The strong outlook for FY24E comes on the back of improving product mix, recovering demand, heavy portfolios on patented products, and constructive margin outlook.
In the specialty chemicals space, foreign broking firm Jefferies is constructive on Navin Fluorine International Ltd. (NFIL) and expects a 20 percent upside for the stock from the current market price. But it is cautious on SRF Ltd. & Anupam Rasayan (ANURAS) India Ltd.
Jefferies sees the NFIL stock at Rs 5,610 based on the 42X FY25E earnings per share (EPS). The firm expects a strong growth outlook for NFIL with the company’s upsizing of its High-Pressure Processing (HPP) contract. The brokerage also expects NFIL to perform strongly on the contract research and manufacturing services (CRAMS).
NFIL has reported a 43 percent year-on-year increase in sales to Rs 2,077 crore and a 42.5 percent increase in net profit to Rs 375 crore for FY23. The EPS for the share rose by 42.5 percent to 75.68 in FY23. NFIL reported a 26% operating profit margin for FY23.
The broking firm gave the SRF stock a hold rating while awaiting a pullback in life- high chemical margins to potentially turn more constructive. For the March quarter results of FY23, SRF reported a 19.6 percent increase in sales to Rs 14,870 crore. The profit grew by 14.4 percent to Rs 2,162 crore while the EPS stands at 72.95. SRF reported a 24% operating profit margin for FY23.
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Robust growth
Jefferies is cautious on ANURAS due to unfavourable risk reward as the stock has rallied 75% since mid-Feb. The stock’s current valuation appears to be relatively higher as compared to similar stocks in the market, which makes it a risky stock according to Jefferies. Anupam Rasayan reported a 20.5 percent increase in sales to Rs 1,284 crore, a 12-percent increase in net profit to Rs 169 crore and a 4.3 percent increase in EPS to 15.69 for FY23. ANURAS reported a 29% operating profit margin for FY23.
Jefferies believes despite the possibility of a US recession and increased channel inventories in Latin America, the chemicals industry is set to achieve robust growth anticipating strong revenue prospects for FY24E. The strong outlook for FY24E comes on the back of improving product mix, recovering demand, heavy portfolios on patented products, and constructive margin outlook.
In Q1FY24, the demand for domestic refrigerator gases (refgas) saw a slowdown due to a cooler than expected summer. The demand experienced a temporary short- term dip however the long-term prospects for the chemical industry are positive according to the Jefferies report.
The United States is expected to remain a net importer of Hydrofluorocarbons, despite an anticipated 30% phase-down starting from CY2024, stated analysts at Jefferies. Since consumption lags capacity closures, Jefferies expects refgas prices to stay elevated as compared to the historical averages.