Despite commentary from some companies hinting at a possible demand recovery, Akella said the broader industry commentary, especially from global players like Dow Chemical and LyondellBasell, remains cautious. Oversupply from China continues to pressure global prices across most categories, barring select segments like HFC refrigerants.
He stated that companies like SRF and Navin Fluorine International could see earnings support from higher R-32 refrigerant (a refrigerant used in air conditioning and refrigeration systems) prices and specific growth projects. SRF is also benefiting from a recovery in agrochemical demand and is guiding to 20% growth in its speciality chemicals division. Navin Fluorine, which recently completed a qualified institutional placement (QIP), is expected to announce new growth projects soon, although Akella believes much of the expected upside is already priced in.
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On the other hand, companies like Aarti Industries and Deepak Nitrite are likely to remain under pressure due to weaker pricing and subdued end-market demand. Among agrochemical players, UPL may see the softest performance owing to its exposure to Latin America, particularly Brazil. “There have been more than a dozen distributor bankruptcies in Brazil in agrochemicals over the past year,” Akella said, adding that Chinese competition and currency volatility could further hurt revenue. While margin improvement is possible, Akella stated concerns around foreign currency impacts and potential provisions related to distributor settlements.Akella remains positive on a few structurally sound stocks with long-term growth potential. He highlighted Aarti Pharmalabs (formerly AMI Organics), which is expanding into semiconductor chemicals through a joint venture (JV) in Korea and has solid visibility in its pharma contract development and manufacturing organisation (CDMO) business.
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He also stated S H Kelkar and Company as undervalued in the flavours and fragrances space, with built-in operating leverage that could play out over two to three years. Another name on his list is Godrej Agrovet, where turnaround efforts in certain segments and the possibility of a future demerger could unlock value.
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