After specialty, bulk chemicals become too appealing, says B&K Securities


The Indian chemicals market could experience its next boom in bulk chemicals due to attractive company valuations coupled with favorable winds that are supporting structural growth, according to B&K Securities.

“The recent disruption in supply to China following power outages and limited expansion in global capacity now provides enough leverage for the segment to generate steady profit growth,” the house report said. brokerage.

Bulk or base chemicals, which can be produced in large quantities by various manufacturers, were not favored by investors “as these were deep cyclicals and profit visibility was limited due to a less expansion and dominance of China, ”he said.

The recent disruptions in supply are likely to generate exceptional short-term gains for this segment, he said. And China’s double-check policy – peaking carbon by 2030 and neutralizing carbon by 2060 – announced last month will make it a structural opportunity rather than a one-off event, fostering sustainable earnings growth. , according to the report.

Valuations are attractive. Bulk chemical companies are trading at 10 times their estimated FY23 profits, compared to 40 times for specialty chemical companies.

And several other factors are likely to support growth, according to B&K Securities. These include:

B&K Securities In The First Bulk Chemical Series Report Selects Caustic Soda Players DCM Shriram Ltd., Chemplast Sanmar Ltd. and Gujarat Alkalies and Chemicals Ltd.

DCM Shriram

  • One of the largest domestic manufacturers of caustic soda and PVC compounds (accounting for 24.3% sales in fiscal year 2021).

  • The company announced capital expenditure of Rs 100 crore for downstream chlorine projects to set up facilities for epichlorohydrin, aluminum chloride and hydrogen peroxide.

  • The caustic soda segment is expected to grow 20% CAGR in fiscal 2021-24 and these factories will reduce the company’s reliance on price volatility.

  • A diversified activity in six segments dilutes the overall sensitivity.

  • It is poised to benefit from the increase in caustic soda achievements in the short term, while medium and long term growth is expected to be driven by capacity expansion and increased use of chlorine derivatives.

  • The company has the potential to report an after-tax profit of Rs 940 crore by fiscal 2023 compared to Rs 672 crore reported in fiscal 2021.

  • Each increase of Rs 1 of caustic soda increased to add an additional profit of Rs 53.1 crore.

Chemplast Sanmar

  • Producer of specialty PVC resin paste and custom made chemicals. Also makes caustic soda, chloromethane products, hydrogen peroxide and refrigerant gas.

  • The second largest PVC hanger producer in India.

  • Most likely to benefit from rising PVC prices internationally.

  • The business is a game about rising PVC spreads and short-term caustic soda achievements.

  • Medium and long term growth is likely to be driven by the substitution of PVC imports, expansion of capacity and increased use of chlorine derivatives.

  • It is currently trading at 84.6 times its earnings at a market price of Rs 617 per share.

  • The company has the potential to report an after-tax profit of Rs 650 crore by fiscal year 2023 compared to Rs 742 crore reported in fiscal year 2021 (includes an extraordinary item of Rs 465 crore before tax).

  • Each increase of Rs 1 in caustic soda to add an additional profit of Rs 9.5 crore.

Gujarat alkalis and chemicals

  • It has a basket of products of more than 36 products mainly comprising caustic soda and chlorine derivatives.

  • It derived 36.7% of its revenue from caustic soda in fiscal 2021.

  • The company is expanding its chlorine derivative capabilities to avoid the chlorine disposal problems encountered in the past.

  • Rising caustic soda achievements driven by logistical disruptions and plant closures in the United States are expected to benefit in the short term.

  • It is currently trading at 28.3 times its profits at a market price of Rs 640 each.

  • The company has the potential to report an after-tax profit of Rs 590 crore by fiscal year 2023, up from Rs 167 crore in 2021.

  • Each increase of Rs 1 in caustic soda to add additional profits of Rs 33 crore.

B&K Securities has stated that Meghmani Finechem Ltd., DCW Ltd. and TGV SRAAC Ltd. were the other caustic soda and derivatives companies expected to experience profitable growth in the future.


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