IGI Logo

Global markets still in turmoil; export trends mixed

* The global chemicals sector would experience mixed conditions in CY25, with a selective recovery to be observed in the specialty, industrial, and life sciences segments, while macroeconomic and geopolitical headwinds continue to pose challenges. Companies focus on cost management, portfolio diversification, and sustainability to navigate pricing pressures and demand volatility.

* Exports displayed a mixed trend in Jan’25, with most companies reporting a MoM decline in volumes, while AACL, and VO witnessed strong YoY growth. Export realizations improved MoM but deteriorated YoY for many, with INR depreciation impacting revenue figures across companies.

* We currently prefer SRF, ATLP, and VO, while we maintain our Sell rating on FINEORG. SRF's chemicals business is recovering, with specialty chemicals and fluorochemicals driving strong growth, while packaging and technical textiles witness a steady expansion. ATLP and VO focus on capacity expansion and new product launches, with the latter benefiting from ATBS demand and integration synergies.

Cautious optimism amid market volatility

* The global chemical sector in CY25 is expected to face mixed conditions, with some recovery in demand but ongoing macroeconomic challenges. Companies such as LG Chem and Mitsubishi Chemical anticipate modest growth in specialty and high-value applications, although uncertainties persist due to geopolitical risks and global policy shifts. LyondellBasell and Dow Chemical expect a gradual improvement in polyolefin demand, while cost rationalization and operational efficiencies remain key priorities to navigate volatile raw material pricing.

* The industrial chemicals segment is likely to undergo selective recovery, with Eastman Chemical and Huntsman focusing on innovation and cost-cutting measures to offset weak construction and automotive demand. Honeywell and Chemours highlighted growth in long-cycle aerospace and building automation segments, but near-term industrial automation remains weak. Companies in electronics and life sciences, such as DuPont and Bayer, project stable growth, driven by innovation in semiconductor materials and pharmaceuticals despite regulatory and pricing pressures.

* The agricultural and packaging chemicals face headwinds, with Bayer and Corteva anticipating pricing pressure in crop protection, while FMC Chemical projects lower demand due to inventory destocking. Lotte Chemical and Borealis foresee stable polyolefin margins but constrained operating rates in certain regions. Overall, the sector outlook remains cautious, with companies focusing on strategic cost management, portfolio diversification, and sustainability-driven innovations to retain profitability amid a challenging macro landscape.

Export trends remain mixed in Jan’25

* Exports have displayed a mixed trend in Jan’25, with nine of the 12 companies we cover showing a MoM decline in export volumes and four experiencing a decline on a YoY basis. UPL’s exports surged 103% MoM in Jan’25, while AACL and VO’s exports jumped 61% each on a YoY basis. The highest decline MoM was recorded by ATLP (-37%), while on a YoY basis, the highest decline was registered by UPL (-31%).

* Export realizations, on the other hand, appear to have improved MoM for most companies while the same declined for eight companies YoY. Realization improved the most for ATLP to the tune of 49% MoM, while it was also the highest for ATLP (+55%) on a YoY basis. The dip in realization was the highest for DN (-20%) MoM, while it declined the highest for UPL (-42%) on a YoY basis.

* Regarding the export value in INR terms, seven companies have shown a decline in export revenue in INR terms on a MoM basis, while the decline was only for three companies on a YoY basis. This might also have been because the INR vs. USD has depreciated ~4% on a YoY basis in Jan’25, which would leave the export revenue to be optically higher in the month. The highest increase on a MoM and YoY basis was for UPL (+156%) and VO (+82%), while the highest decline on a MoM and YoY basis was for DN (-40%) and UPL (-59%), respectively

Valuation and view

* SRF: The chemicals business is recovering, with specialty chemicals experiencing a demand revival and fluorochemicals benefiting from export growth, driving an estimated CAGR of ~29% over FY25-27E. Margins are expected to improve due to operating leverage and a higher VAP mix, while the packaging and technical textiles businesses are expected to post ~14% and ~8% CAGR, respectively.

* ATLP: The end-user demand improved in 9MFY25, and ATLP is expanding capacities, debottlenecking operations, and increasing its global presence. Key projects, such as the 50ktpa liquid epoxy resins plant and the caustic soda facility, are ramping up, with risks tied to execution delays and margin pressures. We value the stock at 35x Dec’26E EPS to arrive at our TP of INR8,455.

* VO: VOPL’s new products (MEHQ, Guaiacol, Anisole, 4- MAP, Iso Amylene) are likely to start in 4QFY25, driving growth. Meanwhile, VO, now India’s only double-integrated AO maker following the VAPL merger, is expected to grow on the back of robust ATBS demand. We value VO at 45x Dec’26E EPS to arrive at our TP of INR2,600. We reiterate our BUY rating on the stock

For More Research Reports : Click Here 

For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412