Comparison of Top 5 Specialty Chemical stocks

Which are India’s top 5 specialty chemicals companies? Quantitative analysis of the Indian specialty chemicals sector based on 10 parameters.

Quantitative Analysis of Specialty Chemical Sector in India

Introduction

In this blog, we will analyse the specialty chemical sector quantitatively. Specialty chemicals are products that have specific end – uses and are usually manufactured in low volumes. Specialty chemicals find their application in various industries like Tyre manufacturing, agro-chemicals, pharmaceuticals, etc. This sector accounts for ~22% of the entire chemical industry in India. In the last 2-To 3 years, the specialty chemicals sector has boomed quite a lot, mainly as many specialty chemical companies in China were shut down due to the “Blue Sky Policy” implemented in China.

Please note that this analysis is done with the only purpose of screening good companies. Research done is entirely on a quantitative basis. The top-scoring companies in this analysis are not being suggested for investment directly. To make investment decisions based on risk profile, one should perform a qualitative analysis of top-scoring companies in the analysis.

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Specialty Chemicals Sector Quantitative Analysis

Companies selected for analysis

We have selected the following five specialty chemical companies for our quantitative analysis. The List of chemical companies which are one of the top chemical companies in India:

• Aarti Industries
• Atul
• Vinati Organics
• Navin Fluorine International
• Alkyl Amines Chemicals

Procedure of Analysis and its Interpretation

• These 5 companies are analysed on the following 10 parameters and given ranks and points accordingly. For example, if a company has a higher PE ratio, it is ranked lower and scored lesser points. Similarly, if a company has higher RoE, it is ranked higher and has scored more elevated points.
• Here, 1 means that the company has achieved the lowest points, and 5 represents the company that has scored the highest points.
• In the end, a sum of all the facts is taken, and companies are again ranked based on the maximum points scored by each company.

1. PE

Company	Market Cap (Rs. Crore)	PE Ratio	Rank	Points
Aarti Industries	₹20,492	42.73	5	1
Atul	₹16,899	26.53	2	4
Vinati Organics	₹10,830	33.45	4	2
Navin Fluorine	₹10,381	24.63	1	5
Alkyl Amines Chemicals	₹6,527	31.49	3	3

• PE is basically how much an investor pays for each rupee of profit earned.
• Aarti Industries has the highest PE; hence it is ranked last and has the lowest points and has the best penny chemical stocks in india.
• Navin Fluorine has the lowest PE; hence it is ranked at no.1 position and has the highest points.

2. RoCE

Company	ROCE	Rank	Points
Aarti Industries	16.3%	5	1
Atul	28.0%	3	3
Vinati Organics	36.5%	2	4
Navin Fluorine	20.4%	4	2
Alkyl Amines Chemicals	41.1%	1	5

• Return on Capital Employed (RoCE )is one of the return ratios commonly used in fundamental analysis. RoCE is given as Earnings before Interest and Taxes (EBIT)/ Total Capital Employed (Debt+Equity)
• By allocating the company’s overall capital, it tells us how the company has earned profits. So higher the RoCE, the better.
• Here, Alkylyl Amines Chemicals has the highest RoCE of ~41%, which is very good. Hence it is ranked 1 and has the highest points and has the best chemical sector share in India
• Aarti Industries has the lowest RoCE among the 5 companies, and therefore, it is rated at the most down position.
• Overall, companies have healthy RoCE given the specialty chemical sector’s capital-intensive and regulatory nature of specialty chemical sector

3. RoE

Company	ROE	Rank	Points
Aarti Industries	19.1%	5	1
Atul	22.4%	4	2
Vinati Organics	28.7%	3	3
Navin Fluorine	32.7%	2	4
Alkyl Amines Chemicals	42.0%	1	5

• Another return ratio used widely in fundamental analysis is Return on Equity (RoE), which is given as Net Income/ Total Shareholder’s equity (Equity share capital + Reserves/Reserves/Reserves/Surplus).
• Alkyl Amines has a robust RoE of 42%, the highest among the lot. Aarti Industries is lagging with an RoE of ~19%, which is ranked at the lowest position.

4. Debt/Equity (D/E)

Company	D/E	Rank	Points
Aarti Industries	0.61	5	1
Atul	0.03	3	3
Vinati Organics	0	1	5
Navin Fluorine	0.02	2	4
Alkyl Amines Chemicals	0.16	4	2

• Despite being a capital-intensive industry, overall debt levels are moderate in the specialty chemicals industry.
• Vinati Organics is a debt-free company and hence ranks 1 among the given companies.
• Aarti Industries has D/E of 0.6 x, which is highest among the lot, hence it is ranked at lowest position and scored accordingly.

5. Interest Coverage Ratio

Company	Int. Coverage Ratio	Rank	Points
Aarti Industries	6.1	5	1
Atul	78.6	3	3
Vinati Organics	477.5	1	5
Navin Fluorine	152.7	2	4
Alkyl Amines Chemicals	29.3	4	2

• Interest coverage ratio is given by Earnings before Interest and Taxes (EBIT)/ Interest expense.
• This ratio provides the ability of the company to pay interest from its operating profit.
• Since Vinati Organics has no debt, its interest coverage ratio is the highest, and hence it is ranked one.
• As a result, Aarti Industries has the lowest interest coverage ratio due to its higher debt.
• However, looking at the overall sector level, despite being capital intensive industry, all the companies have healthy interest coverage ratios. Usually, an interest coverage ratio above 2.5 x is considered healthy.

6. Operating Profit Margin (%)

Company	OPM	Rank	Points
Aarti Industries	21.1%	5	1
Atul	22.1%	4	2
Vinati Organics	39.7%	1	5
Navin Fluorine	25.0%	3	3
Alkyl Amines Chemicals	28.3%	2	4

• As seen, overall the specialty chemicals sector has very healthy operating profit margins (20% and above).
• Vinati Organics has a robust operating profit margin of ~40%, hence it is ranked higher and has highest points.
• This results in Aarti Industries being ranked at the bottom.

7. 5- Year Sales growth

Company	5 Year Sales growth	Rank	Points
Aarti Industries	7.7%	4	2
Atul	9.2%	3	3
Vinati Organics	5.9%	5	1
Navin Fluorine	12.4%	2	4
Alkyl Amines Chemicals	15.8%	1	5

• Overall, the companies have posted moderate sales growth over 5 years.
• As a result, Alkyl Amines is at number one as opposed to Vinati Organics, which is at number 10.

8. 5-Year Net Profit growth

Company	5 Year Net Profit growth	Rank	Points
Aarti Industries	21.7%	5	1
Atul	22.4%	4	2
Vinati Organics	23.5%	3	3
Navin Fluorine	53.3%	1	5
Alkyl Amines Chemicals	33.0%	2	4

• All the companies have healthy net profit growth despite moderate sales growth mainly on account of healthy operating profit margins.
• Net profit growth is highest for Navin Fluorine and lowest for Aarti Industries.

9. 3- Year Sales growth

Company	3 Year Sales growth	Rank	Points
Aarti Industries	9.8%	5	1
Atul	13.0%	3	3
Vinati Organics	17.1%	2	4
Navin Fluorine	12.7%	4	2
Alkyl Amines Chemicals	25.6%	1	5

• A strong sales growth has been observed over the last three years for most companies. We can see the positive impact of the exit of major Chinese chemical companies on the sales growth of Atul, Vinati Organics, and Alkyl Amines Chemicals.
• These companies have posted more robust growth in the 3 year period compared to 5 years.

10. 3- Year Net Profit growth

Company	3 Year Net Profit growth	Rank	Points
Aarti Industries	19.4%	5	1
Atul	27.1%	4	2
Vinati Organics	33.5%	3	3
Navin Fluorine	45.9%	2	4
Alkyl Amines Chemicals	55.5%	1	5

• Companies like Alkyl Amines Chemicals and Navin Fluorine have posted robust growth over the 3 years.

Final Points

Ranks as per Quantitative Analysis

• As seen; Alkyl Amines Chemicals has scored the highest points on the back of healthy financials. Hence, it is ranked at no.1 position, followed by Navin fluorine, Vinati Organics, Atul, and Aarti Industries.