UBS Initiates Coverage on Indian Chemical Companies
UBS, a global brokerage firm based in Switzerland, has initiated coverage on four Indian chemical companies, citing strong niche positions and growth opportunities despite the current global destocking cycle. The brokerage sees signs of modest volume recovery and believes the sector is poised for structural growth.
Buy Ratings: PI Industries and Navin Fluorine International
Gujarat Fluorochemicals and Aarti Industries
Structural Growth: UBS analysts noted that Indian chemical companies are witnessing structural growth due to capability enhancement and supply chain diversification.
Indian chemical companies have scaled up their Capex 4 times in FY16-23, leveraging opportunities in specialty chemicals.
Increased capacity and ongoing supply chain diversification are expected to drive further growth.
Indicators: Several indicators, including PMI, new orders, and Brazilian chemical imports, suggest modest improvements in volumes.
Excess capacity built in the last three years and continued demand weakness, mainly in China, may limit upside potential.
Modest Volume Uptick: The brokerage expects a modest 5-10% volume uptick with subdued prices and spreads in the near term.
PI Industries: Preferred due to strong growth, management track record, less volatile business model, and potential scale-up of the pharma vertical.
Leveraging growth opportunities in agrochemicals, CDMO, and 3rd/4th-gen refrigerants.
Expanding capacity in existing and new chains, but its greater cyclical dependency and debt levels are coupled with high near-term Ebitda guidance.
Exposed to Chinese overcapacity in fluoropolymers, and its EV business fundamentals are still in nascent stage.
UBS believes that Indian chemical companies are well-positioned for growth despite the current global destocking cycle. The brokerage sees signs of modest volume recovery and expects structural growth driven by capability enhancement and supply chain diversification.