Q4 results preview: Specialty chemicals sector likely to report weak earnings amid demand slowdown, subdued pricing

In Q4FY24, the demand for chemicals slowed due to the destocking of channel inventory build-up and reduced volume forecast at the customers’ end in agrochemicals along with the desperation of Chinese players to reduce prices for gaining more market share, analysts at Emkay Global Financial Services said.

Discretionary spending has started showing green shoots of recovery in certain geographies, whereas non-discretionary spending is still weak. The quarter is likely to look sequentially better on a lower base of Q3, and with Q4 being seasonally strong for most companies. 

A broad-based recovery is expected from H2FY25, according to the analysts.

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ICICI Securities estimates its specialty chemical coverage universe’s revenue to dip 1.1% YoY (up 11.8% QoQ) in Q4FY24 amid weak demand and subdued pricing. EBITDA is expected to decline 15.5% YoY (+23.3% QoQ) on weaker spreads and operating deleveraging.

Here’s a Q4 results preview for some of the top specialty chemical companies:

SRF

SRF’s chemicals business (CB) is likely to register sequentially better numbers, on a seasonally strong quarter for ref-gas (higher volumes) and specialty chemicals (though down YoY, on lower realizations). The company’s revenue in Q4FY24 is expected to fall 7% YoY, but rise 16% YoY.

EBIT for CB is expected to be better QoQ, with an increased mix from the specialty chemical business. The packaging films business (PFB) continues to face an oversupply overhang with slightly better margins, while the technical textiles business (TTB) is posting a relatively stable performance on both, the revenue and EBIT fronts, said Emkay Global.

Gujarat Fluorochemicals

Gujarat Fluorochemicals Q4 result is likely to see moderate recovery QoQ, on a lower base. Emkay Global believes refrigerant gases will clock relatively higher numbers in the domestic market owing to seasonality; however, there have been lower R125 sales in exports. 

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Revenue of Gujarat Fluorochemicals is expected to fall 30%, while net profit may plunge 74% YoY. Margin is likely to be flat QoQ, though down sharply by 1,427 bps YoY to 20.7% on pricing pressure across businesses and operating deleverage on lower volumes in ref gas and fluoropolymers.

Deepak Nitrite

Deepak Nitrite Q4 revenue is likely to remain flat QoQ, on seasonally higher numbers for the standalone business, down YoY, on subdued demand recovery in end-use industries, offset by lower realizations in the phenolics business, while volumes may grow. EBITDA margin is expected to fall 269 bps to 15% on lower spreads in phenolics business. 

Aarti Industries is likely to log a sequential improvement of 5% in revenue, with recovery in discretionary spending (non-discretionary still slow) and given higher export volumes. Aarti’s Q4 EBITDA is expected to come in within the guided range of ₹270 crore and ₹290 crore, thus clocking a third quarter of sequential improvement driven by higher volume growth. The company’s Q4FY24 revenue is expected to rise 10% YoY, while net profit may fall 8% YoY. 

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Navin Fluorine International 

Navin Fluorine International’s High Performance Products (HPP) are set to report moderate growth QoQ, on contribution from the Honeywell contract and the R32 plant. Specialty Chemicals & CDMO business is expected to remain flattish QoQ, with lower exports, according to Emkay Global.

Total sales are expected to fall 20%, while net profit may drop 58% YoY. EBITDA during the quarter may decline 49% and EBITDA margin may contract by 1,044 bps, YoY, as per the estimates.

The company’s Q4 revenue is likely to improve sequentially on higher exports, albeit decline by 20% YoY due to the macro slowdown. The brokerage firm believes margins would remain stable at 26-28% annually, but working capital would look elevated on relatively lower sales. It expects this to improve once new capex starts contributing from H1FY25. PAT in Q4 is expected to fall 43% YoY.

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Published: 08 Apr 2024, 01:34 PM IST