Calendar 2018 has undoubtedly been one of the toughest years for investors on Dalal Street in recent memory. Yet, smart stock pickers have had a field day. Stocks from specific sectors gushed through many headwinds to deliver eye-popping returns to investors.
Sadhana NitroChem shares have rallied over 900 per cent this year and 9,892 per cent since December 2013. The stock traded at Rs 934 on December 7, rising from Rs 95.10 on January 1. It was trading at Rs 9.60 on December 7, 2013.
The company posted 3,362 per cent year-on-year profit growth for the September quarter at Rs 28.70 crore compared with Rs 0.80 crore reported for the same quarter last year.It reported Rs 31.40 crore profit for the year ended March 2018 against Rs 0.90 crore in FY17. Exports constituted about 76 per cent of the overall revenues.
Despite increasing competitiveness on the global front, the company has managed to maintain stable exports to Europe, Japan, Korea and South America, with a significant quantity being sold to China, its latest annual report said.
With the market capitalisation of Rs 890 crore, the stock is trading at a price-to-earnings (PE) ratio of 11 against the average industry PE of 23.60. The price multiple is also lower than its five-year average of 18.30, indicating undervaluation of stock.
The specialty chemicals company, incorporated in 1973, manufactures benzene-based compounds such as nitrobenzene, metanilic acid and meta amino phenol.
According to SBICAP Securities, the chemicals industry has evolved over the years and, like most other manufacturing industries, become a Chinese dominion. However, with the increasing focus on environment pollution norms and stricter enforcement in China, the global chemicals industry is experiencing a disruption.
“India, with competitive manufacturing cost, improvement in skilled manpower availability, stringent intellectual property protection laws and favourable government policies is expected to drive strong growth over the medium term with rising investment in the chemicals sector,” the brokerage said in a report.
Sadhana NitroChems peers Mangalam Organics (up 171 per cent) and National Peroxide (up 108 per cent) have also more than doubled investor wealth on a year-to-date basis.
Shares of Mangalam Organics and National Peroxide have rallied 2,833 per cent and 987 per cent, respectively, over the past five years till December 7 this year.
Mangalam Organics posted 263 per cent profit growth for September quarter and National Peroxide 193 per cent. Both had reported over 150 per cent YoY bottom line growth for FY18.
Mangalam is engaged in manufacturing and selling of camphor, sodium acetate and by-products, terpene chemicals, synthetic resins and phenol formaldehyde (PF) resins, while National Peroxide manufactures hydrogen peroxide, sodium perborate, compressed hydrogen gas and per acetic acid.
SBICAP Securities prefers the high-growth specialty chemicals segment with a focus on companies that have a diverse product portfolio and are further moving up the value chain by adding downstream products.
This calendar, some other chemicals companies too have done well in the market; such as Paushak (up 88 per cent), Vinati Organics (up 51 per cent), Jyoti Resins (up 35 per cent), Aarti Industries (up 29 per cent) and Atul (up 28 per cent).
These stocks have rallied between 700 per cent and 1,600 per cent in last five years. SBICAP Securities has initiated coverage on Aarti Industries and Himadri Specialty Chemicals with buy ratings and price targets of Rs 1,700 and Rs 170, respectively.
Vinati Organics recently got a place among emerging investment ideas of Edelweiss Professional Investor Research. The company focuses on manufacturing specialty chemicals and organic intermediaries.
The company management has guided for a strong medium-term outlook with profit growth at 25 per cent CAGR on 30-35 per cent topline growth over the next few years on both ATBS expansion and a new butyl phenols project.
In order to tap the upcoming opportunities in the chemicals space, Indian companies are likely to come up with robust capital expenditure plans going forward.
“On the slowdown in China and the imposition of anti-dumping duties by the US on Chinese imports, Indian companies have seen demand rising from international majors as well as in home market. To avail of this opportunity, major chemical companies are planning huge capex in the next two-three years,” brokerage Anand Rathi said in a report.