Chemicals Sector Update : Demand improving in specific segments By JM Financial Services
Demand improving in specific segments
In 3QFY25, most chemical companies under our coverage are likely to witness sales recovery YoY; Archean will be the only outlier. For SRF, fluoro specialty chemicals sales could see an uptick given likely pick-up of existing products. For PI, CSM sales are likely to see YoY growth owing to decent demand of Pyroxa along with some pick-up in new products. For Deepak, sequential uptick in phenolic spreads is likely to lift the performance of the phenolics business while the standalone business is likely to improve. Higher industrial salt volumes will bode well for Archean. Clean Science will benefit from volume pick-up of HALS along with other new products. PCBL’s carbon black volumes are likely to decline sequentially. However, higher EBIT contribution from Aquapharm will partly offset this negative impact. Ami will benefit from ramp-up of CDMO sales. Sharp jump in vegetable oil and derivatives prices will bode well for the spreads of Galaxy Surfactants. On the agrochemicals front, generic agrochemicals are likely to see decent uptick while marginal recovery has been seen in patches for nongeneric agrochemicals.
* SRF’s EBITDA likely to grow 6% YoY: SRF’s 3QFY25 EBITDA is likely to be up 6% YoY on account of improved performance in the chemicals business, owing to recovery in the specialty chemicals business. Chemicals sales are likely to be up 3% YoY. Further, owing to positive operating leverage, we expect chemicals EBIT margin to come in at 19% (vs. 18.1% in 2QFY25).
* PI’s EBITDA likely to shrink 8% YoY: For PI, CSM revenue is likely to be up 6% YoY while the domestic business is likely to be up 5% YoY. Besides, PI’s pharma business could see some sequential recovery. Moreover, there will be sales contribution from the recently acquired plant health care business. As a result, its 3QFY25 revenue is likely to increase 2%YoY. We have assumed EBITDA margin at 26.2% (vs. 28%/29% in 2QFY25/3QFY24). As a result, EBITDA is likely to be down 8%/19% YoY/QoQ.
* Fine Organics’ EBITDA to shrink 16% QoQ and Tatva Chintan’s EBITDA to grow 36% sequentially: We estimate Fine’s 3QFY25 sales to be drop 11% sequentially, largely on account of slowdown in volume offtake. Further, owing to negative operating leverage, Fine’s EBITDA is likely to contract 16% QoQ. For Tatva, we estimate 7% sequential sales increase on account of sales recovery across segments. Further, we expect sequential 186bps EBITDA margin jump. As a result, Tatva’s EBITDA is likely to jump 36% QoQ (still down 31% YoY).
* Anupam Rasayan’s EBITDA to grow 13% YoY; PCBL’s EBITDA to shrink 6% QoQ: We estimate Anupam Rasayan’s 3QFY25 sales to grow 10% YoY while EBITDA margin could be up 74bps YoY on account of positive operating leverage. As a result, Anupam’s EBITDA is likely to grow 13% YoY. For PCBL, we expect 3% sequential drop in sales owing to slowdown in carbon black offtake. Further, owing to 40bps sequential EBITDA margin decline, we expect PCBL’s EBITDA to be down 6% QoQ (still up 23% YoY).
* Clean Science’s EBITDA to grow by 1% QoQ; Galaxy’s EBITDA to jump 6% QoQ: We estimate Clean’s 3QFY25 revenue to grow by 3% QoQ on account of ramp-up of new products. Further, on account of slightly lower EBITDA margin, EBITDA is likely to grow by 1% QoQ. For Galaxy Surfactants, we have assumed ~4% QoQ jump in sales and jump in EBITDA margin to INR 19,583 per tonne (vs. INR 18,816 per tonne in 2QFY25). This is likely to result in EBITDA jumping by 6% QoQ.
* Deepak’s EBITDA to grow by 8% QoQ; Archean’s EBITDA to grow by 30% QoQ: During 3QFY25, Deepak’s advanced intermediates (AI) sales could rise by 5% sequentially while AI EBIT margin could increase slightly to 9% (vs. 7.8% in 2QFY25). Further, benchmark phenol-acetone spreads during the quarter grew by >3% QoQ. This should result in 8% sequential rise in EBITDA for Deepak Nitrite. Archean’s 2QFY25 sales is likely to grow by 18% QoQ on account of higher salt and slight increase in bromine sales. Further, EBITDA margin is expected to be higher QoQ. As a result, its EBITDA is likely to grow by 30% QoQ.
* EBITDA to grow 13% QoQ for Ami: For Ami, we estimate 6% QoQ increase in sales (in 3QFY25) mainly on account of jump in CDMO sales. Further, we expect sequential 124bps EBITDA margin jump owing to higher CDMO contribution. As a result, Ami’s EBITDA is likely to jump 13% QoQ.
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