Earnings season for the Q4Fy22 quarter has kicked off with the earnings announcement by TCS and there are expectations that the companies' shall fare mixed amid the inflationary pressure and likely pick up in business activities post the unlocking.
Nevetheless Sharekhan in its Q4Fy2022 Results Preview report is positive on the Agri Inputs and Speciality Chemicals space. As per the brokerage, export oriented agri input companies shall do well owing to the capitalisation of the high cost front globally, while the domestic companies shall be subjected to margin pressure.
"Overall, we expect agro-chemical companies under our coverage to post 17% y-o-y PAT growth in Q4FY2022. We expect specialty chemical companies to sustain strong revenue growth, led by price hikes and decent volume growth; however, crude-linked input cost surge would mean margin contraction. SRF Limited is best placed with likely strong growth across segments. Potential normalisation of input cost is expected to bring back focus on structural earnings growth drivers (global market sharegain) for quality agri-input and specialty chemical stocks.
The industry as a whole is expected to capitalise on the global tailwinds and increase its global share. Some of the drivers shall be China Plus One strategy i.e. diversifying and investing away from China, import substitution as well as supply chain disruption shall benefit the domestic industry.
Brokerage's take on Agri Inputs and Speciality Chemicals stocks:
There is a view by the brokerage house that given the recent correction provides an opportunity as there is visualised double digit earnings growth for the sector
Higher raw-material cost for agri and speciality chemical companies might affect margins if they are unable to pass it on to customers.
Lower demand offtake for products of specialty chemicals players owing to slowdown in economic activity may also affect earnings.
Sharekhan's top picks from Agri Inputs and Specialty Chemicals space:
|Companies||CMP (RS)||Reco/View||PT (Rs)|
|Sumitomo Chemical India||426||Buy||500|
The above stocks are taken from the brokerage's Q4fy22 Results preview report. Readers should not construe the report as an investment advice, instead should engage in their own due diligence.