IGI Logo

In 2QFY24, most chemical companies under our coverage are likely to register flattish sequential sales growth; PI Industries, Deepak Nitrite, and Aether Industries will be the outliers. PI will have the advantage of the first full quarter of the pharma acquisition and likely continued momentum in pyroxasulfone. Deepak Nitrite will benefit from recovery in phenolic spreads and improvement in the standalone business. For SRF, both refrigerant gas and fluoro specialty chemicals sales are likely to be weak. Navin’s CDMO sales are likely to be subdued while specialty chemicals sales are likely to face the slowdown challenge. These weaknesses will more than offset the recovery in HPP sales. Archean’s sales will be impacted by lower bromine demand/pricing environment along with seasonal rains. Clean Science’s sales are likely to be flattish sequentially owing to higher volume offsetting end-product price declines. We are still awaiting an improvement in companies exposed to agrochemicals inventory destocking. We expect ~5-10% cuts in earnings estimates for most companies post 2QFY24 results. Top picks – SRF in large caps and Deepak Nitrite in mid-caps.

* Navin Fluorine’s EBITDA likely to grow 2% sequentially while SRF is likely to report 5% QoQ contraction in EBITDA: Navin Fluorine’s 2QFY24 sales is likely to grow 1% QoQ (but go up 16% YoY) on account of a weak show in specialty chemicals and CDMO businesses more than offsetting recovery in HPP sales. On account of higher contribution of HPP sales, we expect Navin’s EBITDA margin to come in at 23.9% (vs. 23.3% in 1QFY24). SRF’s 2QFY24 EBITDA is likely to fall by 5% QoQ on account of weak demand for specialty chemicals due to on-going inventory destocking issues. This weak specialty chemicals performance will marginally be offset by higher sales of refrigerant blends.

* Robust growth for PI; dismal one for UPL: UPL’s 2QFY24 revenue is likely to see 13% YoY de-growth. It is likely to see major decline in North America (down 40% YoY), Europe (down 15% YoY), Latin America (down 13% YoY), and India (down 10% YoY). Only RoW (up 2% YoY) is likely to see growth. Further, EBITDA is likely to see 25% YoY de-growth owing to lower gross margin. For PI, CSM revenue is likely to be flattish sequentially (and up 19% YoY) while the domestic business is likely to be flat YoY (and up 42% QoQ). Besides, PI’s pharma business integration will fuel rest of the sequential growth. As a result, its 2QFY24 revenue is likely to see 12%/21% QoQ/YoY growth. Moreover, we have assumed slightly lower EBITDA margin to 23.9% (vs. 24.5% in 1QFY24) owing to full integration of pharma business. As a result, its EBITDA is likely to see 9%/19% QoQ/YoY growth (Note: we have not included pharma contribution in 2QFY23).

* Fine Organics’ EBITDA to fall by 27% sequentially; Tatva Chintan’s EBITDA likely to grow 3% QoQ: We estimate Fine’s 2QFY24 sales to fall by 20% sequentially. Further, sequential decline in EBITDA margin is likely to result in 27% sequential fall in EBITDA. For Tatva, we estimate sequentially flattish 2QFY24 sales on account of muted demand for its SDA and other specialty chemicals. Further, we expect sequential 28bps EBITDA margin improvement post the consumption of high-cost inventories last quarter. As a result, Tatva’s EBITDA is likely to grow 3% QoQ.

* Anupam Rasayan EBITDA to be flattish sequentially; India pesticides’ EBITDA to grow 6% QoQ: We estimate Anupam Rasayan’s 2QFY24 sales to grow by 2% QoQ/YoY while its EBITDA margin could be sequentially lower on account of higher contribution from lowmargin products from Tanfac. As a result, its EBITDA is likely to be flattish sequentially (down 3% YoY). For India Pesticides, we expect 2% QoQ sales growth and 6% QoQ EBITDA growth.

* Clean Science’s EBITDA to grow by 4% QoQ; Galaxy’s EBITDA to grow by 2% QoQ: We estimate Clean’s 2QFY24 revenue to grow by a marginal 1% QoQ on account of volume growth offsetting end product price decline. Further, on account of sequentially higher gross margin, EBITDA margin is likely to stand at 41.7% (vs. 40.5% in 1QFY24). As a result, its EBITDA is likely to grow by 4% QoQ. For Galaxy Surfactants, we have assumed ~1% QoQ rise in sales and rise in EBITDA margin at INR 21,246 per tonne (vs. INR 21,088 per tonne in 1QFY24). This is likely to result in EBITDA rising by 2% QoQ.

* Sequentially, Deepak’s EBITDA to rise 50%, Archean’s EBITDA to decline 5%; Aether’s EBITDA to rise 14% QoQ: During 2QFY24, Deepak’s advanced intermediates (AI) sales could rise by 9% sequentially while AI EBIT margin could also improve. Further, benchmark phenol-acetone spreads during the quarter jumped >20% QoQ. This should result in 50% sequential jump in EBITDA for Deepak Nitrite. Archean’s 2QFY24 sales is likely to increase 1% QoQ on account of higher salt sales getting offset by 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 5% sequentially (up 8%YoY). Aether’s 2QFY24 revenue could rise 7% QoQ on account of higher sales of large scale manufacturing as well as CRAMS products. Further, on account of sequentially higher gross margin, EBITDA is likely to rise by 14% (up 39% YoY)

Please refer disclaimer at https://www.jmfl.com/disclaimer

CIN Number : L67120MH1986PLC038784