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We believe Q4 will be a mixed bag, albeit again largely a subdued quarter YoY for most sector players, owing to demand slowdown in chemicals due to: a) destocking of channel inventory build-up and reduced volume forecast at the customers’ end in agrochemicals; and b) desperation of Chinese players to reduce prices for gaining more market share. Discretionary spends have started showing green shoots of recovery in certain geographies, whereas nondiscretionary spends are still weak. The quarter is likely to look sequentially better on a lower base of Q3, and with Q4 being seasonally strong for most companies. Broad-based recovery is expected from H2FY25. We prefer only Aarti Industries within our sector universe for now. We have a BUY rating on Aarti; an ADD on SRF, Deepak Nitrite and Anupam; a REDUCE on NFIL; and a SELL on GFL.

Q4 results – Key expectations (refer to Exhibits 1 & 2 for detailed numbers) SRF (SRF IN): SRF’s chemicals business (CB) is likely to register sequentially better numbers, on a seasonally strong quarter for ref-gas (higher volumes) and specialty chemicals (though down YoY, on lower realizations). EBIT for CB is expected to be better QoQ, with increased mix from the specialty chemical business. The packaging films business (PFB) continues to face an oversupply overhang with slightly better margins, while the technical textiles business (TTB) is posting a relatively stable performance on both, the revenue and EBIT fronts.

Gujarat Fluorochemicals (FLUOROCH IN): GFL’s Q4 numbers will see moderate recovery QoQ, on a lower base. We believe refrigerant gases will clock relatively higher numbers in the domestic market owing to seasonality; however, there have been lower R125 sales in exports. Fluoropolymers will witness moderate recovery on higher PTFE & PFA volumes, whereas PVDF and FKM are still facing headwinds. Margin is likely to be flat QoQ (~21% vs. 35% YoY) on volume/pricing pressure across businesses.

Deepak Nitrite (DN IN): DN’s Q4 revenue is likely to remain flat QoQ, on seasonally higher numbers for the standalone business (down YoY, on subdued demand recovery in end-use industries), offset by lower realizations in phenolics business (while volumes may grow). Overall EBITDA margin to get impacted on lower spreads in phenolics business.

Aarti Industries (ARTO IN): Aarti is likely to log sequential improvement in revenue, with recovery in discretionary spends (non-discretionary still slow) and given higher export volumes. Aarti’s Q4 EBITDA is expected to come in within the guided range of Rs2.7bn and Rs2.9bn (annual EBITDA guidance of Rs9.5-10bn), thus clocking a third quarter of sequential improvement driven by higher volume growth (while pricing remains stable).

Navin Fluorine International (NFIL IN): High Performance Products (HPP) are set to report moderate growth QoQ in our view, on contribution from the Honeywell contract and the R32 plant. Specialty Chemicals & CDMO business is expected to remain flattish QoQ, with lower exports. We expect a meagre improvement sequentially, albeit largely see YoY decline. Margins would improve QoQ, on slightly higher operating rate (lower base).

Anupam Rasayan (ANURAS IN): Q4 revenue is likely to improve sequentially on higher exports, albeit decline YoY due to the macro slowdown. We believe margins would remain stable at ~26-28% annually, but working capital would look elevated on relatively lower sales. We expect this to improve once new capex starts contributing from H1FY25.

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