These 3 Specialty Chemical Stocks Are Kotak’s Top Picks in the Sector

Meanwhile the aarti continues top stock picks In particular chemical sector, given the visibility on volume based growth and multiples close to pre-covid levels. Meanwhile, the brokerage continues to like the SRF and any meaningful correction could provide a good entry point. Vinati Organics is also its preferred stock pick.

Its Buy Tag on Exclusive Chemical Stock Aarti Industries Comes with Modified FV 1,000 (from 1,150 East). Whereas, the brokerage has maintained ad rating with FV on SRF shares 2,325.

Kotak reiterated in its thematic note that the sector multiple’s re-rating over the past one year has been driven by lower cost of equities led by lower risk-free rates and better investor comfort over a longer period of earnings.

“Some improvement in valuation may be seen as CoE returns closer to pre-Covid levels. The companies are better positioned to handle the current rise in crude oil prices (last seen in FY 2013-14), given the presence in more downstream products, volume-based growth and better competitiveness. versus Chinese peers,” the note said.

Crude oil prices have risen as a result of the Russia-Ukraine conflict. According to Kotak, companies with less dependence on crude oil (NFIL, SRF) and ability to pass on higher input costs will be least affected.

“Our analysis indicates that the relationship between gross margin and crude oil prices is high, but the relationship between absolute gross profit and crude oil prices is very low. This indicates that companies such as Aarti and PI, SRF and Contract manufacturers like NFIL have been able to transfer the RM increase with some delay.”

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