Top 5 Speciality Chemical Companies Quantitative Analysis

6 min read
Which is the best Speciality Chemical Stock? Here is the Quantitative Analysis of Top-5 Specialized Chemical Companies based on their Q4FY21 performances.

Introduction:

The Indian chemicals industry stood at US$ 178 billion in 2019 and is expected to reach US$ 304 billion by 2025 registering a CAGR of 9.3%. The demand for chemicals is expected to expand by 9% per annum by 2025. The chemical industry is expected to contribute US$ 300 billion to India’s GDP by 2025.

The specialty chemicals constitute 22% of the total chemicals and petrochemicals market in India. The demand for specialty chemicals is expected to rise at a 12% CAGR in 2019-22. The petrochemicals demand is expected to record a 7.5% CAGR between 2019 and 2023, with polymer demand increasing at 8%.

Please note that we have done this analysis with the only purpose of screening good companies. Analysis done is completely on a quantitative basis. No suggestions are being made to directly go and invest in the top-scoring companies of this analysis. We suggest that one should perform a qualitative analysis of top-scoring companies in this analysis and take investment decisions based on risk profile.

Speciality Chemical Companies Quantitative Analysis

Companies selected for Analysis:

We have selected the following five Speciality chemicals for our Quantitative Analysis.
Market Capitalization of 5 Speciality Chemical Stocks (Rs.):
  • Pidilite Industries- Rs.1.08 Lakh Cr
  • Aarti Industries- Rs.31,567 Cr
  • Atul Ltd- Rs.26,495 Cr
  • Deepak Nitrite- Rs.24,180 Cr
  • Alkyl Amines Chemicals- Rs.18,226 Cr

The procedure of Analysis and its Interpretation

  • These 5 Companies are analyzed on the following 15 parameters and ranked and scored accordingly. For example, the company with a higher PE ratio is provided with a lower rank, hence has scored lesser points. Similarly, if a company has higher RoE, it has a higher rank and has scored higher points.
  • Here, 1 means that the company has scored the lowest points and 5 means the company has scored the highest points.
  • In the end, we have added all the points together and companies are ranked accordingly.

Parameters of Quantitative Analysis:

1) PE Ratio:
  • PE of a company means that how much investors should pay for the stock based on their current earnings. A company with a lower PE Ratio is considered to be undervalued and has a huge potential to unlock its value. Hence, full points will be rewarded to that company.
  • With the lowest PE Ratio of 31.7, Deepak Nitrite gets the first position and 5 points. And Pidilite Industries with the highest PE of 95.56 among peers is awarded 1 point only.
Top 5 Specialized Chemical Companies - PE
Top 5 Specialized Chemical Companies – PE
2) EV/EBITDA:
  • EV/EBITDA ratio measures Enterprise Value (EV) to the Earnings before Interest, Tax, Depreciation, and Amortization (EBITDA). This ratio assesses the overall financial performance of the firm.
  • EV/EBITDA of value below 10 is considered healthy.
  • Here also, Deepak Nitrite bags the first position among the Top 5 Companies with the lowest EV/EBITDA ratio of 19.9. Alkyl Amines Chemicals with the highest EV/EBITDA ratio of 69.74 receives the last position and one point only.
Top 5 Specialized Chemical Companies- EV/EBITDA
Top 5 Specialized Chemical Companies- EV/EBITDA
3) Return on Capital Employed (ROCE):
  • ROCE signifies that how the company is using its capital to generate a return for the company and investors. The high ROCE, the better it is for the company.
  • In this parameter, Alkyl Amines Chemicals outperforms other peers by scoring the highest ROCE of 56.6% and hence obtains the 1st position as well as 5 points.
  • Aarti Industries get the last position and 5th rank due to the lowest ROCE of 13.6%.
Top 5 Specialized Chemical Companies- ROCE
Top 5 Specialized Chemical Companies- ROCE
4) Return on Equity (ROE):
  • RoE signifies how well the company generates the return on shareholders’ investment. Company with higher RoE are considered good.
  • In this parameter, Alkyl Amines Chemicals again beat other peers by scoring the highest ROE of 44.4% and hence obtains the 1st position as well as 5 points.
  • Aarti Industries with the lowest RoE of 16.2% receives the last rank.
Top 5 Specialized Chemical Companies- ROE
Top 5 Specialized Chemical Companies- ROE
5) Debt-to-Equity Ratio:
  • The debt-to-equity ratio is a leverage ratio that measures the debt of a company against its total shareholder’s equity.
  • Accordingly, the lesser is the debt, the better it is for the company and vice-versa.
  • Atul Ltd and Alkyl Amines Chemicals are nearly a debt-free company with a total D/E of 0.03 and hence rewarded with full points and given the first position.
  • Aarti Industries India has the highest D/E ratio among the peers of 0.74 and is hence given 5th rank. Pidilite Industries and Deepak Nitrite have a D/E ratio of 0.06 and 0.23 respectively.
Top 5 Specialized Chemical Companies- D/E Ratio
Top 5 Specialized Chemical Companies- D/E Ratio
6) Interest Coverage Ratio:
  • The Interest Coverage ratio is in direct relation with the D/E ratio. It can be calculated by dividing EBIT from Interest Expenses.
  • This ratio gives the ability of the company to pay interest from its operating profit.
  • Atul Ltd. maintains a good Interest Coverage Ratio of 95.3, the highest among peers, gets the first rank.
  • Due to the lowest Interest Coverage Ratio of 8.7, Aarti Industries India is ranked and scored accordingly.
Top 5 Specialized Chemical Companies- Interest Coverage Ratio
Top 5 Specialized Chemical Companies- Interest Coverage Ratio
7) Pledged %:
  • Only Atul Ltd. have pledged their shares which is 1.50%, hence, ranked at last.
  • All the other companies in the list have not pledged their share and hence are rewarded with full points and first rank.
Top 5 Specialized Chemical Companies- Pledged %
Top 5 Specialized Chemical Companies- Pledged %
8) Institutional Holding (FII + DII):
  • Institutional Investors (FII + DII) as a % of Free Float has the highest stake in Pidilite Industries, collectively of 65.2% and hence Pidilite Industries is rewarded with full points and first rank.
  • FIIs and DIIs also hold around 59.2% stake in Atul Ltd. and hence it secures the 2nd position in this criterion and scores 4 marks.
  • Alkyl Amines Chemicals has the lowest stake of institutional investors of 11.2% in the Company’s shareholding pattern and hence is given 1 point only.
Top 5 Companies- Institutional Holdings (FII + DII)
Top 5 Companies- Institutional Holdings (FII + DII)
10) Operating Profit Margin (%):
  • Higher the Operating Profit Margin (%) of a company, better the operational efficiency of a company and vice-versa.
  • Alkyl Amines Chemicals efficiently post the OPM of 34.5% and secures 1st position and 5 points.

With the lowest OPM of 19.5%, Aarti Industries India scores the last rank among its peers

Top 5 Specialized Chemical Companies- Operating Profit Margin (%)
Top 5 Specialized Chemical Companies- Operating Profit Margin (%)
11)Sales and Net Profit Growth- 5 Year CAGR:
  • In terms of Sales Growth, Deepak Nitrite post the highest figure of 26.0% and hence gets the full points. Here, Pidilite Industries India got the 5th position with sales growth in 5-year CAGR of 6.3%.
  • Deepak Nitrite has again registered the highest Profit after Tax (PAT) growth on 5 years CAGR basis of 65.2% and hence is rewarded with the first rank. Here Pidilite Industries got 5th rank.
  • Alkyl Amines Chemicals is looking consistent in both the factors.
Top 5 Specialized Chemical Companies- Sales & Net Profit Growth- 5 Years CAGR
Top 5 Specialized Chemical Companies- Sales & Net Profit Growth- 5 Years CAGR
12) Sales & Net Profit Growth: 3 Year CAGR:
  • On a 3-Years CAGR basis, Deepak Nitrite outscores the other players with 38.2% Sales Growth and receives the first position and 5 points as well. Atul Ltd. delivered poor performance and post Sales Growth of 2% and hence is rewarded the last rank.
  • While Deepak Nitrite again ranks first with the highest PAT growth of 114.2% on a 3-Years CAGR basis due to low base effect in previous years. With the PAT growth of 5.5%, Pidilite Industries is ranked 5th and given 1 point.
Top 5 Specialized Chemical Companies- Sales & Net Profit- 3 Years CAGR
Top 5 Specialized Chemical Companies- Sales & Net Profit- 3 Years CAGR
13) Operating Performance Ratios- Inventory Turnover Ratio:
  • Inventory turnover signifies a parameter that measures how fast the inventory is sold or consumed in the given period, the higher the better.
  • Here Deepak Nitrite secured the 1st rank with the highest Inventory turnover of 10.51 and get full 5 points.
  • Aarti Industries got the last rank due to a poor Inventory turnover ratio of 5.8, hence only 1 point given.
Top 5 Companies- Operating Performance Ratios- Inventory Turnover Ratio
Top 5 Companies- Operating Performance Ratios- Inventory Turnover Ratio
14) Operating Performance Ratios- Cash Conversion Cycle (CCC):
  • Again Deepak Nitrite secured the highest rank among its peers with the lowest CCC of 38.7 and get full 5 points.
  • Here Aarti Industries again got the last rank due to the highest CCC of 89.9, hence only 1 point given.
Top 5 Specialized Chemical Companies- Cash Conversion Cycle
Top 5 Specialized Chemical Companies- Cash Conversion Cycle
15) Final Score:
  • After analyzing and summing up all the marks scored by the Top 5 Paint Sector Companies, Deepak Nitrite is the front runner thereby conquers the first position in our analysis. Deepak Nitrite scores 63, the highest among all 5 companies.
  • Alkyl Amines Chemicals, Atul Ltd., and Pidilite Industries India scored 57 points, 45 points, and 37 points respectively and hence secured 2nd, 3rd, and 4th rank.
  • Due to poor performance in the majority of parameters, Aarti Industries gets the lowest score of 44 points.
  • On account of healthy scores, Deepak Nitrite Alkyl Amines and Chemicals appears to be strong Specialized Chemical Companies.
Top 5 Specialized Chemical Companies - Final Score
Top 5 Specialized Chemical Companies – Final Score

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