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A Quarter Marked by Macro Uncertainties; Hopes of Recovery from H2FY26

? Global Challenges Persist in Q1FY26: The chemicals sector reported a mixed performance in Q1FY26, with most companies missing both our and consensus estimates, particularly on the profitability front. Intense competition from Chinese suppliers, order deferments, and uncertainty surrounding U.S. tariffs weighed on profitability. The demand-supply imbalance persisted, as subdued domestic demand coincided with excess Chinese capacity, resulting in subdued volumes or volume growth at the cost of margins in some cases. The operating environment remained highly volatile, marked by sharp corrections in raw material prices, geopolitical tensions, and continued global trade disruptions. Nevertheless, companies were able to sustain operational continuity and stable volumes. Domestically, the agrochemical sector demonstrated resilience, supported by healthy reservoir levels and adequate groundwater availability. With Rabi sowing expected to progress well, demand prospects remain encouraging, positioning the sector for recovery in H2FY26.

? Chemistry Plays: Companies focusing on diversification and innovation demonstrated relative resilience amid overall market volatility. Management commentary highlighted a proactive approach, with firms aligning to evolving end-market needs and adapting swiftly to shifts in the demand landscape, rather than relying solely on demand or pricing recovery. On the demand side, discretionary categories such as dyes, pigments, and polymers held steady. Fluorochemicals and refrigerants continued to deliver strong performance, aided by healthy R32 volumes and improved pricing in R22. Internationally, the agrochemical sector remained under pressure, weighed down by persistent oversupply. Domestically, the delayed and uneven onset of the southwest monsoon disrupted kharif sowing, dampening demand for agri-inputs, particularly herbicides. Farmer sentiment also remained cautious, reflecting rainfall uncertainties and weaker price realisations from the previous harvest.

? Outlook and Guidance: Demand prospects remain cautiously optimistic, with pricing still subdued though showing improvement compared to recent quarters. A sustained recovery in prices will depend on factors such as (a) potential product dumping by international players and associated protective measures, (b) tariff-related developments, and (c) volatility in raw material costs. Region-specific tariff structures are expected to alter cost dynamics and could drive a realignment of global supply chains. While Indian exporters may face near-term challenges, they may see a robust recovery once clarity around global tariffs emerges and major customers realign their supply chains. Looking ahead, the financial performance of chemical companies will be shaped by their ability to differentiate product offerings and maintain cost efficiency

Financial Performance: Chemicals

? Dhanuka Agritech reported revenue of Rs 528 Cr, up 7% YoY and 20% QoQ, missing our estimate of Rs 553 Cr. EBITDA came in at Rs 83 Cr, up 16% YoY but down 24% QoQ, missing our estimate of Rs 91 Cr. The company achieved EBITDA margins of 15.7%, elevated YoY due to better operating performance, compared to 14.5% in Q1FY25 and 24.8% in Q4FY25. PAT stood at Rs 56 Cr, up 14% YoY but down 26% QoQ, missing our estimates by 11%. The performance was impacted by slightly inconsistent rains, leading to weaker demand.

? PI Industries’ consolidated revenue stood at Rs 1,901 Cr, down 8% YoY but up 6% QoQ, missing the estimate of Rs 2,255 Cr as pressure in agchem exports persisted, while domestic biologics business was impacted by regulatory changes. EBITDA came in at Rs 519 Cr, marking an 11% YoY decline but increased by 14% QoQ, 19% below estimates. EBITDA margin stood at 27.3%, compared to 28.2% in Q1FY25 and 25.5% in Q4FY25. PAT was reported at Rs 400 Cr, down 11% YoY but up 21% QoQ, falling short of the Rs 466 Cr estimate

? Navin Fluorine International Ltd (NFIL) delivered a robust performance in Q1FY26. Revenue came in at Rs 725 Cr, registering a 39% increase YoY and 3% QoQ, in line with our estimate. EBITDA rose sharply to Rs 207 Cr, marking a robust 106% YoY and 16% QoQ growth, surpassing the estimate of Rs 184 Cr. EBITDA margins expanded significantly to 28.5% vs 19.2% in Q1FY25 and 25.5% in Q4FY25, led by operating leverage and improved product mix. PAT stood at Rs 117 Cr, up 129% YoY and 23% QoQ, beating our estimate of Rs 99 Cr.

? Aarti Industries Ltd.’s performance was weaker than expected, mainly due to uncontrollable external factors. Revenue came in at Rs 1,675 Cr, down 10% YoY and 14% QoQ, missing our estimates. EBITDA stood at Rs 212 Cr, down 30% YoY and 21% QoQ, missing our estimates by 25%. EBITDA margin stood at 12.7%, compared to 16.4% in Q1FY25 and 13.7% in Q4FY25. The company’s PAT was Rs 43 Cr, down 69% YoY and 55% QoQ, missing our estimates of Rs 97 Cr due to higher interest cost and depreciation, while the revenue declined.

? Apcotex Industries registered a robust volume growth leading to revenue of Rs 376 Cr, up 12% YoY and 8% QoQ, in line with our estimates. However, the company missed our estimates on the EBITDA front (Rs 39 Cr, up 22% YoY). EBITDA margins stood at 10.3%, improving 84 bps YoY but declining 73 bps QoQ. PAT came in at Rs 19 Cr, marking an increase of 29% YoY and 14% QoQ, in line with our estimates.

? Archean Chemical Industries’ consolidated revenue stood at Rs 292 Cr, up 37% YoY and down 15% QoQ. The performance missed our estimate by 26%, as bromine volumes continued declining, signalling a delay in full recovery. EBITDA was Rs 78 Cr, up 10% YoY but down 12% QoQ, falling short of our estimates by 36%. The EBITDA margin stood at 26.7%, down 676 bps YoY but up 116 bps QoQ. The company's PAT was Rs 40 Cr, a drop of 10% YoY, majorly missing our estimate by 51%.

? Camlin Fine Sciences’ Q1FY26 revenue grew 7% YoY but declined 3% QoQ to Rs 424 Cr, missing our estimate of Rs 475 Cr. While the company observed an improvement in Vanillin prices, a full impact is expected in the coming quarters as the customer inventories liquidate. EBITDA came in at Rs 19 Cr, up 5% YoY but down 68% QoQ, as EBITDA margins declined by 9 bps YoY and 909 bps QoQ to 4.5%. The company reported a net loss after discontinued operations of Rs 11 Cr, after posting a positive PAT number in the previous quarter.

? NOCIL’s reported revenue of Rs 336 Cr, down 10% YoY and 1% QoQ, missing estimates by 15%. EBITDA came in at Rs 31 Cr, down 26% YoY and 11% QoQ, falling short of estimates by 25%. EBITDA margin declined to 9.1% from 11% in Q1FY25. PAT stood at Rs 17 Cr, down 36% YoY and 17% QoQ, compared to the estimated Rs 27 Cr

Focus on Cost Optimisation, Utilisation Gains, and Growth Drivers

FY25 proved to be a challenging year for the chemical industry, and the pain seems to be persisting in Q1FY26. The key adverse factors were subdued global demand, economic weakness in key markets, inventory destocking, surplus supply from China, and lingering concerns over further deterioration in global consumption. Nonetheless, most of these challenges are expected to be resolved over the next few quarters, and the sector’s long-term growth potential remains intact, supported by rising export opportunities and resilient domestic demand.

• Chemicals: Chemical companies under our coverage continue to focus on operational efficiencies and innovation to navigate the transitory phase where global supply chains are looking to realign. Most of the players are forced to balance between pricing with volumes to protect margins, selectively participating in businesses with sustainable profitability, and intensifying cost optimisation initiatives. Although management commentary points to nascent signs of price recovery, uncertainty around U.S. tariff developments continues to pose a risk. We believe that the long-term structural story is intact, and companies maintaining cost discipline and enhancing operational efficiency are well placed to capitalise on recovery when it materialises. We remain cautiously optimistic about a recovery during H2FY26.

• Agrochemicals: Domestic agrochemical players are expected to sustain growth momentum, aided by product innovation and a healthy pipeline of launches. While the rainfall in Q1 was a bit irregular, more encouraging trends were observed in Q2, leading to improved demand prospects. Product pricing appears to have stabilised, and upcoming product introductions should drive revenue growth. While global agrochemical markets may remain under pressure for the next few quarters, the medium-term outlook remains positive. We maintain the view that companies investing in R&D, bringing differentiated offerings, and forging strategic collaborations are better positioned to capture growth opportunities and deliver margin improvement over time.

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