Chemicals Sector Update : Raw material strain to hit Q4 by Elara Capital
We expect Q4FY26E earnings of Elara Chemicals universe to be characterized by managing key raw materials in the value chain amid US-Iran war (trade of key starting raw materials through the Strait of Hormuz at standstill). We have analyzed the availability of raw materials to be a major concern across the chemical value chain, starting from raw materials such as chloroform, sulphur, propylene, methanol, benzene, nitric acid, methane, toluene, acetic acid, and butane to acrylonitrile. Refrigerant-focused companies would be better placed as key raw material (fluorspar) is not dependent on export through the Strait of Hormuz.
Within Elara Chemicals universe, we reiterate our positive view on Gujarat Fluorochemicals (FLUOROCH IN) and Navin Fluorine (NFIL IN), due to strong demand growth outlook of CDMO and new fluoropolymers.
Elara Chemicals universe – Expect EBITDA to drop 28% QoQ and 33% YoY in Q4E, led by weaker volume: Expect cumulative EBITDA margin to fall 340bps QoQ and 498bps YoY to 13.4%, due to higher raw material cost, diversion of propane/butane raw material to LPG production, shortage of key raw material such as sulphur, ammonia, methanol, benzene, toluene, propylene, and natural gas . Per trade data by the government, exports volume for companies within Elara Chemicals universe may decline 3% YoY. Companies such as FLUOROCH, ARTO, AACL and SCHI may witness a YoY improvement in realization but this would be offset by higher raw material cost and lower sales volume.
Vinati Organics (VO IN) – Volume drop to drive YoY fall in EBITDA: Expect EBITDA for VO to fall 23% YoY. Expect a 51%/27% YoY/QoQ drop in Deepak Nitrite’s (DN IN) EBITDA due to lower production.
Alkyl Amines and Balaji Amines – EBITDA decline to be led by lower volume: We expect Alkyl Amines (AACL IN) to post a 49% YoY drop in EBITDA. Similarly, we expect EBITDA for Balaji Amines (BLA IN) to fall 49% YoY in Q4E.
Fluorochemicals – Expect Q4E EBITDA to fall 12-39% YoY: SRF is likely to post a 37% YoY drop in EBITDA in Q4E due to limited availability of raw material. We expect EBITDA for FLUOROCH to fall 39% YoY, on lower volume. NFIL may post a 12% YoY decline in EBITDA.
Aarti Industries’ (ARTO IN) EBITDA may fall 15% YoY due to disruption in raw material supply in Q4E. Atul (ATLP IN) may post a 7% YoY EBITDA drop on lower volume. We expect EBITDA for Sudarshan Chemicals (SCHI IN) to grow 64% QoQ on a lower base (down 51% YoY), as Heubach integration continues amid trade disruption.
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