Motilal Oswal issued Buy ratings on SRF, Atul, Vinati, and Galaxy, while suggesting Sell on Deepak Nitrite and Fine Organic. Chemical companies head into Q2 with sales rising 15%, but margins face pressure. High crude prices and rising raw material costs are eating into profits as the sector navigates tough times.

13 chemical stocks: Motilal Oswal has Buy on SRF, Atul, Vinati, Galaxy; Sell on Deepak Nitrite, Fine Organic

1/11

Chemical stocks head Into Q2 with sales rising and margins under pressure

Results season is close, and chemical companies are walking in with a mixed report card. Motilal Oswal Financial Services expects the sector it covers to post sales growth of 15% and EBITDA growth of 14% for the September quarter of FY27. Profit after tax is seen rising 13%. The catch is that margins are expected to slip about 20 basis points from last year. Growth is there, but costs are eating into it.

Source: Motilal Oswal Financial Services

2/11

Crude at $116 is pushing up everything chemical makers buy

Brent crude averaged $116.5 a barrel in September, up from $90.9 in August. The reason is worry over supply from the Middle East, where a crisis that began in March is still disturbing energy and raw material flows. Higher freight costs are adding to the pain. Month on month, toluene (Korea) rose about 23%, ammonia 10%, benzene 7% and methanol 6%. Acetic acid was the one that fell, by 4%.

Source: Motilal Oswal Financial Services

3/11

Year-on-Year price jumps are huge, and not every company can pass them on

Compared with a year ago, acetone prices are up 94% and IPA is up 69%. Aniline has gained 63%, ACN 50% and benzene 44%. Propylene (Korea) is up 40%, ammonia 30%, and acetic acid has roughly doubled. The blended phenol and acetone spread stands at Rs 201 a kg, about 2.35 times last year's level. Companies with strong pricing power can cope. Others will see it in their margins. Motilal Oswal also flags oversupply from China as a drag on the near term.

Source: Motilal Oswal Financial Services

4/11

Navin Fluorine and SRF, the fluorine plays with pricing on their side

Navin Fluorine International (Neutral): Price Rs 8,133, target Rs 8,580, about 5% upside. Revenue is expected to jump 37% to roughly Rs 10.3 billion, with margin at 33.5% against 32.5% a year ago. HFC pricing remains supportive, and the company plans to pitch four to five new molecules in FY27, three of them patented.

SRF (Buy): Price Rs 2,490, target Rs 3,250, about 31% upside. Refrigerant volumes and prices, along with a recovery in specialty chemicals, are what to watch.

Source: Motilal Oswal Financial Services

5/11

Atul and Alkyl Amines show steady growth, but margin paths differ

Atul (Buy): Price Rs 5,856, target Rs 7,600, about 30% upside. Revenue is expected up 13% and EBITDA up 10%, with margin easing to 16.8%. Life science chemicals should grow 7% and performance chemicals 16%. The thing to watch is how fast the new capacities ramp up.

Alkyl Amines (Neutral): Price Rs 1,741, target Rs 1,920, about 10% upside. Revenue is seen up around 15% and EBITDA up about 18%, with margin widening 50 basis points to 18.5%. Capex guidance for FY27 is Rs 800 to 900 million, mostly for product development.

Source: Motilal Oswal Financial Services

6/11

Vinati Organics and Galaxy Surfactants are buy calls built on volume

Vinati Organics (Buy): Price Rs 1,209, target Rs 1,550, about 28% upside. Revenue is expected to grow 25% to Rs 6.8 billion, helped by the ramp-up of its antioxidant plants. EBITDA margin is seen at 26.3%, with gross margin near 50%.

Galaxy Surfactants (Buy): Price Rs 2,379, target Rs 3,220, about 35% upside, the highest in this group. Revenue is expected up 19% on better realisations and higher volumes. EBITDA margin is pegged at 9.5%, with EBITDA per kg up 26%. Several launches are planned in the quarter.

Source: Motilal Oswal Financial Services

7/11

Clean Science and Fine Organic face margin trouble

Clean Science & Technology (Neutral): Price Rs 804, target Rs 770, which is 4% below the current price. Revenue is seen up about 9% but EBITDA only 4%. Margin is expected at 34% versus 35% a year ago, as phenol prices rise and Chinese competition bites. Watch for commercialisation of Performance-2 in FY27.

Fine Organic Industries (Sell): Price Rs 5,128, target Rs 4,150, about 12% downside. Revenue is expected up 12%, with margin at 22% against 22.6% last year. Plants are already near full use, so growth will come from price hikes rather than volume.

Source: Motilal Oswal Financial Services

8/11

Deepak Nitrite gets a sell rating despite a big project pipeline

Price Rs 1,494, target Rs 1,300, about 12% downside. Revenue is expected to grow 11%, with advanced intermediates up 6% and phenolics up 13%. Margin should improve from the previous quarter to 13.7%. The polycarbonate project is on track for commissioning in the second half of FY28, and MIBK and MIBC are expected to begin commercial sales this quarter, which should help margins over time. Motilal Oswal still sees limited room in the share price at current levels.

Source: Motilal Oswal Financial Services

9/11

PI Industries and Privi Speciality, two buys with different quarters ahead

PI Industries (Buy): Price Rs 2,245, target Rs 3,000, about 34% upside. This is the odd one out, with revenue expected to fall around 3.1% to Rs 18.2 billion and margin down about 250 basis points. A better monsoon and new launches should help the domestic business.

Privi Speciality Chemicals (Buy): Price Rs 3,570, target Rs 4,400, about 23% upside. Revenue is expected up about 15%, with margin above 20%. The company is not seen as materially hit by geopolitical tension. Its merger with PFSPL and PBPL is the key event to track.

Source: Motilal Oswal Financial Services

10/11

Tata Chemicals and Ellenbarrie are tied to soda ash and industrial gas prices

Tata Chemicals (Neutral): Price Rs 609, target Rs 690, about 14% upside. Revenue is expected up 10%, with margin down about 80 basis points from the previous quarter. Soda ash pricing and demand are the main things to watch. The higher FY28 estimate comes from better forward exchange rates.

Ellenbarrie Industrial Gases (Buy): Price Rs 342, target Rs 440, about 29% upside. Revenue is seen rising 24% to Rs 1.1 billion, with margin at 39% against 37.5% a year ago. New facilities should add volume and margin.

Source: Motilal Oswal Financial Services

11/11

What investors should watch as chemical results roll in

Motilal Oswal expects a gradual recovery, supported by specialty segments scaling up, better product mix, more backward integration and a possible revival in exports. The near term will stay choppy because of Chinese oversupply and swinging input costs. Over the longer run, companies with differentiated products, strong R&D and deeper integration are better placed. Keep an eye on new plant ramp-ups, global pricing, input costs and demand from end-user industries.

Source: Motilal Oswal Financial Services. This is a summary of a broker's research and not investment advice. Please consult a registered adviser before investing.