ICICI Securities sees up to 44% upside in these chemical stocks

Brokerage firm ICICI Securities is positive on select chemical stocks on the back of China plus one strategy across the US and Europe leading domestic players to garner incremental market share. Among the top bets from the chemical space, the brokerage is positive on Neogen Chemical with a target price of Rs 1,870, indicating an upside of over 40 per cent from the current market price.

Commencing operations in 1991, Neogen Chemicals manufactures specialty organic bromine-based chemical compounds as well as specialty inorganic lithium-based chemicals compounds. The company’s products find application in pharmaceutical intermediates, agrochemical intermediates, engineering fluids, polymers additives and water treatment chemicals, among others.

“Since Neogen Chemicals is expanding capacity in lithium electrolyte, with backward integration of lithium salt, it is expected to gain meaningful market share in the medium to long run. Apart from this, Dahej plant has excess land available and hence, brownfield capex towards advanced bromine intermediates and CRAMS can be commissioned within 12 months with asset turn expected to be better, going ahead. This would support overall performance in the long run,” the brokerage said in a report.

ICICI Securities is also bullish on PI Industries (target price: Rs 3,155) and Sumitomo Chemicals (target price: Rs 520). Shares of PI Industries traded 0.39 per cent down at Rs 2,572 in the afternoon trade on July 4, while Sumitomo Chemicals was up 2.76 per cent at Rs 434.95.

PI Industries focuses on complex chemistry solutions in agri and pharma sciences. “We remain positive on PI Industries as CSM business has a strong order backlog of around $ 1.4 billion, providing a revenue visibility
for more than two years,” the brokerage added.

On the other hand, it retained positive view on Sumitomo Chemical amid SCC Japan desiring to outsource its active intermediates to Sumitomo India.

Commenting the factors that may support overall chemical space ahead, ICICI Securities said, “Apart from China plus one, greater focus towards backward integration, rise in the R&D spending, higher capex into petrochemicals and improvement in the logistic activity to assist domestic specialty chemical companies to hold meaningful market share in the value-added portfolio over the long run. Since China constitutes around 20 per cent of the global speciality chemical industry ($800 billion), even 5 per cent shift in market share from China to India can translate into an $8 billion opportunity for the Indian speciality chemical companies.”

At present, the Indian speciality chemical industry holds around 3-4 per cent market share.

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