Quantitative Analysis of Top 5 Specialty Chemical Stocks
In this blog, we will go through the quantitative analysis of 5 Specialty Chemicals on certain parameters.
As per the IBEF report, India’s Chemical Industry is broadly classified into 6 categories namely: Bulk Chemicals, Specialty Chemicals, AgroChemicals, PetrcoChemicals, Polymers, and Fertilizers. Chemical Industry in India is highly diversified which covers more than 80,000 products. The market value of the Chemical & Petrochemicals Sector in India is estimated to be around $178 billion (2019).
Coming to Specialty Chemicals, are chemical products that play a vital role in varieties of industries like textile, adhesives, oil & gas, cosmetics, pharmaceuticals, and many more. Specialty Chemicals are used according to their functions and effectiveness, solely or with a group of other chemicals to deliver and deliver efficiently towards the formation of any product.
Market Share of Specialty Chemicals in Chemicals and Petrochemicals Market in India accounts for 22%. The demand for specialty chemicals is expected to rise at a 12% CAGR in 2019-22.
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.
Detailed Analysis of Top 5 Specialty Chemical Stocks
Specialty Chemicals Stocks Quantitative Analysis
Companies selected for Analysis:
We have selected the following five Specialty Chemical companies for our Quantitative Analysis.
- Aarti Industries
- Atul Ltd.
- Vinati Organics
- Navin Fluorine
- Alkyl Amine Chemicals
Market Capitalization of 5 Specialty Chemicals Stocks:
- Aarti Industries- Rs. 21,622 Cr.
- Atul Ltd.- Rs. 19,575 Cr.
- Vinati Organics- Rs. 14,134 Cr.
- Navin Fluorine- Rs. 12,236 Cr.
- Alkyl Amines Chemicals- Rs. 11,116 Cr.
The procedure of Analysis and its Interpretation
- These 5 Companies are analyzed on the following 11 parameters and ranked and scored accordingly. For example, a company with a higher PE ratio is provided 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 is considered to be better and hence full points will be rewarded to that company.
- Navin Fluorine with the lowest PE ratio of 27.1 gets the full points and first position. Alkyl Amines Chemicals with the highest PE of 55.2 is given only 1 point.
- EV/EBITDA ratio measures Enterprise Value (EV) to the Earnings before Interest, Tax, Depreciation, and Amortization (EBITDA).
- Since this industry is a capital-intensive industry, looking at the EV/EBITDA ratio also becomes important.
- The first position is jointly shared by Navin Fluorine and Alkyl Amines as both of them are having EV/EBITDA of 9.5, hence rewarded 5 points to both of them.
- Vinati Organics scores the lowest position and only 1 point and fifth rank.
3) Return on Capital Employed:
- RoCE indicates how better the company is generating the profit over the capital employed.
- The more the RoCE of the company, the better is considered.
- RoCE is Earnings before Interest and Taxes (EBIT)/ Total Capital Employed (Debt + Equity).
- RoCE plays a crucial role in the analysis of any capital-industry and so is equally important in this industry as well.
- In this parameter, Alkyl Amines tops the list by posting the highest RoCE of 43.2%, whereas Aarti Industries scores the lowest for having the lowest RoCE among its peers.
4) Return on Equity:
- RoE signifies how well the company generates the return on shareholders’ investment.
- A company with higher RoE is considered good and vice versa.
- RoE can be calculated as Net Income/Total Shareholder’s Equity.
- In this criteria also, Alkyl Amines performs better than others. It has the highest RoE of 43.2 and therefore given full point and 1st rank.
- While Navin Fluorine here ranks 2nd with RoE of 32.4% and the last position is given to Aarti Industries for the lowest RoE among the peers of 19.5%.
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, lesser is the debt, better it is for the company, and vice-versa.
- Since Chemical Specialty Industry is a capital-intensive industry, they have certain amounts of debt present on their balance sheet.
- Here, Navin Fluorine and Vinati Organics rank first on account of being virtually debt-free companies, whereas Aarti Industries with the highest D/E ratio of 0.70 ranks the lowest.
6) Interest Coverage Ratio:
- The interest coverage ratio is Earnings before Interest and Taxes (EBIT)/ Interest expense.
- Interest Coverage Ratio indicates the ability of companies to pay interest from their operating profit.
- Unlike the D/E ratio, a company with a higher Interest Coverage Ratio is considered good and safe and vice versa.
- Due to zero debt on the company, Vinati Organics has a sizeable amount of Interest Coverage Ratio of 209.6 and hence rewarded with full points.
- Navin Fluorine secured 2nd position with an Interest Coverage Ratio of 129.6. Atul Ltd. And Alkyl Amines have an Interest Coverage Ration of 90.4 and 24.5 respectively and hence marked accordingly.
- Aarti Industries with the highest D/E ratio carries the lowest Interest Coverage Ratio and hence is marked and scored accordingly.
7) Operating Profit Margin (%) (OPM):
- Operating Profit Margin can be calculated by dividing Operating Profit by Total Revenue. It is sometimes also called EBIT (Earnings before Interest and Tax) Margin.
- Operating Profit Margin is very important for any capital-intensive industry.
- At this juncture, Vinati Organics gains the first position and 5 points with the highest OPM of 36% among all the compared players.
- Yet again, Aarti Industries gets 1 point and bottom-most position with an OPM of 24%.
8) Sales and Net Profit Growth- 5 Year CAGR:
- Talking about the Sales Growth based on 5-years CAGR, Aklyl Amines has outscored other players by registering the highest sales growth of 15.8% and hence rewarded with 5 points.
- Next to Aklyl Amines is Navin Fluorine, which has sales growth of 12.45 and hence given 2nd rank. Atul Ltd. is given 3 points and 3rd rank as well for recording sales growth of 9%.
- Aarti Industries and Vinati Organics with sales growth of 7.6% & 5.9% respectively are scored accordingly.
- Moving on to PAT numbers, here Navin Fluorine leads the other players with phenomenal PAT growth of 49.6% and Alkyl Amines comes next to it with 34.9% PAT based on 5-year CAGR Growth.
- Aarti Industries have the lowest PAT Growth of 21.1% and therefore marked with 1 point only.
9) Sales and Net Profit Growth- 3 Year CAGR:
- In the context of Sales Growth based on a 3-Year CAGR, Alkyl Amines overmasters other players by scoring the highest sales growth of 25.6% and hence grabs the first position.
- Vinati Organics with a selling growth of 17.1% is provided with 4 point and 2nd rank, while Navin Fluorine recorded 13.7% s growth and is given 3 points only.
- Aarti Industries has the flattest sales growth of 9.4% and hence scored and ranked accordingly.
- In terms of PAT growth based on a 3-Year CAGR, Alkyl Amines has delivered an extraordinary PAT of 62.3 and therefore given full points and first position as well.
- Navin Fluorine also records a significant PAT growth of 44.5% and hence scored 4 points and a second position. Whilst Aarti Industries has PAT growth of only 19.4% and hence remains the loser in this case too.
10) Inventory Turnover Ratio:
- Inventory Turnover Ratio is Cost of Stocks Sale/ Average Inventory. Average Inventory is (Starting Inventory + Ending Inventory)/2.
- It gives us an idea of the shelf life of the company product and also gives an overview of how the company is stocking up its inventory as well as how many times the company has sold its inventory in a given period.
- The higher the Inventory Turnover Ratio, the better it is for the company and vice versa.
- Vinati Organics has an Inventory Turnover Ratio of 11.1 thereby scores full points.
- Following Vinati, Alkyl Amines with an Inventory Ratio of 10.5 gets the second position.
- Yet again, Aarti Industries scores the lowest point with the shortest shelf life of 5.7.
11) Cash Conversion Cycle (CCC):
- In this scenario, the number one position is with Alkyl Amines with the lowest CCC of 45 days. Atul Ltd. comes up to be runner-up with the Cash Conversion Cycle of 59 days.
- Aarti Industries maintains a CCC of 90 days, the longest among its peers and hence given 1 point only.
12) Final Score:
- Considering the above rankings and marks of the 5 Specialty Chemicals Stocks, Alkyl Amines tops the list by scoring the highest 52 points.
- Vinati Organics receives the second position and 49 marks by performing decently on almost all the parameters. While Atul Ltd. receives 43 points and 3rd rank as well.
- The fourth position on the chart is to hold by Navin Fluorine with 37 points.
- Aarti Industries has performed worst across all the criteria and hence fails to even score 20 points and at last, settles with 17 points and fifth position.