UBS Research initiates coverage on chemical companies with a positive view on PI Industries, Navin Fluorine

Stock Market Today: Aarti Industries share price declined more than 5% in intraday trades on Wednesday while Gujarat Fluorochemicals share price declined more than 2%.  Share prices of PI Industries and Navin Fluorine International also saw intraday corrections of more than 1%

hile global concerns persist, positive is that UBS Research has initiated coverage on these chemical companies with a positive view on the sector. While they remain Bullish on PI Industries Ltd and Navin Fluorine International Limited, though they have sell ratings of Aarti industries and Gujarat Fluorochemicals.

UBS Research in its report said that “We think investors may be ignoring Indian chemicals companies' strong niche positions and growth opportunities within the context of the worst global destocking cycle in chemicals over the past 30 years, but we see signs of modest volume recovery” .

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The weak global chemical demand and chemical destocking cycle have been key factors that have weighed on performance of chemical manufacturers for more than a year. The rising supplies of lower price Chinese chemicals  added to their woes.

However analysts generally expect that worst may be behind.

Structural Growth prospects: Indian chemicals companies scaled up their CAPEX by 4 times during FY16-23 to leverage specific opportunities in specialty chemicals. The  ongoing supply chain diversification and increased capacities by the companies and their capability may drive structural growth, feel UBS analysts. Two years of underperformance as per UBS analysts, reflects the sector's negative earnings momentum. The modest cyclical uptick may now lead to stronger-than-expected performance.

End of destocking may aid volumes feel analyst as UBS. Numerous metrics (such as the PMI, new orders, and Brazilian chemical imports) point to modest increases in volume, but surplus capacity (about 15% added in the last three years) and persistently low demand (especially in China) could restrict growth, feel UBS analysts

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They anticipate a moderate volume increase of 5–10% together with muted pricing and spreads in the short run. The are prices muted due to surplus capacity

UBS initiating coverage on PI Industries  has given Buy ratings with price taget of, Rs4,800) and Navin  with price target of ₹4,250. 

However for Aarti Industries and Gujarat Fluorochemicals , UBS has a Sell, ratings with price objective of   ₹615 and ₹3000.

UBS analysts say that given its strong growth, proven track record of management, stable business model, and potential for pharma segment scake up and expansion, they like PI Industries.

Navin is taking advantage of expansion prospects in CDMO Contract manufacturing ), 3rd and 4th generation refrigerants, and agrochemicals.

Although Aarti is growing and it  has capacity in both new and old chains, its high levels of debt and increased cyclical dependency are few factors that add to caution.

Chinese fluoropolymer overcapacity exposes Gujarat Fluorochemicals even though its EV business fundamentals are still in their early stages, as per analysts at UBS.

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