Specialty Chemicals Sector Check - Lackluster R&D Expenses: Motilal Oswal
The absence of sufficient R&D spend is likely to challenge the sustainability of rich valuations that the companies are commanding
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Motilal Oswal Report
In this report, we delve into the research and development expenditure of 52 Indian chemical companies. Our research shows that Indian companies spend significantly less on R&D (0.5-0.6% of revenue) vis-a-vis their global peers (3-4% of revenue).
Our numerous interactions with industry experts have highlighted this lacuna, which may challenge the terminal growth of 5-6% that the current stock prices of most companies are commanding, even after assuming a high growth trajectory of 15 years in our three-stage reverse discounted cash flow.
The absence of sufficient R&D spend is likely to challenge the sustainability of rich valuations that the companies are commanding.
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