“Diversification is protection against ignorance, but if you don’t feel ignorant, the need for it goes down drastically.” - Warren Buffett
Chemical stocks find themselves where ITC was till about a couple of years back and have become the target of meme attacks on social media. These stocks have had a phenomenal run till 2021-22, but since then, most of them have been underperforming. Bulls of the sector believe chemical companies will benefit hugely from the China plus-one trend as buyers look to diversify their vendor base. But bears are equally convinced that as China’s economy weakens further, there will be more dumping of chemicals by Chinese firms in global markets.
The Indian chemical companies are slowly beginning to sound positive. Vinati Organics has said that inventory levels at clients’ end have come down significantly and volumes should start picking up from FY25. The business environment may be improving, but an upswing in stock prices could be gradual, warn market veterans.
That is because too many people still own chemical stocks and, given the long wait, it would be just a breakeven or a small profit to sell out. Besides, capex is underway in most companies because of which margins may not be as juicy as they were in the past. The long term looks promising no doubt, but it is the short term that could be tricky.
NBCC (India) (Rs 141.3, +4.98)
The company secured three orders totalling Rs 369.05 crore.
Bull argument: Consolidated order book now stands at a little over Rs 55,300 crore at the end of Q3FY24. Out of this Rs 21,000 crore worth of projects are under execution.
Bear argument: The stock is trading at expensive valuations after rallying 115 percent in the last 3 months and has limited upside at this point.
Sula Vineyards (Rs 569.1, -7.85%)
Verlinvest Asia PTE sold an 8.34 percent stake in the company on February 19.
Bull argument: Management expects recovery in revenues from the current
quarter. Tier 2 cities, like those in Punjab and Uttar Pradesh are showing good trends of wine consumption.
Bear argument: High competitive intensity in Maharashtra due to which the company is offering free additional volumes on a purchase of a particular volume. This increased the wine maker's selling and distribution expenses increase by 25 percent in Q3FY24.
Crompton Greaves (Rs 290.05, 1.84%)
The stock has risen over 3 percent in the last 5 sessions despite weak December quarter earnings. On February 18, the stock gained 1.84 percent.
Bull argument: Analysts are positive on new product launches, strong brand recall and increase in demand.
Bear argument: Challenges persist for Butterfly Gandhimati and the lighting segment.
Dr Reddy's Laboratories (Rs 6,421.95, +1.66%)
The stock hit a 52-week high following a report by CNBC-TV18 that the company is in the race to acquire Novartis AG's stake in Novartis India.
Bull argument: Novartis has leadership positions with a very high market share in Myfortic, Tegrital, Simulect, and Sandimmun. These brands can complement Dr Reddy’s existing presence in these segments.
Bear argument: Dr Reddy’s has not confirmed the development. Should the deal not go through for some reason, the focus will shift to launch timelines of key products Sandostatin LAR, Ozempic, Victoza and Forteo. Delay or failure to obtain approvals for biosimilars and in the ramp-up of the proprietary pipeline may affect the business.
Quess Corp (Rs 539.45, +7.59%)
The stock jumped after the company announced it would split into three independent entities - Quess, Digitide and Bluspring.
Bull argument: Analysts believe the proposal will be beneficial to both the company and shareholders. MOFSL expects a gradual recovery in margins over FY25 and FY26, which should support earnings.
Bear argument: The market may assign lower multiples to Digitide and Bluspring due to their lower growth rates compared to Quess. FIIs have narrowed their stake to 16.3 percent in Dec 2023 quarter from 21.8 percent in Dec 2022 quarter.
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