Most chemical sector stocks which were running on narratives (of being speciality players 
) are now down and out. A lot of these largely commodity kind or quasi commodity kind of companies were touted to be weather proof and immune to vagaries of demand and impact of raw material prices. Problem is not with the business or promoters per se, but the kind of valuations given to these companies. Commodity companies which attain speciality companies’ valuations would often find it difficult to live up to market expectations and hence there will be meltdown. This happens with most sectors at some point of time during their market fancies. But there will be exceptions to these sectoral meltdowns in most instances. And there will be reasons for this phenomenon.
The kind of companies that have remained aloof from the meltdown in the chemical sector are the ones which I think are the real speciality companies with a sort of moat (at this point of time, mind you. Things can change over time here too) In such companies, the narratives are matching the numbers reported by the companies. And that’s what seperates boys from men. (again at this point of time) How long this party lasts is anybody’s guess, but as long as numbers keep chugging along, valuations will sustain and even probably grow in terms of PE being accorded.
Navin reported decent numbers if compared to a lot of other companies from similar space. Personally I feel at cmp, valuations are stretched inspite of good numbers. But who am I to question market wisdom? Maybe there is a clear road map drawn for near 20-25% growth for next 5-10 years. (I don’t track it so not much idea, but price action does indicate market confidence in the company) Against that, today I saw numbers from a smallish (in terms of sales not valuations or market cap) company named Tatva Chintan. Revenue drop, profit drop, margin being affected, everything going in the wrong directioin. Stock price has corrected from highs of near 3000 to current levels of 2370. On charts there was a clear double bottom breakdown below 2320 with a potential downside of nearly 700 rupees. But till now price has managed to hang on above and around 2300 levels. One of the reasons could be high promoter holding of 79%. Or could be some other reason. These are the kind of situations I keep in my study list to see how price action plays out to what I feel are poor results. You keep observing these things and try to keep learning how markets work.
I do not track Navin closely so not much idea about whether valuations are justified or not. However I do own and track Guj Fluoro and looking at global situation in fluoro polymers, there still seems to be strong tailwinds for this particular sector and the company itself. But the proof of the pudding will lie in the eating, and hence I would keenly watch the quarterly results due to be out and management commentary. As of now, the stock price seems to be showing strength and resilience.
My idea in riding this company is to enjoy the music till it lasts and keep on lookout for any signs or newsflows contrary to my investment thesis.
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