What makes Speciality Chemical sector lucrative, brokerages decode - Alkyl Amines, Tata Chem and UPL may give 11-15% returns

On the multiple triggers, the speciality chemical segment is at sweet spot, brokerages believe. The sector trades at a P/B of 6.3x and a P/E of 31.8x, a premium of 102%/96% to its long-term average of 3.1x/16.2x, according to Motilal Oswal monthly report.

The crude oil prices have jumped month-on-month mainly driven by continued constraints on the supply of crude oil from Russia and Covid-related restrictions in China. Brent touched a seven-year high of US $139/barrel in March 2022 versus US $ 44.8/bbl in FY21.

Besides, the softening of raw material prices has also been aiding the sector, as the price of Propylene fell 7 per cent, while Methanol prices fell 6 per cent, led by a surge in Brent crude prices.

Key product prices: Acetic acid prices fell 10% MoM. Acetone prices were flat MoM as demand from China weakened due to Covid-related lockdowns. Phenol prices were also flattish. The price of caustic soda flakes/caustic soda lye fell 6/11 per cent MoM.

In this regard, Prabhudas Lilladher recommends three stocks from speciality chemical category with Buy rating for bumper returns:

Alkyl Amines (Weekly chart) – The stocks though in Down Trend is currently around the lower channel line. The last week's bar was an "Inside bar" which can act as a Price Reversal provided the stock takes out Rs 2685 per share levels. One can buy in anticipation of Reversal for target of Rs 3030 per share (15% upside) with stop loss at Rs 2450 per share.

Tata Chemicals (Weekly chart) - The stock is turning up from the support of lower channel line. The price has also made a Price Reversal pattern around lower channel line. This price behavior indicates that bottom might be in place. We suggest to buy and accumulate the stock for an upside target of Rs 930 (11% upside) per share with stop loss at Rs 785 per share.

UPL (Weekly chart) - The price has turned up from the confluence of supports created by lower channel line and 200 weeks EMA. The price has also broken out of the internal channel. The bottom might be in place. We suggest to buy and accumulate for an upside target of Rs 790 per share (15% upside) with stop loss of Rs 620 per share.