Comparison of Top 5 Specialty Chemical stocks

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

Quantitative Analysis of Specialty Chemical Sector in India

Introduction

In this blog, we will do a quantitative analysis of specialty chemical sector. Specialty chemicals are the products that have specific end – uses and are usually manufactured in low volumes. Specialty chemicals find their application in wide variety of industries like Tyre manufacturing, agro-chemicals, pharmaceuticals, etc. This sector accounts for ~22% of the total chemical sector in India. In the last 2-3 years, 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. Analysis done is completely on 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 decision based on risk profile.

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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.

  • Aarti Industries
  • Atul
  • Vinati Organics
  • Navin Fluorine International
  • Alkyl Amines Chemicals
Procedure of Analysis and its Interpretation
  • These 5 companies are analysed on following 10 parameters and given ranks and points accordingly. For example, if a company has higher PE ratio, it is ranked lower , hence has scored lesser points. Similarly, if a company has higher RoE, it is ranked higher and has scored higher points.
  • Here , 1 means that the company has scored lowest points and 5 means the company has scored highest points.
  • At the end, sum of all the points is taken and companies are again ranked on the basis of maximum points scored by each company.
1. PE
CompanyMarket Cap (Rs. Crore)PE RatioRankPoints
Aarti Industries₹20,49242.7351
Atul₹16,89926.5324
Vinati Organics₹10,83033.4542
Navin Fluorine₹10,38124.6315
Alkyl Amines Chemicals₹6,52731.4933
  • PE is basically how much an investor pays for each rupee of profit earned.
  • Aarti Industries has highest PE, hence it is ranked on last position and has lowest points.
  • Navin Fluorine has lowest PE , hence it is ranked at no.1 position and has highest points.
2. RoCE
CompanyROCERankPoints
Aarti Industries16.3%51
Atul28.0%33
Vinati Organics36.5%24
Navin Fluorine20.4%42
Alkyl Amines Chemicals41.1%15
  • 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)
  • It gives us a perspective of how the company is earning profits by allocating its overall capital. 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 highest points.
  • Aarti Industries has lowest RoCE among the 5 companies and hence it is ranked at lowest position.
  • Overall, companies have healthy RoCE given the capital intensive and regulatory nature of specialty chemical sector
3. RoE
CompanyROERankPoints
Aarti Industries19.1%51
Atul22.4%42
Vinati Organics28.7%33
Navin Fluorine32.7%24
Alkyl Amines Chemicals42.0%15
  • Another return ratio that is used widely in fundamental analysis is Return on Equity (RoE) which is given as Net Income/ Total Shareholder’s equity (Equity share capital + Reserves/Surplus).
  • Alkyl Amines has robust RoE of 42%, which is highest among the lot. Aarti Industries is lagging behind with a RoE of ~19% and hence it is ranked at lowest position.
4. Debt/Equity (D/E)
CompanyD/ERankPoints
Aarti Industries0.6151
Atul0.0333
Vinati Organics015
Navin Fluorine0.0224
Alkyl Amines Chemicals0.1642
  • Despite specialty chemical being a capital intensive industry, overall debt levels are moderate.
  • 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
CompanyInt. Coverage RatioRankPoints
Aarti Industries6.151
Atul78.633
Vinati Organics477.515
Navin Fluorine152.724
Alkyl Amines Chemicals29.342
  • Interest coverage ratio is given by Earnings before Interest and Taxes (EBIT)/ Interest expense.
  • This ratio gives the ability of the company to pay interest from its operating profit.
  • Since Vinati Organics has no debt, its interest coverage ratios is highest and hence it is ranked one.
  • Similarly, Aarti Industries has a higher debt and hence has lowest interest coverage ratio.
  • However, looking at the overall sector level despite being capital intensive industry, all the companies have healthy interest coverage ratios. Usually interest coverage ratio above 2.5 x is considered healthy.
6. Operating Profit Margin (%)
CompanyOPMRankPoints
Aarti Industries21.1%51
Atul22.1%42
Vinati Organics39.7%15
Navin Fluorine25.0%33
Alkyl Amines Chemicals28.3%24
  • 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.
  • Aarti Industries is again a bit behind other companies, hence it is ranked lowest.
7. 5- Year Sales growth
Company5 Year Sales growthRankPoints
Aarti Industries7.7%42
Atul9.2%33
Vinati Organics5.9%51
Navin Fluorine12.4%24
Alkyl Amines Chemicals15.8%15
  • Overall, the companies have posted moderate sales growth over 5 years.
  • Alkyl Amines has highest sales growth, hence ranked at no.1 as opposed to Vinati Organics, which is ranked on last position.
8. 5-Year Net Profit growth
Company5 Year Net Profit growthRankPoints
Aarti Industries21.7%51
Atul22.4%42
Vinati Organics23.5%33
Navin Fluorine53.3%15
Alkyl Amines Chemicals33.0%24
  • All the companies have healthy net profit growth despite moderate sales growth mainly on account of healthy operating profit margins.
  • Navin Fluorine has highest net profit growth and Aarti Industries has lowest net profit growth.
9. 3- Year Sales growth
Company3 Year Sales growthRankPoints
Aarti Industries9.8%51
Atul13.0%33
Vinati Organics17.1%24
Navin Fluorine12.7%42
Alkyl Amines Chemicals25.6%15
  • Overall companies have healthy sales growth over 3 years. We can see the positive impact of exit of major Chinese chemical companies on the sales growth of Atul, Vinati Organics and Alkyl Amines Chemicals.
  • These companies have posted stronger growth in 3 year period as compared to 5 years.
10. 3- Year Net Profit growth
Company3 Year Net Profit growthRankPoints
Aarti Industries19.4%51
Atul27.1%42
Vinati Organics33.5%33
Navin Fluorine45.9%24
Alkyl Amines Chemicals55.5%15
  • Companies like Alkyl Amines Chemicals and Navin Fluorine have posted robust growth over the 3 year period.
Final Points
Specialty Chemicals Quantitative Analysis
Ranks as per Quantitative Analysis
  • As seen, Alkyl Amines Chemicals has scored highest points on the back of healthy financials and hence it is ranked at no.1 position, followed by Navin fluorine, Vinati Organics, Atul and Aarti Industries.

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