Specialty chemical companies with the best margins in FY23; do you own any?

Specialty chemicals are a category of chemicals that are produced in smaller quantities and are designed to provide specific properties or functions to enhance the performance, quality, or characteristics of end products. They are used in various industries and applications, offering unique features and tailored solutions beyond basic raw materials. In short, the company uses this chemical to help its product perform a certain task to the best of its ability. It is used in various industries, including pharmaceuticals, agrochemicals, personal care, cosmetics, food and beverages, automotive, construction, electronics, and many more.

Operating profit margins are a financial metric that measures a company’s profitability by indicating the percentage of revenue left after deducting operating expenses. It is calculated by dividing operating profit by total revenue and expressing the result as a percentage. It provides crucial insights into a company’s profitability, financial health, operational efficiency, and comparative performance. It is a valuable indicator for investors, analysts, and management to assess and monitor a company’s overall financial performance.

There are over 100 specialty chemical companies listed, out of those let’s figure it out which was better in terms of their operating margin during FY23. For the sake of simplicity, we have categorized the companies into three parts viz. large-cap, mid-cap, and small-cap.

Top three Large Cap Companies based on their margins in FY23

Top three Mid Cap Companies based on their margins in FY23

Top three Small Cap Companies based on their margins in FY23

When observed in the large-cap category, Gujarat Fluorochemicals Ltd stands out with impressive margins of 36.01% in FY23. The company experienced substantial revenue growth of 44%, reaching Rs 5685 crore from Rs 3954 crore. Net profit also saw a significant increase from Rs 776 Crore to Rs 1323 Crore. The company also maintains a robust ROCE of 29.6% and ROE of 27.1%, while its Debt-to-Equity ratio is only 0.27 times. With a price-earnings ratio of 26 times, the company demonstrates favourable financial indicators. Promoters hold a stake of 63.80%, while FIIs and DIIs hold 4.85% and 5.87% respectively. The stock has delivered exceptional returns, with an absolute return of over 190% in the last two years and a multi-bagger return of 700% in the last three years.

Within the mid-cap category, Clean Science & Technology Ltd impressed with a margin of 43%. The company experienced a revenue surge of 36.64%, escalating from Rs 685 Crore to Rs 936 Crore during the financial year. Net profit also showed substantial growth, rising from Rs 228 Crore to Rs 295 Crore. It also maintains commendable financial ratios, with ROCE at 44.5% and ROE at 33.2%, while its Debt-to-Equity ratio is negligible. Promoters hold a significant stake of 78.50%, while FIIs and DIIs hold 3.99% and 4.76% respectively. Unfortunately, the stock has yielded a negative return of 21% in the past year.

Among the numerous small-cap companies, Diamines & Chemicals Ltd stands out by maintaining remarkable operating margins of 50% in FY23. The company witnessed a substantial surge in revenue, growing by 67% from Rs 66 crore to Rs 110 Crore during the financial year. Net profit also experienced significant growth, increasing from Rs 17 crore to Rs 42 crore. Diamines & Chemicals Ltd maintains impressive financial ratios, with ROCE at 48.4% and ROE at 36.0%. Notably, the company operates with zero debt, as there is no debt on its balance sheet. Promoters hold a significant stake of 54.64%, while FIIs and DIIs hold 0.11% and 0.03% respectively. The stock has generated a magnificent return of 243% in the last three years.

When comparing the above three companies, Gujarat Fluorochemicals Ltd emerges as the top performer, delivering a remarkable multi-bagger return of over 700% in the last three years. The chemical industry in India displays promising potential, and it is expected that stocks in this sector can continue to perform well and offer multi-bagger returns in the near future. Therefore, investors should keep a close eye on this sector as it holds promising opportunities.