InvestorQ : What is this buzz around specialty chemical companies and are they really attractive for investments? What stocks would you suggest?
Rashi Mehra made post

What is this buzz around specialty chemical companies and are they really attractive for investments? What stocks would you suggest?

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sarah Leo answered.
2 years ago
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Between 2014 and 2019 a lot of specialty chemical companies like Aarti Industries, Vinati Industries, and Himadri Chemicals have all been multi baggers in the stock market. These are very niche players in the specialty chemicals space and cater to high end value enhancers and are not as commoditized as basic chemicals.

Specialty chemicals find specific uses in industries like electronics, paints, plastics, metals etc. Some of the examples of specialty chemicals are carbon products, coal tar pitch, carbon black, specialty oils etc and are critical inputs for key high growth industries. The global specialty chemicals industry is estimated to be worth nearly $770 billion and India accounts for less than 1.5% of the global market. Things are changing in the last few years after Indian companies started investing in capacities to build global capacity standards.

To a large extent, the Indian specialty chemicals industry has benefited from Chinese recent decisions on the environment protection front. In fact, China had emerged as the largest specialty chemicals player in the world by 2010 and is currently a multiple of the Indian capacity in this space. Due to serious environment concerns raised, China has been cutting its specialty chemicals output sharply to ensure that its factories are in line with the environmental safety norms. This led to a sharp fall in production in China and India has been the beneficiary of that trend and has managed to fill in the gap created by China. A lot of the growth in last 3 years has come to India largely by the room vacated by China. Other than these environment concerns, Chinese companies have also seen their tariffs on specialty chemicals exports to the US suffer higher tariffs and that has made it uncompetitive. That also improves India’s prospects in this industry.

If you talk of specific stocks, there are stocks like Aarti Industries, Vinati Organics, Tata Chemicals and Himadri Chemicals which can be very attractive stocks in this space with very high growth rates, unique product lines and also reasonable valuations.

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