Why Chemcon Speciality Chemicals Share Price is Falling

The Indian chemical sector has been through a lot of ups and downs recently.

In 2021, the chemical sector was rallying like there's no tomorrow. Lockdowns in China along with high logistic costs helped the Indian chemical sector flourish.

However, the growth was spoiled in early 2022 because of the Russia-Ukraine war. Globally, chemical companies came under pressure because of shrinking margins. Even the best chemical stocks saw a sharp fall.

Cut to mid-2022, and the sector was back on the rise. The focus on the China plus one megatrend and increasing demand helped the chemical sector grow.

However, not all companies are following the trend.

For instance, share price of Chemcon Speciality Chemicals witnessed a sharp fall yesterday after it declared results. This sent its stock price somewhat close to its 52-week low levels.

Chemcon Specialty Chemicals has now fallen 17% on a YTD basis with most of the losses coming in recent sessions.

Let's find out why the shares are under pressure.

Poor quarterly results

Chemcon Specialty Chemicals on Monday this week reported a net profit of Rs 78.4 million (about Rs 7.8 crore) for the quarter that ended September 2022. This compared with a net profit of Rs 1,457 m in the year-ago period.

The reduced profits are a result of high inflation and rising prices of raw materials.

On a YoY basis, profits have reduced by 46.3%.

The total revenue for the said quarter stood at Rs 579.2 m, 35% lower than the previous quarter's revenue of Rs 894.1. Even on a YoY basis, there has been a decrease in income by 5.4%.

The fall in the numbers is due to rising crude oil prices and disruptions in the supply chain, and an increase in raw material costs.

The profit margin of 28.5% reported in June 2022 has now shrunk to 13.5% in the current quarter.

After the results announcement, Chemcon share price saw a sharp decline. In one single day, the share price fell by 18%.

Investment Takeaway

When a company's share price falls, it's an interesting investment opportunity, especially for fundamentally strong stocks.

The keywords here are 'fundamentally strong stocks'. If a company is not fundamentally sound, then there are chances it won't turn around and investors will lose money.

To put this in the words of world's most successful investor Warren Buffett -

"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."

An investor should carefully analyse the future of the company while keeping an eye on past performance.

In case of Chemcon Specialty Chemicals, the company can be a beneficiary due to several tailwinds. A shift of companies from China to India presents a big opportunity for the Indian chemical sector.

China commands a 20% share in the global speciality chemical industry worth US$ 800 bn.

Even a 5% shift from China to India will unleash a US$8 bn opportunity for speciality chemical companies in India. Within five years, India could double its share in the global chemical industry.

The sector is poised to become the trillion-dollar sector of 2025.

But is Chemcon Specialty Chemicals placed strategically to take the benefit?

Increasing sales and profit along with falling debt, over the years are positive signs for the company, whereas decreasing return on asset and return on equity raise concerns.

Financial Snapshot

Particulars	Mar-18	Mar-19	Mar-20	Mar-21	Mar-22
Total revenues	1,585	3,053	2,660	2,481	2,663
Profit after tax	264	430	489	564	628
Net profit margin (%)	16.7	14.2	18.6	23.2	24.4
Long term debt	25	25	146	18	6
Return on assets (%)	30.3	27.2	23.7	14.9	12.7
Return on equity (%)	49.2	44.4	33.4	15.9	15

Data Source: Ace Equity

About Chemcon Specialty Chemicals

Chemcon Specialty Chemicals is a leading manufacturer of pharmaceutical intermediates, silicones and oilfield chemicals (completion fluids).

It manufactures all its products complying with GMP guidelines and completion fluids of unmatched purity, complying with the highest standards of quality in the oilfield industry.

Their manufacturing plant is located in Manjusar near Vadodara in the state of Gujarat situated in Western India. Its current plant capacity for the production of completion fluids is 18,000 Tons per annum and is under expansion.

For more details, see the Chemcon Specialty Chemicals fact sheet and quarterly results.

You can also compare Chemcon Specialty Chemicals with its peers:

Chemcon Specialty Chemicals vs Crestchem

Chemcon Specialty Chemicals vs Aarti Industries

Chemcon Specialty Chemicals vs Anupam Rasayan

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