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MOSL: SPECIALTY CHEMICALS: Genie is out! Initiating coverage with a positive outlook on the space

MOSL: SPECIALTY CHEMICALS: Genie is out! Initiating coverage with a positive outlook on the space

• Globally, the Specialty Chemicals business accounts for ~20% of the USD4t Chemicals industry. From having an insignificant presence (4.5%) in this segment, India's share in Specialty Chemicals is expected to double over the next five years - at a ~12% CAGR to USD64b by CY25.
• Various factors favor the Specialty Chemicals industry in India, including 1) strong domestic consumption - led by a young population (median age of 28 years), a high percentage (~67%) of which forms the working age group, 2) favorable labor cost (one-third that of China / half that of Vietnam), and 3) government impetus.
• In this sector initiation report, we propound our views on eight companies operating in India's Specialty Chemicals space: Atul Limited (ATLP), Deepak Nitrite (DN), Vinati Organics (VO), Alkyl Amines (AACL), Navin Fluorine (NFIL), Galaxy Surfactants (GALSURF), Fine Organics (FINEORG), and NOCIL.
• The doubling of capex over FY22-24E (from FY19-21 levels) would result in 52% revenue growth by FY24E (from FY21 levels), making these companies exciting plays. We expect 70bps EBITDAM expansion to 25% by FY24E (FY20/21 was 22.5/24.3%)
• We initiate coverage with a positive outlook on the Specialty Chemicals space. DN is our top pick in the sector. We assign a Buy rating to DN, VO, GALSURF, and NOCIL; a Neutral rating to ATLP, AACL, NFIL, and FINEORG.