Chemical Sector Update : Selective recovery signs in Q4 by Elara Capital
Within Elara Chemicals universe, we have a positive stance on refrigerant companies (SRF, FLUOROCH and NFIL) as also on those companies which are dependent on raw material that are derivatives of crude oil (DN and SCHI). Commentaries by global chemical companies suggest a gradual recovery in volume in CY25 but recovery in prices is less predictable due to Chinese oversupply. However, some relief may materialize, subject to a recovery in the Chinese economy and normalization of the agriculture season in Latin America. Also, global tariff wars are a key monitorable. We expect escalation in the US-China tariff war to benefit Indian manufacturers, especially refrigerant players. Deepak Nitrite is our top pick in the space – It is expected to benefit from existing capex-led growth.
PAT to decline 12% YoY but rise 24% QoQ in Q4E, led by revenue growth and expansion in EBITDA margin: In Q4E, we expect Elara Chemicals universe to post a 12% YoY drop in PAT. Cumulative EBITDA margin may be flat YoY but may grow 122bps QoQ to 17.8%, mainly led by revenue growth of 6% QoQ in Q4E. Per government trade data, exports volume for companies within Elara Chemicals universe is estimated to fall 15% YoY and 14% QoQ, even as realization has improved QoQ. Companies such as SRF, FLUOROCH, ATLP and ARTO are expected to witness a QoQ improvement in realization.
Vinati Organics – Volume gain to drive EBITDA QoQ: Expect a 48% QoQ growth in Deepak Nitrite’s (DN IN) EBITDA due to base effect given the shutdown in Q3FY25. YoY, EBITDA may fall by 17%, led by weak exports market for phenol derivatives. Vinati Organics (VO IN) may post a 23% QoQ EBITDA growth, led by high export demand.
Alkyl Amines and Balaji Amines – Falling margin to impact EBITDA QoQ: We expect Alkyl Amines (AACL IN) to post a 6% QoQ drop in EBITDA, on muted realization and weaker margin. Similarly, EBITDA for Balaji Amines (BLA IN) may dip 9% QoQ in Q4E.
Fluorochemicals – QoQ earnings growth, except for Navin Fluorine: SRF (SRF IN) is likely to post a 33% QoQ growth in EBITDA in Q4E due to growing demand and strengthening of R32 and R22 refrigerant prices.
We expect EBITDA for Gujarat Fluorochemicals (FLUOROCH IN) to grow 6% QoQ, given a slight margin improvement in fluoropolymers. Navin Fluorine (NFIL IN) may see a 9% QoQ drop in EBITDA, led by reduced exports demand and a slight drop in margin.Aarti Industries’ (ARTO IN) EBITDA may improve by 4% QoQ due to slight margin improvement, though partly offset by a fall in revenue. Atul (ATLP IN) may post a 22% QoQ drop in EBITDA, led by an anticipated decline in volume. We expect Sudarshan Chemicals (SCHI IN) to post an EBITDA growth of 18% QoQ, mainly led by revenue growth in the exports market.
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