Specialty Chemicals Q4 Preview | Revenue growth seen strong on firm demand

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Specialty chemical companies are expected to report strong growth in revenues in the quarter ended March, aided by better realisations and firm volumes, said analysts polled by Moneycontrol.

The sector continued to see strong demand during the quarter as the global economy recovered from the impact of persistent lockdowns even though the spread of the Omicron variant of COVID-19 early in the quarter raised some concerns.

While input prices for specialty chemical companies jumped in the quarter due to higher global crude oil prices, analysts suggested that most companies were able to pass on higher costs to customers, given their dominant market positions in certain products.

Brokerage firm KRChoksey Shares and Securities expects chemicals stock covered by it to report 28.4 percent on-year growth in revenues in the reporting quarter led by volume growth due to better mix of products and price hikes.

“During Q4FY22 rebound in the demand for major end user industries will play as an important factor for our chemical universe companies to deliver higher volume growth,” KRChoksey Shares and Securities said in a preview note.

Brokerage firm Sharekhan expects the net profit of specialty chemical companies to grow by over 20 percent on-year in the March quarter reflecting the capacity of many companies to pass higher input costs.

“Strong demand environment, potential global market share gain, and capex plan (to expand capacities) provide confidence on medium to long-term growth prospects for the Indian specialty chemical sector despite near-term challenges on elevated costs,” Sharekhan said.

However, some pressure on margins of specialty chemicals companies will be evident on a year-on-year basis given the more than 36 percent jump in Brent futures of crude oil in the March quarter due to the breakout of war between Ukraine and Russia.

The outlook for margins for specialty chemical companies remains uncertain given investment bank Deutsche Bank expects global crude oil prices to remain around $110 per barrel for the rest of the year if the Ukraine-Russia crisis prolongs.

In addition to higher oil prices, specialty chemicals companies have been facing shortage of tankers and shipping vessels for their exports that have escalated freight costs for companies. Further, forecasts of a possible slowdown in the global economy led by the US and China in the latter half of the year pose risks to demand for specialty chemical companies.

Among companies, SRF is expected to have stellar quarter of revenue and operating profit growth in the March quarter. ICICI Securities expects the company to report 37 percent on-year growth in revenues, while net profit may soar 59 percent.

“SRF’s chemical business EBIT will gain from steady growth in fluorospecialty, and strong price increase in ref-gas (HFC) and anti-dumping duty on HFC imports in India,” ICICI Securities said in a preview note.

Kotak Equities sees Navin Fluorine’s revenues rising 15 percent on-year while its adjusted net profit may grow 20 percent. “We expect refrigerants revenue to increase sequentially due to peak seasons, specialty chemicals revenue to increase due to a strong demand environment and inorganic fluorides revenue to see some slowdown from peak of Q3,” Kotak Equities said.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.