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In 1QFY24, most chemical companies under our coverage are likely to register a fall in sales QoQ; PI industries will be the only exception on account of likely strong ramp-up of pyroxasulfone as indicated by Kumiai (click here). For SRF, both refrigerant gas and fluoro specialty chemicals sales are likely to be seasonally weak. Navin’s Honeywell plant has been under maintenance shutdown while CDMO sales are likely to be subdued while specialty chemicals sales are likely benefit from ramp-up of additional capacities from MPP and its dedicated agro intermediate plant. PI’s CSM sales is likely to grow robustly. Archean’s higher industrial salt sales will be more than offset by lower bromine sales, in our view. Clean, Anupam, and Aether’s sales are likely to be under pressure while Tatva’s sales could be largely flattish, sequentially. We believe most of the contracted players such as Anupam, PI, Navin, and SRF would be able to weather this global slowdown storm. Top picks – SRF in large caps and Navin fluorine in mid-caps.

* Navin Fluorine’s EBITDA likely to fall 22% sequentially while SRF is likely to report 11% QoQ contraction in EBITDA: Navin Fluorine’s EBITDA is likely to show 22% QoQ (but up 60% YoY) decline despite ramp-up of additional capacities of specialty chemicals as its Honeywell plant had gone into maintenance shutdown while CDMO sales were elevated in 4QFY23 due to execution of purchase order. We expect Navin’s EBITDA margin to come in at 26.4% (vs. 28.9% in 4QFY23) due to lower contribution of HPP and CDMO. SRF’s 1QFY24 EBITDA is likely to fall by 11% QoQ on account of i) seasonally weak ref gas demand/pricing, and ii) seasonally weak demand of specialty chemicals.

* Robust growth for PI; decent one for UPL: UPL’s 1QFY24 revenue is likely to see 6% YoY growth. It is likely to see strong growth in Latin America (up 8% YoY), India (up 7% YoY), and Europe (up 6% YoY). Other regions such as Europe (up 4% YoY), and RoW (up 3% YoY) are likely to see decent growth. Further, EBITDA is likely to rise 5% YoY driven by lower freight and power cost. For PI, CSM revenue is likely to grow 6%/19% QoQ/YoY while the domestic business is likely to be flat YoY. As a result, its 1QFY24 revenue is likely to see 17%/19% QoQ/YoY growth (we have not accounted for pharma revenue in the base quarter). Moreover, on account of improvement in EBITDA margin to 23.0% (vs. 21.9% in 4QFY23), its EBITDA is likely to see 23%/20% QoQ/YoY growth.

* Fine Organics’ EBITDA to fall by 13% sequentially; Tatva Chintan’s EBITDA likely to be down marginally QoQ: We estimate Fine’s 1QFY24 sales to fall by 10% sequentially. Further, decline in EBITDA margin is likely to result in 13% sequential fall in EBITDA. For Tatva, we estimate flattish 1QFY24 sales on account of muted demand for its SDA and other specialty chemicals. Further, consumption of high-cost inventories till end-May’23 (as indicated by the management) is likely to result in 13.0% EBITDA margin (vs. 13.1% in 4QFY23). As a result, Tatva’s EBITDA is likely to contract by 1% QoQ (up 6% YoY).

* Anupam Rasayan/India Pesticides EBITDA to fall by 11%/19% QoQ: We estimate Anupam Rasayan’s 1QFY24 sales to contract by 8% QoQ (up 28% YoY) while its EBITDA margin could be sequentially lower on account of higher contribution from low-margin products from Tanfac. As a result, its EBITDA is likely to decline by 11% QoQ (up 6% YoY). For India Pesticides, we expect 10% QoQ sales contraction and 19% QoQ EBITDA fall.

* Clean Science’s EBITDA to fall by 13% QoQ; Galaxy’s EBITDA to decline by 12% QoQ: We estimate Clean’s 1QFY24 revenue may shrink 10% QoQ on account of weak demand environment for its products. Further, on account of sequentially lower gross margin, EBITDA margin is likely to stand at 47.0% (vs. 48.5% in 4QFY23). As a result, its EBITDA is likely to fall by 13% QoQ (flattish YoY). For Galaxy Surfactants, we have assumed ~7% QoQ drop in sales and decline in EBITDA margin at INR 20,195 per tonne (vs. INR 23,245 per tonne in 4QFY23). This is likely to result in EBITDA shrinking by 12% QoQ.

* Sequentially, Deepak’s EBITDA to fall 6%, Archean’s EBITDA to decline 17%; Aether’s EBITDA also to fall 17% QoQ: During 1QFY24, Deepak’s advanced intermediates (AI) sales could fall by 10% sequentially while AI EBIT margin could improve marginally. Further, benchmark phenol-acetone spreads during the quarter remained flattish despite a sharp decline in Jun’23. This should result in 6% sequential fall in EBITDA for Deepak Nitrite. Archean’s sales is likely to shrink by 6% QoQ on account of lower demand/pricing of bromine. Moreover, lower contribution of bromine could result in a fall in margin. As a result, its EBITDA is likely to contract 17% sequentially (flattish YoY). Aether’s 1QFY24 revenue could fall 12% QoQ on account of weak demand for its products. Further, on account of sequentially lower gross margin, EBITDA is likely to decline by 17% (but up 16% YoY).

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