What A Surge In Isopropyl Alcohol Prices Means For Two Indian Chemical Makers
Isopropyl alcohol, a key ingredient in hand santisers and medical disinfectants, saw its price surge more than twofold as the new coronavirus outbreak forced people to focus more on self-hygiene to avoid contagion. For two Indian chemical makers, that provided an opportunity.
Shares of Deepak Fertilisers & Petrochemicals Ltd., the largest maker of isopropyl alcohol in India, more than doubled from their low in March, aided by a rise in demand across segments, including the key raw material for hand sanitisers.
Deepak Nitrite Ltd., not related to Deepak Fertilisers, has also jumped more than 28% so far this year compared with a 12% fall in the Nifty 500 Index during the period. The company started making the compound after the outbreak.
While no vaccine is available yet for the deadly pathogen, people are encouraged to regularly wash hands for 20 seconds or use sanitisers containing at least 60% alcohol to fight the infection that has spread to more than 110 lakh people worldwide and over 7 lakh in India. That has led to a fourfold jump in India’s sanitiser market, increasing demand for its key raw material. According to Emkay Research, prices of isopropyl alcohol—also used in antiseptics, astringents, deodorants and cleaning agents—have surged 177% over the last year to Rs 180 a kilogram in Mumbai as on June 30.
The global isopropyl alcohol market is projected to reach $4.85 billion by 2027, according to a new report by Grand View Research Inc., expanding at an annual rate of 8.2% from 2020 to 2027.
The annual domestic consumption of isopropyl alcohol, according to Systematix Group, is estimated at around 1.8 lakh million tonnes as of March 2019. Deepak Fertilisers, the market leader, has a 70,000 million tonnes per annum capacity, and most of the remaining demand is met through imports.
Deepak Fertilisers also started making hand sanitisers under the brand name ‘Cororid’, besides selling the ingredient to other producers of cleansers. The company’s revenue from isopropyl alcohol business stood at Rs 141 crore in the quarter ended March, a 30% jump over the previous year. It expects the demand for the compound to remain strong and operations to see minimal disruptions as the product is classified as an essential commodity, according to an investor presentation.
“Riding high on the overall strong cues, the shares of the company [Deepak Fertilisers] got further fuel on its entry to the hand sanitiser segment,” said brokerage IIFL.
In April, Deepak Nitrite said its subsidiary Deepak Phenolics has commissioned a 30,000 MTPA plant at Dahej, Gujarat to produce isopropyl alcohol. According to its statement, the company will make isopropyl alcohol from acetone, significantly reducing the country’s dependence on imports.
“Its foray into isopropyl alcohol [segment] is in line with the management’s focus and should aid the company’s revenues in 2020-21,” said Edelweiss in a note. “The management in its fourth quarter earnings call has guided an annual run-rate of about Rs 300 crore from this product at optimum utilisation levels.”
According to Systematix, acetone is usually a slow-moving product and the forward integration into isopropyl alcohol will absorb 30% of the acetone capacity (120,000 tpa). That, it said, will reduce the impact of volatility in feedstock and finished goods prices.
All the six analysts tracking the Deepak Nitrite stock have a ‘Buy’ rating. The average of 12-month Bloomberg target prices implies an upside of 25% upside from the current market price. Deepak Fertilisers is not widely tracked.