Shares of PI Industries traded in the red on Wednesday even after foreign brokerage UBS initiated coverage on the chemical company with a ‘buy’ rating.

What Happened: UBS set a target price of ₹4,800 for PI Industries and noted that markets might be overlooking the growth potential of Indian chemical companies amid the most severe global chemical destocking in 30 years. The brokerage predicts a modest volume recovery soon.

UBS highlighted company-specific factors like long-standing track records, capacity additions, and new products that could drive improvement in FY25. It also cited benefits from global supply chain diversification and India’s developing ecosystem, which, along with lower costs in capital expenditure, manufacturing, and R&D, should provide strong tailwinds.

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Despite signs of modest volume improvement indicated by metrics such as the Purchasing Managers’ Index, new orders, and Brazilian chemical imports, challenges like 15% excess capacity added over the last three years and continued demand weakness, particularly from China, might restrain gains. UBS forecasts a modest 5-10% volume increase with subdued prices and spreads in the near term.

Talking more specifically about the company, UBS reveals that it prefers PI Industries for its strong growth potential, stable management, less volatile business model, and opportunities in pharmaceuticals. Although FY25E earnings forecasts have been halved since H2FY23 due to global market challenges, UBS remains optimistic about growth from new capacity and contracts, despite overall flat share prices and underperformance relative to Indian mid-caps.

Price Action: PI Industries shares were down 0.92% at ₹3,633.95 on Wednesday morning shortly after the market opened.

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