CHEMCON: A Proxy Play to Semiconductor Theme

Semiconductors are the backbone of the digital economy, powering everything from smartphones to laptops to cars. The global semiconductor market is expected to grow at a compound annual growth rate (CAGR) of 8.6% from 2020 to 2027, reaching $803.15 billion by 2027, according to a report by Grand View Research.

However, the semiconductor industry is facing a severe supply crunch due to rising demand, limited production capacity, and geopolitical tensions. This has created an opportunity for companies that provide raw materials and chemicals for the semiconductor manufacturing process.

One such company is CHEMCON Speciality Chemicals Ltd., an India-based manufacturer of specialty chemicals that are used in the pharmaceutical and oilfield industries, as well as in the semiconductor fabrication process.
CHEMCON is a proxy play to the semiconductor theme for the following reasons:

  • It is the only manufacturer of hexamethyldisilazane (HMDS) in India and the third-largest manufacturer of HMDS worldwide. HMDS is a silylating agent that is used as an adhesion promoter for photoresists in the semiconductor fabrication process. It is also used as a precursor for silicon carbonitrides thin films, which have applications in microelectronics and nanotechnology.
  • It is the largest manufacturer of chloromethyl isopropyl carbonate (CMIC) worldwide. CMIC is an intermediate for the synthesis of antiviral drug favipiravir, which is used for the treatment of COVID-19. It is also used as a building block for other pharmaceutical products.
  • It is the only manufacturer of zinc bromide in India and the largest manufacturer of calcium bromide in India. Zinc bromide and calcium bromide are used as clear brine fluids in oilfield drilling and completion operations. They are also used as catalysts and flame retardants in various industries.
  • It has a strong customer base that includes domestic and international clients such as Laurus Labs, Hetero Drugs, Aurobindo Pharma, Divi’s Laboratories, Dr. Reddy’s Laboratories, Reliance Industries, Oil and Natural Gas Corporation, Halliburton, and Schlumberger.
  • It has a robust financial performance with a revenue CAGR of 28.8% and a net profit CAGR of 36.1% from FY18 to FY20. It has a healthy balance sheet with a debt-to-equity ratio of 0.18 as of March 31, 2021. It has a high return on equity (ROE) of 32.4% and a high return on capital employed (ROCE) of 38.9% as of FY20.
CHEMCON is well-positioned to benefit from the growing demand for specialty chemicals in the semiconductor, pharmaceutical, and oilfield industries. It has a diversified product portfolio, a strong market presence, a loyal customer base, and a sound financial profile. It is an attractive investment opportunity for investors who want to participate in the semiconductor theme through a specialty chemical company.

Disclaimer: This blog post is for informational purposes only and does not constitute investment advice. Please consult your financial advisor before making any investment decisions.

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