Agriculture companies disclosed solid earnings growth due to price increases, higher export growth, and margin improvement, and specialty chemical companies reported strong revenue/earnings growth in Q4FY2022 in the form of higher raw material/logistics/energy costs, Brokerage firm Sharekhan has maintained its bullish footing on stocks of some quality agro and specialty chemicals.
Top Agriculture Stocks to Buy
As for the agriculture sector, Sharekhan has said that “Agriculture products players benefited from sustained price hikes to pass on higher volumes supported by higher raw material costs and higher global crop prices. This led to better-than-expected overall revenue growth of 27% for agri-input companies and margin improvement of 42 bps (contrary to expected year-on-year declines and despite higher input/logistic costs) for our coverage. UPL (volumes/prices up 3%/19% year-on-year), and Sumitomo Chemical India (domestic/export revenue growth of 11%/64% year-on-year) reported 24 percent growth respectively in the fourth quarter of FY12. % and performed well with impressive annual revenue growth of 24.5%. Coromandel International also posted strong 50% year-on-year revenue growth, led by higher realizations. Total PAT of agri-input companies in our coverage grew strongly at 37.5% year-on-year and beat our expectation of 16.8% year-on-year. UPL/PI guided for strong revenue growth of over 10%/18-20% for FY13.”
| companies | recommendation | target price | final traded value | Possible increase in % |
| Coromandel International | purchase | 1,070 | 922 | 16% |
| Pesticides (India) | purchase | 900 | 798.75 | 12% |
| PI Industry | purchase | 3,300 | 2,590.95 | 27% |
| UPL | purchase | 930 | 733 | 26% |
| Sumitomo Chemical India | purchase | 540 | 476.20 | 13% |
Top Specialty Chemical Stocks to Buy
The brokerage for the Specialty Chemicals space claims “big beats for NOCIL (44% year-on-year revenue growth) and Vinati Organics (74% year-on-year revenue growth) as compared to our estimate Overall revenue growth of 35% was marginally higher. Growth and ramp-up in new projects. Gross OPM improved to 290 quarter-on-quarter but lower on a year-on-year basis due to continued higher raw material costs and logistic issues Having said this, NOCIL and SRF reported an increase in margins on y-o-y and quarterly basis on account of better pricing environment. As a result, PAT growth of 34.5% on account of better margin performance and good revenue growth was well ahead of expectations. SRF, NOCIL and Vinati Organics outperformed while Atul missed our estimate. SRF guided for strong 20% year-on-year revenue growth for Specialty Chemicals and continued strong margins for Chemicals segment, While Aarti Industries’ EBITDA disappointed with high single-digit growth guidance. did.
| companies | recommendation | Target Price Rs. In | final traded value | Upside potential in % |
| Aarti Industries | purchase | 1,000 | 697.90 | 43% |
| Atul Limited | purchase | 11,000 | 8,041.00 | 36% |
| NOCIL | purchase | 348 | 264.05 | 31% |
| SRF | purchase | 2,800 | 2,250.40 | 24% |
| Sudarshan Chemical | purchase | 550 | 455.60 | 20% |
| Vinati Organics | purchase | 2,450 | 2019 | 21% |
Evaluation and recommendation by Sharekhan
The brokerage has said that “the agri-input space is at a sweet spot and there was a revenue/margin tailwind from higher global crop prices. Thus, the agri-input players under our coverage reported a strong bet on the revenue growth and margins front. Specialty Chemicals players saw strong revenue growth and a gradual improvement in margins, but it is still below Q4FY21 levels given logistic/energy cost challenges. Our coverage increased by 38%/35% year-on-year in total PAT for agri-input/specialty chemical companies in our coverage with outperformance shown by UPL, Sumitomo Chemical India, SRF, NOCIL and Vinati Organics.”
The Indian specialty chemicals sector is set to capitalize on the global tailwind and grow its global market share from 4% currently to 7-8% over the next few years, supported by structural drivers including China plus one strategy, import substitution and opportunities . Emerging from the recent supply chain disruption in China. Agri-input companies are also poised to take advantage of higher global crop prices as this will help support demand and realisation. Thus, the recent correction in broader markets due to global geopolitical tensions provides a good opportunity to invest in quality stocks as we see structural tailwinds for sustained double-digit earnings growth, Sharekhan said.
The views and recommendations given above are those of individual analysts or broking companies and not of Mint.