Best Small Cap Chemical Stocks
Best Small Cap Chemical Stocks
Best Small Cap Chemical Stocks: Chemistry is the field of science that deals with the study of the most basic elements of life, beginning with the Atoms. These elements form the building blocks of everything that we see around us. The studies and developments made in this field have allowed humans to build revolutionary products that can evade severe diseases, or build reliable products that last a lifetime.
Best Small Cap Chemical Stocks
So today, let us explore some of these Chemical manufacturers specializing in their niche of chemicals. We have chosen small caps with a strong growth rate and strong return ratios. We will look at when were these Companies established, and what markets they cater to. Then let us look at their recent Annual earnings and what valuation are they currently at.
Best Small Cap Chemical Stocks #1 – Fine Organic Industries
Fine Organics is a small Cap Oleochemical Manufacturer based out of Mumbai. The Company was founded in 1970 by Mr. Ramesh Shah and Mr. Prakash Kamat. Ramesh was a businessman in the chemical trading business while Prakash was a skilled graduate of the Institution of Chemical Technology.
Before we get ahead of ourselves, let us tell you what Oleochemistry is. This field of science deals with the utilization of oils & fats from plants & animals. The Company has been a pioneer in the field, creating a portfolio of over 470 Products, all derived from Natural Plant-based oils.
Fine Organics has a presence in over 80 countries, with a network of 180+ distributors and 850+ direct customers. The Company’s products are used in Food products, personal care, Animal Feed, coating, specialty, and multiple other ingredients.
The Company earned a revenue of Rs. 3087 Cr in FY23, which increased by a spectacular 62%, from Rs. 1909 Cr in FY22. During the same period, even Net Profits saw a humungous 138% growth from Rs. 260 Cr in FY22 to Rs. 618 Cr in FY23.
Best Small Cap Chemical Stocks #2 – Archean Chemical Industries
Archean Chemicals, a rather unheard-off small cap happens to be India’s largest producer & exporter of Bromine & Industrial salt. The Company is India’s Leading specialty chemical manufacturer specializing in Bromine, industrial salts, and Sulphate of Potash.
The Company’s manufacturing facilities are located near the Jakhau Jetty and Mundra Port. The facility has a design capacity of 5 MNTPA and a capacity to load 28,000 MT. The manufacturing site also has access to the Rann of Kutch reserves along with closer connectivity to ports.
Archean has a client base of over 55 clients, of which 27 are global and 28 are domestic. Despite having a near-equal client base in both markets, 73% of the Company’s revenue comes from foreign markets and 27% from India.
The Company earns 51% of its revenue from its industrial salt division. Bromine salt division is right behind contributing to 49% of FY23 revenue. Sulphate of Potash is still a minute segment contributing to only 0.21% of revenue.
During FY23, Archean reported revenue of Rs. 1484 Cr, which increased by 30% from Rs. 1143 Cr in FY22. Net Profits during the period skyrocketed from Rs. 188 Cr in FY22 to Rs. 383 Cr in FY23, growing by 103%. The Company has low debt on its balance sheets and trades at a reasonable PE of 20x. The Company also has an ROE & ROCE in the 45%+ range.
Best Small Cap Chemical Stocks #3 – Clean Science & Technology
Clean Science is a chemical manufacturing Company established in 2003. The Company takes an innovative and sustainable approach to manufacturing specialty chemicals. Clean Science is a manufacturer of Performance Chemicals, Pharmaceutical Chemicals, and FMCG Chemicals.
The Company has a presence in 35 countries with 500 customers across the globe. Clean Science’s biggest market so far happens to be China contributing to 34% of global revenue. This is followed by India at 28% and then the Americas and Europe contributing 16% each. Clean Science has 3 manufacturing units and 4 independent R&D labs. Its manufacturing units have a combined capacity of producing 44,000 MTPA.
The Company is predominantly a performance Chemical Manufacturer which makes up for 70% of its revenue. Pharma & Agro Intermediaries which contribute to 19% and finally FMCG Chemicals make up 11% of the Company’s revenues. Clean Science had a spectacular year in FY23 reporting revenues of Rs. 966 Cr, which increased by 35% from Rs. 715 Cr in FY22. Net Profits also increased at a slightly slower rate of 29%, from Rs. 228 Cr in FY22 to Rs. 295 Cr in FY23.
The Company has strong Operating Margins of 43% and Net Profit Margins beyond 30%. These translate to strong Ratios of 33% and 45% ROE & ROCE respectively. However, due to the strong performance, the market values the stock at a sky-high PE of 56x.
Best Small Cap Chemical Stocks #4 – TGV SRACC
TGV SRAAC is a flagship Company of the TGV Group. The Conglomerate has its business interests in the Manufacturing, Power, Infrastructure, Pharmaceuticals, Hospitality and Education sectors.
TGV SRAAC, formerly called Sree Rayalaseema Alkalies and Allied Chemicals is the leading producer of Chlor-Alkali products. Along with this, the Company also manufactures castor derivatives and fatty acids. The Company is a pioneer in Bipolar Membrane Cell Technology from Uttdenona Spa, Italy.
The Company’s business can be divided into two specific segments. First, we have Caustic Soda, which finds its consumption in Aluminium, Pulp and Paper, Textiles, and pharmaceuticals. Next on the list is Hydrogenated Castor Oil, which is used as a surfactant and specialty lubricant. The product finds its uses in skin care and other toiletry products.
TGV SRAAC reported a revenue of Rs. 2332 Cr in FY23, which is 52% higher than Rs. 1532 Cr in FY22. During the period, the Company reported a spectacular growth of 170% growth in Net Profits from Rs. 134 Cr in FY22 to Rs. 362 Cr in FY23. The jump in Net Profits was a result of a drop in Material, manufacturing costs, and Employee expenses.
Best Small Cap Chemical Stocks #5 – Vishnu Chemicals
Vishnu Chemicals is the largest manufacturer of Chromium and Barium Chemicals in India. The Company manufactures specialty chemicals such as Industry-Grade Chromium chemicals, Barium Carbonate, and precipitated barium sulfate.
The Chromium chemicals are used in Pharmaceuticals, electroplating, refractories, wood preservatives, pigments, paper, and a lot more. Barium Chemicals are used in Ceramics, construction materials, paints, batteries, and specialty glass.
Vishnu Chemicals has 30+ years of Market experience, building a customer base of 100+ customers. The Company has a 51:49 mix, where the majority of the sales come from Indian markets and the rest from overseas markets.
The Company’s revenue increased by 31%, from Rs. 1075 Cr in FY22 to Rs. 1406 Cr in FY23. During the same period, Net Profit increased by 68%, from Rs. 82 Cr in FY22 to Rs. 137 Cr in FY23.
The promoters of Vishnu Chemicals had pledged 36.07% of their stakeholding in the Company as of FY23. Nevertheless, the pledged shareholding has now come down to a mere 3.84% as of H1FY24.
We believe that the Company is undervalued trading at a PE of 19x while scaling earnings at the rate of 54% CAGR since FY19. The Company also maintains a high-quality ROE & ROCE of 40% and 31% respectively.
List of Best Small Cap Chemical Stocks
The list below puts together the 10 Best Small Cap Chemical Stocks
We have worked on building this fine list of chemicals stocks for you which includes manufacturers of chemical salts to manufacturers of specialty chemicals. The Chemical Industry can be a very lucrative opportunity, but it is currently facing issues maintaining margins due to geopolitical issues and dumping of cheap imports from China.
Nevertheless, the stocks on our list maintain a strong return of Equity in the 30%+ range on average and have also performed very well since last year. So, which happens to be of your liking? Would you risk your money in a high-growth small cap or a medium growth mid Cap? Let us know in the comments below.
Written by Nasir Hussain
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