on de risking their sourcing from China, according to analysts. Many of the shares of Indian chemical makers rallied between 25 per cent and 50 per cent in the past month. Here is what analysts are saying on the top five performers:

            Kiri industries
            KIL has seen an operational turnaround on a standalone basis on account of the surging prices of dye intermediates -comprising 69 per cent of company’s revenues -due to reduction in heightened competition from Chinese players. «Apart from this turnaround, KIL has indulged in a serious debt reduction efforts which has brought down the debt of the company by around 46 per cent in FY16 and further by 40 per cent in FY17,» said Arpit Bhatt, analyst, HDFC Securities.

            Himadri Speciality Chemicals
            The company has 70 per cent domestic market share in carbon company and manufactures coal tar pitch (CTP) and has 17 per cent share in carbon black. With a better business environment and new opportunities in lithium batteries, the stock looks interesting and has a potential to rise, according to analysts.

            «Strong momentum in the core business along with limited capex will help HSC deleverage its balance sheet further and open up growth opportunities» Avishek Datta, analyst, Prabhudas Lilladher.

            Meghmani Organics
            Meghmani has a well-diversified revenue stream, operating in three different segments in India. With a healthy improvement in cashflow from operations, the company is likely to generate positive average free cash flow over FY18-21 period, according to analysts.

            «We believe with improvements on operating performance and expectations of 25 per cent-plus earning CAGR over FY1719, the stock deserves a re-rating, and we value the stock at 20 times FY19 estimated EPS of Rs 5.7 to arrive at a target price of Rs 114,» said Amit N Rane, analyst, Sunidhi Securities.

            Phillips Carbon Black
            Driven by volume growth, expanded margins from process improvements, along with a greater share of the value-added speciality segment and lower working capital, analyst expect Phillips Carbon Black’s growth tra jectory to persist.

            The company is expected to report margin expansion and move up the CB value chain by focusing on higher-performance speciality carbon blacks. «With a better operational performance and product mix, margins are likely to improve further,» said Girish Solanki, analyst, Anand Rathi. «We maintain a buy and assign a target price of Rs 868 with PE of 13 times FY19 estimated earnings.»

            Thirumalai Chemicals
            TCL is the second largest player in the domestic phthalic anhydride, which contributes to a bulk of its revenue.The company also manufactures value added derivatives such as maleic anhydride, diethyl phthalate, and food acids.

            Domestic phthalic anhydride demand has been on an upswing supported by a healthy downstream demand in plastics, paints and auto. Also, supported by product spread expansion and scrapping of 2.5 per cent import duty on its raw material, the company has reported healthy June quar ter results.

            TCL’s Malaysian subsidiary, Optimistic Organic, has recently completed expansion of maleic anhydride capacity to 45,000 tonne. The company expects improved performance in FY18 driven by a higher capacity utilisation. «TCL is in the process of expanding capacity in its core operations to meet demand upturn,» said Avishek Datta, analyst, Prabhudas Lilladher.

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