Presently, specialty chemicals stocks are in great demand amongst the cognoscenti investors owing to the news that China is slowing down production and a large part of the demand from global customers will be met by Indian suppliers (see Forget Pharma Stocks. Specialty Chem Stocks Are The New Mega-Baggers: Experts)
In these circumstances, we have to stay alert for opportunities to buy top-quality specialty chemical stocks.
As far back as in April 2011, Sanjoy Bhattacharyya, the doyen amongst value investors, had put the spotlight on SRF, a leader in specialty chemicals and technical textiles.
Sanjoy Bhattacharyya summed up the entire charm of SRF in his inimitable style:
“The solitary beacon of hope is SRF (Rs. 321), a business with robust cash flows, sensible management, a strong and defensible competitive position that trades at a PE of four times current earnings and offers close to 5 percent dividend yield!”
Today, six long years after Sanjoy Bhattacharyya pithy recommendation, SRF has retained its charm. In fact, the stock has become more alluring if you go by the expert analysis of Chintan Modi and Niket Shah of Motilal Oswal.
The duo has argued with conviction that the pace at which SRF is expanding its global footprint in the specialty chemicals space by winning over new US-based agrochemical giants means that a re-rating of the stock is imminent.
The advice offered by Chintan and Niket is as follows:
“Specialty Chemicals growing bigger and better: SRF has won two new clients in the Agrochemicals part of the Specialty Chemicals business, which has grown at a CAGR of 62% over FY12-15 and enjoys high EBIT margin of 35%. These new clients are US-based global agrochemical giants, who would not only contribute to growth, but also help SRF achieve client diversification
Valuation and view: We view these developments as structurally positive and raise our Specialty Chemicals revenue growth estimate for FY18 from 25% to 34% and we believe it will continue to see strong growth of ~30% for 2-3 years beyond FY18 …”
it is worth remembering that most of our favourite stock wizards like Ashish Kacholia, Vijay Kedia, Dolly Khanna, Rahul Saraogi etc have already commandeered huge volumes of specialty chemicals stocks and are sitting pretty on them. We need to also do our own research and tuck into our favourite stocks soon.