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Raw material price inflation to boost revenues

Q1FY22 revenue growth for specialty chemical companies under our coverage is expected to be strong on YoY basis due to the low base of Q1FY21. On QoQ basis, revenues would be boosted due to higher feedstock prices. Though margins for most companies will be optically lower due to higher revenues but stable spreads, we have not factored-in any upside risk from inventory gains.

We expect revenue growth in SRF’s chemical business to remain strong, and its packaging films spreads to remain stable. Navin Fluorine would benefit from higher domestic refgas sales and lower fluorspar prices. Galaxy should see QoQ EBITDA growth on normalisation of costs. Rossari should benefit from rise in capacity utilisation at its Dahej plant. Sudarshan’s domestic sales would be adversely impacted while exports and specialty pigments may continue to do well. EPL’s EBITDA will bounce back on nomalisation of costs and unlocking in the developed markets.

* SRF’s chemical business EBIT to grow 174% YoY / decline 11.8% QoQ to Rs2.4bn. Segmental revenues are likely to grow 50% YoY on continued strong momentum in fluoro-specialty chemicals and rise in volumes and realisations for refgas. Sequential decline is on seasonality in fluoro-specialties. Chemical business’ EBIT margin may shrink 90bps QoQ to 23% on rise in contribution from ref-gas. Packaging film revenues may grow 19% QoQ on higher realisations due to higher polymer prices, while BOPET and BOPP spreads are likely to remain stable; EBITDA would thus rise 3.5% QoQ to Rs2.3bn. Technical textile revenues are likely to show strong growth (+23% QoQ) on feedstock inflation, which could optically compress margins by 220bps QoQ, but we expect EBITDA to grow 8% QoQ to Rs786mn. Low base (due to lockdown) would make SRF’s EBITDA look 72% YoY higher, but it would be sequentially down 2.8% due to seasonality in the chemical business.

* Navin Fluorine’s EBITDA to rise 7.2% QoQ to Rs903mn. Revenues to be up 53% YoY, but down 3.7% QoQ, to Rs3.1bn. Ref-gas revenues are likely to grow 7.1% QoQ. Inorganic fluoride, specialty chemical and CRAMS revenues may dip 5.1%, 3.7% and 9.3% QoQ respectively. Gross profit margins may expand by 230bps QoQ due to lower fluorspar prices and higher domestic ref-gas revenues, which earn higher margins. This should drive EBITDA growth of 7.2% QoQ / 73% YoY to Rs903mn. Net profit to dip 46% QoQ to Rs657mn on one-off gains in Q4FY21.

* Galaxy Surfactants’ EBITDA may rise 43% YoY / 10% QoQ to Rs1.3bn. We expect volume growth at 21.8% YoY and 0.3% QoQ. There may have been an adverse impact due to lockdown in India, while AMET volumes may have witnessed steady growth and RoW continued recovery. Thus specialty care volume growth is likely to be healthy at 2% QoQ. Revenue growth would look very high on higher lauryl alcohol prices, but margins would be optically lower. EBITDA would benefit from lower expenses QoQ on one-off costs in Q4FY21 due to bonus and higher logistic costs. We expect net profit to grow 52% YoY / 9.4% QoQ to Rs861mn.

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