Specialty chemical stock may rise over 20% as Motilal Oswal sees upside
Premium- Despite the likely short-term pressure on margin, the brokerage maintains its Buy rating on the specialty chemical stock
The management of Galaxy Surfactants has already guided for a normalization of margin to ₹16-18/kg from a high of ₹20.5/kg in 3QFY21. However, the current high raw material prices may cause a dent in the specialty chemical manufacturer's margins in the short-term, highlighted brokerage firm Motilal Oswal.
Nonetheless, despite the likely short-term pressure on margins, the brokerage has maintained its Buy rating on the specialty chemical stock, given its robust volume growth trajectory, and continued focus on expansion, especially in the specialty care products segment, which should underpin margin expansion.
It has a target price of ₹3,632 per share on Galaxy Surfactants shares, that implies a potential upside of more than 21% from current stock level.
"The management has guided for a capex of ₹4 billion over FY22-24E with an outlay of ₹1.5 billion already done for 9MFY22. Expansion of products is likely to be across the board but focus would remain mainly on the specialty care products segment. Further, continued focus on R&D and increased wallet share from existing customers are likely to drive volume growth," the note stated.
Downside risks to its call, as per Motilal Oswal, are demand may not pick up in congruence to the capacity expansion taking place in the Specialty Care segment, and rising feedstock prices and freight rates may lead to underperformance of the stock.
“Though recovering industrial activities have pushed up the demand for Fatty Alcohol significantly, the price has remained elevated due to supply tightness. Further, Indonesia’s announcement to restrict its outbound shipments of Palm Oil should prolong this supply crunch, in our opinion," the brokerage added.
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The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.