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Quick Pointers

* Cautious outlook maintained amid uncertainty

* Sharp input cost surge to weigh on near term margins

Specialty chemical companies within our coverage universe are expected to deliver a 4% YoY decline in revenue, while a 3% QoQ increase. EBITDA margins are expected to contract by 10bps QoQ and 160bps YoY (excl. PPL), driven by a sharp jump in key input prices particularly in March’26 due to the West Asia conflict. Companies exporting to the Middle East are expected to face added headwinds, with no shipments to the region in the final month of the quarter and elevated freight costs are expected to further erode margins if the war continues. Key refrigerant gas prices remain elevated but were flat QoQ, continuing to support exposed companies.

Our channel checks and management interactions indicate high volatility ahead, with significant margin uncertainty across the chemical value chain in the next few months. Although few companies have started passing on elevated production costs to customers. Ongoing agrochem headwinds continue to persist. DGTR anti-dumping investigations could provide meaningful relief once implemented, benefiting several domestic players. Overall, near term challenges are expected to impact performance and we continue to maintain our cautious stance on the sector.

Short term margin compression expected:

Although most of the chemical companies maintain inventories to deal with short term volatilities. The sharp spike in input costs from the conflict is expected to cause a slight sequential margin decline in Q4FY26. If the war persists, companies in our coverage universe will face significant margin disruptions in Q1FY27 due to prolonged supply chain issues and elevated energy prices.

Geopolitical tensions led to sharp increase in key input prices:

Post the inception of US-Iran war there has been a sharp increase in key input prices. Crude oil prices increased by 29%, while spot natural gas prices increased by 21% in Q4FY26 compared to Q3FY26. Key raw materials such as acetic acid and ethyl acetate rose 4% and 9% YoY and 20% and 11% QoQ, while PET increased 12% YoY. Sulfuric acid prices also surged 122% YoY and 26% QoQ, ammonia jumped 3% QoQ, and TDI rose 18% YoY. Meanwhile, caustic soda and soda ash remained stable with QoQ but were down 18% and 14% YoY, respectively. R-22 saw 50% YoY and 18% QoQ correction.

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 is expected to benefit from duties on several key products. Other companies such as Vinati Organics, Laxmi Organics, 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, (2,2,6,6-Tetramethyl-4-Peridyl) Sebacate (UV 770) and HFC blends.

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 in UAE, Dubai 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 3.3% and 2.3% QoQ and decline by 11.6% and 22.9% YoY due to elevated RM cost.

Navin Fluorine International Limited: Navin Fluorine’s HFO plant continues to operate stably with healthy capacity utilization. The recently expanded R-32 facility is already running at optimal levels, and the company has announced an additional 15,000mtpa R-32-equivalent plant to capitalize on strong demand. In specialty chemicals, the outlook for CY26 remains robust, supported by new product ramp up, while the Chemours project is scheduled to commence in Q1FY27. The CDMO business is backed by a solid order book through FY27, and the company continues to reiterate its USD100mn revenue ambition for this segment by FY27. Meanwhile, cGMP-4 Phase 1 plant got recently commissioned post successful validation of batches by the company’s European partner. The AHF plant is progressing well, further strengthening vertical integration once operational. We expect revenue and EBITDA to decline by 15% and 8.9% QoQ, while on a YoY basis, both revenue and EBITDA are expected to increase by 9% and 2% respectively

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