Capex momentum continues for chemical cos despite near-term hiccups, says Centrum Broking

Centrum Broking has a 'buy' call for 10 out of the 12 chemicals and agrochemicals players under its coverage.

The chemical sector witnessed a mixed FY23, with a strong first half but a challenging second half. High cost inventories, subdued export demand and falling raw material prices due to China opening up has created multiple roadblock in the path towards growth for chemical companies.

Regardless of that, companies within the sector have relentlessly pushed ahead with their capacity expansion (capex) plans. After defying the COVID-related slowdown and capturing off strong growth in FY21/FY22, chemicals and agrochemicals players have increased their capex by around 40 percent and 17 percent, respectively, Centrum Broking highlighted in its report.

Meanwhile, going by the capex trends, the brokerage expects a capex worth Rs 358,00 crore for chemicals companies and Rs 24,800 crore for agrochemicals players over FY24-25E.

"Despite facing multiple headwinds at the current juncture, none of these companies have toned down their capex plans which reflects strong medium to long-term growth visibility for the sector," the brokerage stated.

Accordingly, Centrum Broking also maintains a positive outlook for the sector as it believes the near-term headwinds will unlikely dent the robust medium-long term growth prospects of the sector. The firm has a 'buy' call for 10 out of the 12 chemicals and agrochemicals players under its coverage. The firm is bearish on Anupam Rasayan India as it gave it a 'sell' rating, while it is mildly bullish on SRF, assigning it an 'add' recommendation.

Global chemicals companies have also hinted towards an end to inventory destocking by the end of the current quarter, along with demand recovery from the second half of FY24. These factors are a positive for domestic players and hence, Centrum believes that when demand recovers, exports will pick up along with some growth in inventory restocking.

The firm also said that Indian chemicals companies are well positioned to capture any sudden rise in demand as it holds spare capacity in hand.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.​​​