Chemical stocks could see another strong quarter as supply disruptions in China and the West Asia conflict keep realisations elevated, according to Meet Vora, Chemical Research Analyst at JM Financial Institutional Securities.
Vora said, “Companies are focusing on domestic import substitution kind of chemicals, those should do decent. Companies like Deepak Nitrite, Deepak Fertilisers, all biochemical companies should do well.
He expects the benefit to remain more pronounced in commodity chemicals, while demand for specialty chemicals is yet to show a meaningful improvement. He said companies focused on domestic import substitution could continue to benefit from the current supply environment.
“In demand, we are not seeing very major improvement. But this is all supply-led. Particularly, there was raw material shorted in some part of quarter one and quarter two, both in India. In China also because of overall lower crude inventories, they were operating through coal led plants, etc. But a supply from China is also quite erratic at the moment.”
Aarti Industries could benefit from China supply curbs
Vora is also positive on Aarti Industries, where tighter environmental and safety regulations in China could lead to further supply rationalisation.
According to him, Chinese authorities have stepped up inspections of nitration plants, particularly in Shandong, which accounts for a significant share of China’s nitration capacity. Smaller plants that are unable to meet stricter compliance requirements could face shutdowns, potentially benefiting Aarti Industries.
He also highlighted a broader shift among Chinese manufacturers towards better pricing discipline after several years of weak profitability.
Navin Fluorine, Deepak Nitrite among top picks
Vora’s preferred names in the chemical sector include Navin Fluorine, Deepak Nitrite and Aarti Industries.
For Navin Fluorine, the continuation of India’s anti-dumping duty on R32 and tighter Chinese export quotas could support refrigerant prices. He expects the company’s CDMO business to also see a ramp-up in the second half of the year.
Deepak Nitrite, meanwhile, is benefiting from higher phenol and acetone spreads, with domestic inventories remaining low.
Vora also remains positive on SRF, particularly because of its refrigerant gases business and elevated packaging film realisations. However, he expects the specialty segment to remain muted amid raw material inflation and limited revenue growth.
For the full chemical business, SRF is expected to deliver growth of around 18-20%, in line with the company’s guidance.
On PI Industries, Vora remains cautious. He expects continued pressure on its contract development and manufacturing business, citing pricing pressure in some key products and the potential impact on margins.
For the entire discussion, watch the accompanying video
Deepak Nitrite, Navin Fluorine, RT Industries among top chemical picks: JM Financial
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