With Indian stock markets hovering near record highs, identifying genuine value opportunities has become increasingly challenging for investors. However, a recent analysis using the Equitymaster stock screener has spotlighted three chemical sector stocks that appear to be undervalued based on specific financial criteria. These companies, selected for their robust fundamentals and potential for growth, could be worthy additions to an investor's watchlist for 2026.
The Screening Criteria for Undervalued Gems
The search for these stocks was not arbitrary. A defined set of parameters was applied to filter companies showing signs of being undervalued. The key criteria included a debt-to-equity ratio of 0, indicating the companies are completely debt-free. Furthermore, they needed to demonstrate a return on equity (RoE) of 9% or more and a return on capital employed (RoCE) exceeding 12%. It is vital to remember that valuation is subjective, and these metrics are just one lens through which to view a company's potential. Investors are strongly advised to conduct their own thorough due diligence before making any investment decisions.
Deep Dive: Three Chemical Stocks in Focus
1. Sumitomo Chemical India Ltd
Sumitomo Chemical India is a significant player in manufacturing and marketing products for crop protection, grain fumigation, and pest control, with a global footprint extending to Africa and other regions. Financially, it stands out as a debt-free entity with a strong RoE of 17.5% and an impressive RoCE of 23.7%.
For the second quarter of the fiscal year 2026 (Q2FY26), the company reported revenue of ₹929.8 crore, a slight decrease from ₹988.3 crore in the same period last year. Net profit also saw a dip to ₹177.8 crore from ₹192.5 crore year-on-year. This performance was partly attributed to wet weather impacting the domestic crop protection business. However, key brands like Sumimax and new launches such as Excalia Max continued to perform well.
Looking ahead, the management has expressed cautious optimism for the second half of FY26. Improved field conditions since late September and healthy reservoir levels are expected to boost farming activity and demand for the company's products. Strategically, Sumitomo has begun backward integration at its Tarapur facility and is progressing on a greenfield expansion project in Dahej, which should bolster future performance.
2. PI Industries Ltd
PI Industries is a leading agrochemical firm known for its crop protection solutions and custom synthesis manufacturing, backed by a strong focus on research and development. It is another debt-free company, boasting a RoE of 16.3% and a RoCE of 21.3%.
The company's Q2FY26 results showed a decline, with revenue falling to ₹1,872.3 crore from ₹2,221.0 crore YoY. Net profit followed suit, dropping to ₹407.2 crore from ₹507.5 crore. The company cited excessive rainfall and regulatory changes in the biological products segment as factors affecting domestic demand.
Despite the quarterly setback, PI Industries' growth pipeline remains robust. After commercializing five new molecules in the first half of the fiscal year, it is on track to launch eight to ten more within the current year. Its domestic development pipeline includes over 20 new products. The company's strategy revolves around leveraging technology and its integrated model, supported by strong cash flows and sustainable returns on capital.
3. Atul Ltd
Atul Ltd is a large, integrated chemical company in India, producing around 900 products and 400 formulations for approximately 4,000 clients across 30 industries. Its diverse portfolio includes dyes, pigments, agrochemicals, pharmaceutical APIs, and polymers.
In a contrast to the others, Atul reported growth in Q2 FY26. Sales rose to ₹1,551.9 crore from ₹1,392.8 crore YoY, while net profit increased to ₹181.2 crore from ₹136.4 crore. A significant potential tailwind for the company is India's recent imposition of a five-year anti-dumping duty on liquid epoxy resins, a product Atul manufactures. This duty is likely to benefit the company by providing a protective shield against cheap imports.
Atul's future plans involve debottlenecking existing operations, expanding product groups, and increasing downstream and upstream integration. The company also aims to introduce retail products and formulations, signaling a strategy for diversified growth.
Conclusion and Key Considerations for Investors
Identifying and purchasing stocks that appear undervalued can be a rewarding strategy, especially if their low valuation is due to temporary factors. The three chemical companies highlighted—Sumitomo Chemical India, PI Industries, and Atul—present a mix of strong fundamentals, strategic initiatives, and in some cases, favorable regulatory environments.
However, this analysis serves as a starting point, not a definitive recommendation. Investors must perform independent research, evaluating each company's fundamentals, corporate governance standards, and overall market position. In a market trading at elevated levels, such disciplined scrutiny becomes even more critical for making informed investment decisions.
