Midcap chemical space: 4 hot picks

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Midcap chemical space: 4 hot picks

Investment advisor, S P Tulsian lets out his favourites among chemical stocks in the midcap space.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See what other experts are saying about markets See what FIIs are saying about the markets See what Udayan Mukherjee is saying about the markets

Investment advisor, SP Tulsian likes Ciba Speciality Chemicals, Nagarjuna Agrichem, BASF India and Thirumalai Chemicals from the midcap chemical space.

Excerpts from CNBC-TV18's exclusive interview with  S P Tulsian:

Ciba Speciality Chemicals:

Ciba Speciality Chemicals is a FERA company and 58% of it is held by Ciba of Switzerland. They are into speciality chemicals. The only problem is that they source 65% of their items from outside and that is a trading item, but there is a dramatic shift in improvement in the company's margins.
The company is doing exceedingly well and their H1 results were also good.

For FY06 we are expecting a turnover of Rs 650 crore with a net profit of Rs 45 crore and that translates into an EPS of Rs 35. At its current market  price of Rs 430-440, this share is available at a P/E multiple of 10 to 11. With the improvement in the overall economy, the demand for speciality chemicals has also gone up, whether it is speciality chemicals or industrial speciality chemicals.

This company is into both the segments with a product mix of 50-50%. So at the P/E multiple of 10-11 and the kind of growth they are likely to report, should be very good for this share and its share prices may go beyond Rs 600 in the next 6-12 months.

Nagarjuna Agrichem:

Nagarjuna Agrichem is an agro-chemical stock, but by and large agro-chemical stocks don't have high P/E multiple.

Maximum chemicals are used in the cotton crop and so the demand for agro-chemical has risen. Nagarjuna Agrichem is one of the leading players in this segment. They have not had good growth in H1 but in times to come the performance is expected to be good. The highlight of this company is the EPS expected for FY06 which is Rs 21-22. So it is available at a P/E multiple of six to seven with promoters stake close to 78-79%.

This company is very sound and has been paying a good dividend. So in times to come, the P/E expansion should take place. Nagarjuna should see a jump of about 40-50% in one year's time.