Chemicals - QoQ margin recovery post de-stocking - Quarterly Preview by Elara Capital
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Q4FY24E PAT to decline 42% YoY but rise 6% QoQ
We expect Elara Chemicals universe to post a marginal PAT growth of 6% QoQ but see a PAT decline of 42% YoY in Q4FY24E. Cumulative EBITDA margin may improve 16bps QoQ to 17.0% but may decrease YoY from 21.9%. The YoY margin deterioration may be led by demand suppression in export markets and inventory de-stocking in Agrochemicals sector in Latin America and in New Energy sector in China. Pricing data indicates bottoming of de-bottlenecking cycle at the consumer level but pricing recovery may take at least two quarters due to inventory build-up at manufacturers’ level. Excluding Deepak Nitrite (DN IN), Navin Fluorine (NFIL IN) and Atul (ATLP IN), we expect a 3-22% QoQ EBITDA recovery for Elara Chemicals universe .
VO – Realization recovery to marginally lift QoQ EBITDA
We expect DN to post an EBITDA decline of 36% QoQ as phenol-benzene spread weakened QoQ. VO may likely see a 7% QoQ EBITDA growth, led by demand recovery in Acrylamide tertiary butyl sulfonic acid (ATBS).
AACL and BLA – Rising amines prices to prop QoQ EBITDA
We expect Balaji Amines (BLA IN) to post a 15% QoQ EBITDA growth, on demand growth in amines and a 31% drop in ammonia price. Alkyl Amines’ (AACL IN) EBITDA may grow 13% QoQ.
Fluorochemicals – Rising spread to aid earnings
SRF (SFR IN) and Gujarat Fluorochemicals (FLUOROCH IN) are expected to register a QoQ EBITDA growth of 22% and 3%, respectively. Navin Fluorine (NFIL IN) may see a 6% QoQ EBITDA decline, led by weak margin in specialty chemical.
Improvement in benzene- and toluene-based product demand may strengthen ARTO’s EBITDA 8% QoQ in Q4FY24E. However, Atul (ATLP IN) may post flat QoQ EBITDA, led by subdued demand for agrochem and dyes.
Expect Sudarshan Chemicals (SCHI IN) to post a QoQ EBITDA growth of 12% in Q4E, led by margin expansion and demand stabilization in the EU.
Chemicals: Sectoral view positive; FLUOROCH, VO our top picks
Based on learnings from past 15 years’ global chemicals cycle of four years each and management commentaries, we conclude destocking to be over in Q4FY24, with initial signs of sales growth from Q4FY24. We maintain our positive stance on the Chemicals sector and expect a slight recovery from Q4FY24 and full recovery from FY25. FLUOROCH and VO are our top picks in the space.
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