Top 5 chemical stocks to buy or accumulate: Nirmal Bang’s top picks

Market


Brokerage and research firm Nirmal Bang has maintained its Buy ratings on chemical stocks UPL and PI Industries on good fundamentals and valuations, which offset headwinds related to dependence on weather, farm incomes and input cost inflation. 

Meanwhile, the brokerage has maintained Accumulate rating on chemical stocks Sumitomo Chemical with a target price of 529, Coromandel International (TP: 1,126) and CSM company Anupam Rasayan (TP: 838) due to muted risk-reward. “The ratings have been assigned post the revised estimates/TP for the above chemical stocks after rolling over our estimates to September 24E and adding FY25E,” the note stated. 

As per Nirmal Bang, UPL may face interim challenges in India/Europe due to adverse weather and supply chain/inventory overhang, but following catalysts offset these concerns: new product launches focus on differentiated products, potential for ramp up in high-margin bio Solutions, sustained innovation at or above 20% (FY22 – 21.4%) and risk-adjusted revenue upside of $2.5 bn form R&D pipeline in 5 years. 

For PI Industries, the brokerage said it is gearing up to seize future CSM opportunities in chemicals across non-agro offerings, including Pharma. We expect the existing CSM business to support earnings and ROCE, despite the QIP cash weighing on the BS, pending investments in pharma M&A and organic growth capex. Nirmal Bang said its top stock BUYs in chemicals are UPL (target price of 1,144) and PI (target price of 3,979).

“Healthy farm incomes, soil moisture and water storage levels augur well for the next Rabi season. There are signs of a decline in some chemical input prices, which the industry expects to support volume growth and margin expansion. Also, the shortage of containers and the bullish impact on freight rates may be abating,” the brokerage note added.

Though, impact of volatile energy costs, raw material prices and product prices on gross margins, new products, working capital and channel inventory is weighing on the sector due to periodic covid lockdowns in China and the drought/high energy prices in Europe are hurting the energy-intensive sectors like Fertilizers and other chemicals, as per Nirmal Bang. 

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.

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