2 chemical stocks to buy post Q3 results, as recommended by Nirmal Bang

Domestic brokerage and research firm Nirmal Bang has recommended ‘Buy’ ratings on two chemical stocks – Fine Organic Industries and Neogen Chemicals after their respective earnings for the third quarter ended December 2022 of the current fiscal or Q3 FY23.

Fine Organic Industries: Fine Organic’s overall 3QFY23 EBITDA came in ~18% below the brokerage’s estimate on account of lower-than-expected revenue growth and margin normalization after three consecutive quarters of above-average EBITDA margin. Revenue came in lower than estimate on account of lower RM prices and significant decline in freight costs. 

“The company has started to enter into long-term contracts similar to pre-covid times. We continue to remain positive about the company’s long-term growth prospects and it remains our best pick in the Oleochemicals space. After earnings revision, we upgrade FINORG to BUY with a revised Target Price (TP) of ₹5,500 (earlier ₹6,800) as the recent correction (~16% in last month) in stock price has made risk-reward favourable,” the note stated.

Neogen Chemicals: Neogen Chemicals’ 3QFY23 EBITDA came in 23% ahead of its estimate on the back of strong growth in both Organic as well as Inorganic segments. Organic business growth was a function of both volume and pricing. The outlook for CSM business remains strong, it said. 

The management reiterated that CSM business is on track to achieve ~20% of the overall revenue in FY24. NEOGEN is currently working on 23 molecules wherein the potential business opportunity could be to the tune of ₹21 bn, as per management.

“We like Neogen’s ability to handle complex opportunities in the existing business and believe that there is a long runway for growth in the CSM business with the innovators. While execution remains the key in the new business, we assign higher probability for non-linear growth over the medium to long term. Post earnings revision, we upgrade NEOGEN to BUY with a revised target price (TP) of Rs1,500 (earlier Rs1,570). NEOGEN’s premium valuation is on account of its niche presence in value-added bromine chain and optionality in the Battery Chemicals segment.”

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