Chemical stocks have been on a roll throughout 2021 and the year also saw some bumper profits in IPOs of chemical companies such as Laxmi Organic, Ami Organics, Sigachi Industries. It looks there is some more steam left in select counters. Part of it is due to growing demand as industries witness better end-uses while ‘China+1’ approach by major chemical producers also offers tailwinds. Angel One has identified two multibagger chemical stocks with target prices reflecting potential gains of up to 61%. These stocks are PI Industries and Jubilant Ingrevia. Here is a deeper look at both stocks:
PI Industries is a major agrochemical intermediary and offers custom synthesis and manufacturing (CSM) solutions. The company currently gets over 70% of its revenues from high margin CSM business and the brokerage house feels that this trend is likely to continue. Over the next 3 years, Angel one projects 20% growth in revenues while profits are likely to increase at compounded rate of 22.5%. The stock currently trades at INR2,563 per share and it is expected to increase to INR3,440 in the next year 12 months, indicating an upside of 34%.
Regular investors know very well that PI Industries has been a multibagger chemical stock, more than doubling over the last 5 years.
The company has longstanding relationships with its customers and over 75% of its revenues come from exports overseas markets. The stock touched a high of INR3,497 in September 2021 and is currently down 25% from those levels. This effectively provides a good entry point with some comfort in the valuations department. The company is practically debt free and enjoys a high ROCE of 22%.
Jubilant Ingrevia – Most appealing among multibagger chemical stocks
Jubilant Ingrevia was formed by demerging chemical and life science ingredients business of Jubilant Life Sciences. The company currently operates into three segments – Lifesciences (48%), Specialty Chemicals (34%) and Nutrition (18%). What makes Jubilant Ingrevia unique is the fact that it is among the top two producers of Pyridine – Beta and vitamin B3 globally.
The recent marketwise correction has impacted the stock but it is still up 92% on 1-year timeframe. At CMP of INR518.5, the stock is available at a PE ratio of just 17.6. Angel One feels the stock is at a significant discount to other chemical companies and has a target price of INR837, implying an upside of 61%.
As one can see, these multibagger chemical stocks don’t have a lot in common in business and in fact are witnessing contrasting fortunes on the bourses. Nevertheless, the common denominator here is potential profits that these stocks can deliver. In a post lockdown world with less restrictions, it is most likely that the demand from end-use industries is going to increase thereby greatly benefiting the chemical manufacturing intermediaries. Meanwhile, the recent market correction seems to be offering a great opportunity to enter these stocks at attractive price points with much better risk reward.