Stocks to be purchased from the agri-food and chemical sector
Among the stocks the brokerage has a buy call on are Coromandal International, Aarti Industries, PI Industries, Sumitomo and Vinati Organics.
According to the agricultural sector brokerage, domestic growth is subdued due to the delayed monsoon, while export-oriented players are well positioned.
“The delayed start of the monsoon season would impact plantations. This, coupled with higher canal stocks, could push demand for agricultural inputs in the second quarter of fiscal 2023 for domestic companies. However , high world crop prices would mean sustained export demand and better ability to implement price increases for export-oriented and multinational-supported firms. revenue growth for fertilizer companies Price action is likely to support large company margins despite high energy cost and logistical challenges In terms of specific companies, we expect a Robust PAT growth for Sumitomo Chemical India, Coromandel and PI Industries; however, UPL is expected to show lower PAT (despite good revenue performance/mar ges) as the first quarter of fiscal 2022 has a tax recovery benefit and foreign exchange impact in the current quarter,” the brokerage said.
Specialty chemicals: Pressure on margins persists in a context of high raw material costs.
The first quarter of fiscal 2023 would see the full impact of high commodity costs amid rising crude derivatives prices and a depreciating rupee. “As such, we expect the current quarter to be challenging from a margin perspective (high input costs), while revenue growth would be largely driven by price increases and a handful of companies (such as SRF and Vinati Organics) would see good volume growth. . SRF is expected to outperform with the only company likely to report margin expansion, driven by high ref gas prices; we expect growth robust 55% year-on-year PAT for the company.On the other hand, companies such as Aarti Industries, Atul Ltd., Sudarshan Chemical and NOCIL are expected to show strong margin contraction year-on-year. we expect the specialty chemicals companies under our coverage to post revenue growth of 36.4% YoY, margin contraction of 162 bps YoY and PAT growth of 28.7% year-over-year in the first quarter of fiscal 2023,” the brokerage said.
Valuations and vision of the sector
India’s specialty chemicals sector is well positioned to take advantage of global tailwinds and expand its global market share to 7-8% over the next few years from 4% currently, supported by structural drivers including the China More strategy One, import substitution and opportunities. emerging from the recent supply chain disruption in China. “Agri-input companies are also well positioned to reap the benefits of the normal monsoon (which would boost domestic agrochemical demand) and buoyant international demand. Chemicals and Specialties offers a good opportunity to invest in quality stocks as we see the tailwinds for structural earnings growth remain intact,” the brokerage said.