Deepak Nitrite, Aarti Industries, Clean Science and Technology among specialty chemical companies minting money over heat in China

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Deepak Nitrite, Aarti Industries, Clean Science and Technology among specialty chemical companies minting money over heat in China
  • China is currently struggling with a severe shortage of power and electricity which has left millions of homes and businesses hit by power cuts.
  • Power shortage has forced industries to cut down on production which has increased prices of chemical intermediates.
  • Shares of some chemical companies like Deepak Nitrite, Aarti Industries, Clean Science and Technology among others have rallied up to 40% in the last five days on power cut reports.
While China’s economy is going through a lot, an interesting fact is that some of its pains are actually offering abundant opportunities to the Indian economy.

China is currently struggling with a severe shortage of power/electricity which has left millions of homes and businesses struggling with power cuts including chemical manufacturing companies.

This has to do with China’s attempt to make the country carbon neutral by 2060 that has led to a slowdown in coal production. Reportedly, the country still relies on coal for more than half of its power.

So while power shortage has forced industries to cut down on production, it has increased prices of chemical intermediates in the country. Analysts expect the chemical industry stocks to outperform in the short to middle term and reflect in the companies’ earnings in the coming quarter.

Santosh Meena, head of Research at Swastika Investmart told LiveMint that Aarti Industries, SRF, and Deepak Nitrite may outperform in the chemical space.

Deepak Nitrite has rallied 21% in the last five days

Deepak Nitrite has rallied 21% in the last five days
BCCL

Shares of the Gujarat-based chemical company have been rising since the last five days on hopes of better outlook for Indian chemical manufacturers after manufacturing units in China closed temporarily due to shortage of electricity. Besides, the fact that the company is not dependent on China for raw materials is a boon in the current situation.

“We do source some raw materials from China, but we are not at all dependent on China. We focus on de-risking our raw material supply from China, and that has been our strategy for the last two years,” said Maulik Mehta, chief executive officer at Deepak Nitrite, in an interview with CNBC-TV18.

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Aarti Industries gains 12% in last one week

Aarti Industries gains 12% in last one week
BCCL

Aarti Industries was another major player in the chemical industry which gained from reports of power outages in China. Moreover, specialty chemical stocks have been on the radar of investors as analysts are bullish on the sector considering the “China plus one” strategy and now the power shortage crisis leading to lower production.

Analysts see a strong growth trajectory from huge opportunities for the chemical space.

“We find the business scalable, led by aggressive investments on capacity and capability (research & development, talent) and favourable macro factors. We see limited upside for our near-term growth estimates, but the company can surprise in the longer term, given its aggressive investments in new growth engines,” said Kotak Securities, reportedly initiating a ‘Buy’ rating on the stock.

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Clean Science and Technology surged 10% in last five days

Clean Science and Technology surged 10% in last five days
BCCL

Another beneficiary of the China power crisis is the newly-listed Clean Science and Technology. The company marked its strong presence in the field with its blockbuster listing (100%) on stock exchanges on July 19, 2021.

Moreover, the pandemic has been a blessing in disguise for the specialty chemicals company. The stalling of imports from China in the last year translated to more buyers in India, who were otherwise buying from China, leading to a 20% revenue growth for the company in the year ending March, 2021. The disruption in global supply from China also got them more buyers from other parts of the world.

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India Glycols climbs 19% in the last five days

India Glycols climbs 19% in the last five days
BCCL

Apart from the power crunch in China, the company’s stock was trending recently for a couple of other reasons. Recently, WHV-EAM International Small Cap Equity Fund bought 0.6% stake in the company via the open market. Further, credit rating agency, India Ratings & Research, upgraded the company's long-term issuer ratings on instruments including term loan. The stock has surged by 34% in the last one month, taking the market capitalisation of the company to ₹ 2,867 crore.

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Bodal Chemicals surges 16% in the last five days

Bodal Chemicals surges 16% in the last five days
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Chemicals stocks were clearly in very high demand this week as investors looked for companies with stable product portfolios and strong growth prospects due to rise in prices at international level. This led to Bodal Chemicals’ shares gaining 16% in the last five days.

The company’s financial performance helped it double investor’s money in the last one year. In the June quarter, the Gujarat-based chemical maker reported a 441% rise in net profit to ₹6.28 crore from ₹1.16 crore in the previous year.

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