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Specialty chemical companies within our coverage universe are expected to post a modest revenue growth of 3.8% YoY and 3.1% QoQ, accompanied by a 36bps QoQ contraction in margins. This marginal improvement in topline and softening in margin is due to weak demand, export uncertainty amid tariffrelated issues, and lower realizations across most product segments. Refrigerant gas prices, which were at all-time high, also moderated towards the end of the quarter. We do not anticipate a further uptick in view of slowdown in Chinese AC sales going forward.

Based on our channel checks and recent management commentaries, the challenging environment for agrochemical-focused companies is expected to persist, with margins likely to remain under pressure in the near term. Chinese companies remain a significant competitive threat to Indian chemical manufacturers. Chemical production in China grew 7.9% YoY in H1CY25, accounting for over 85% of global output, while India’s production declined by 1%. However, the ongoing anti-dumping investigations by the DGTR could provide meaningful relief once implemented, potentially benefiting several domestic players. Companies with exposure to fluorination chemistry are likely to witness YoY margin expansion, driven by improved realizations for key refrigerants compared to last year. Meanwhile, dyes, pigments, and polymer additives are expected to maintain steady demand

* Key feedstock prices showing mixed trend: Crude oil prices averaged USD68/bbl in Q2FY26, down 14% YoY and up 2% QoQ, with the latest price at USD65/bbl, while crude oil derivatives phenol, benzene, and toluene were down 18%, 26%, and 5% YoY respectively. Natural gas rose 40% YoY but declined 13% QoQ, currently at $3/MMBtu. Key raw materials such as acetic acid and ethyl acetate have seen YoY price decline of 29%, 10% respectively. On the other hand, sulfuric acid surged 109% YoY and 13% QoQ, ammonia increased 16% QoQ, while R-22 rose 25% YoY.

* Ongoing Anti-dumping duties could provide potential relief for Indian chemical companies: The potential imposition of anti-dumping duties (ADD) could provide meaningful relief to Indian chemical companies. Within our coverage, NOCIL stands to benefit significantly, with ongoing investigations covering nearly 40% of its product portfolio. Other companies such as Vinati Organics, Laxmi Organics, Jubilant Ingrevia, Gujarat Fluorochemicals, Deepak Nitrite, and SRF are also likely to gain from the implementation of ADD on key products like Para-Tertiary Butyl Phenol, Antioxidants, Methyl Acetoacetate, PTFE, HALS and R-134a.

* Marginal pickup in volumes: Most of the companies under our coverage are likely to witness a pickup in volumes in Q2FY26, based on commentaries from the management. However, margins are expected to remain under pressure particularly for agrochemical-focused companies due to subdued demand and weak realizations

Our top picks for the sector include:

* Fine Organics: Fine Organics holds a significant competitive advantage with its unique product portfolio, the global demand for the company’s product portfolio remains robust. The company is undertaking Rs7.5bn green field capex at SEZ land allotted to the company at Jawaharlal Nehru Port Authority. This facility will manufacture products like the company’s current portfolio and is expected to start commercial production by FY27. Additionally, the company has set up new subsidiaries in the USA to set up a manufacturing facility in the USA and UAE to enhance supply chain efficiency respectively. We believe the new facility in SEZ will be a key driver of future growth for the company and is expected to have a peak revenue of Rs26bn at 3.5x asset turnover and will start contributing to the topline majorly from FY28. We expect revenue and EBITDA to decline by 2% QoQ, while on a YoY basis, revenue fell by 3% and EBITDA dropped by 20%, primarily due to an increase in key feedstock prices YoY.

* PCBL Chemical Limited: PCBL has emerged as India’s largest and world’s 7th largest carbon black (CB) manufacturer. The company is expanding its carbon black capacity to 1mmtpa+ by FY28/29. We expect carbon black volumes to grow at 9% over FY25- FY27E, with overall CB current capacity utilization at ~75%. It is set to strengthen both the old age economy of CB as well as new age applications like nano silicon and acetylene black which are expected to EBITDA driver going ahead. FY25 was challenging for Aquapharm business due to sharp correction in key RM yellow phosphorous prices, which have stabilized now, we expect performance improvement in FY26. We expect revenue and EBITDA to decline by 5% and 16% YoY, respectively, while on a QoQ basis, revenue is expected to decrease by 3% and EBITDA by 4%, due to decline in exports

Change in Target Prices and Estimates:

We continue to maintain our ratings for all the stocks under our coverage, and value them now based on FY27/FY28E average EPS.

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