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Chemicals - Q2FY22 Results Preview Report - HDFC Securities

Posted On: 2021-10-18 22:45:26 (Time Zone: IST)


Mr. Nilesh Ghuge, Institutional Research Analyst, HDFC Securities and Harshad Katkar, Institutional Research Analyst, HDFC Securities

Our chemical universe is expected to report a muted sequential growth due to the supply chain disruptions worldwide. Revenue for our coverage universe is likely to improve by ~35/5% YoY/QoQ. EBITDA margin could deteriorate by 81bps YoY and remain flattish sequentially at 24%, owing to the increasing and volatile raw material costs and freight expenses.

  • Aarti Industries: Higher utilisation, bounce-back of demand to pre-COVID levels, and high operating leverage would help the company post 25-35% YoY bottomline growth, in our view. EBITDA margin shall remain flat, owing to pricing pressures and supply chain disruptions.
  • Alkyl Amines (AACL) and Balaji Amines (BLA): Revenues shall increase by 2/6% QoQ for AACL/BLA in Q2. We expect EBITDA margins for AACL/BLA to decline from 28/29% in Q1 to 26/27% in Q2, owing to elevated methanol and ammonia prices. We downgrade BLA from ADD to REDUCE with a revised TP of INR 4,220, largely as its stock price has run up by ~32% in two months.
  • Deepak Nitrite: Revenue shall increase by 8% QoQ in Q2 with an EBITDA margin of 33%. Higher phenol prices could boost realisation significantly.
  • Fine Organic: Revenue shall remain flattish in Q2, with a 158bps sequential improvement in EBITDA margin to 16%. Margins shall improve on the back of reduction in volatility of raw material prices, reduction in import duties of vegetable oils, and renegotiation of contracts carried out by the company to pass through the spike in input costs to its customers.
  • Galaxy Surfactants: Revenue shall increase by 13% QoQ in Q2, owing to a higher realisation, courtesy higher raw material prices, while EBITDA margin would remain flattish at 13%. Growth will be driven by product launches.
  • Navin Fluorine: Speciality chemicals and CRAMS BU shall continue to demonstrate strong growth, owing to better product mix, robust demand, and market share gain. EBITDA margin could deteriorate sequentially by 114bps.
  • Neogen Chemicals: The company shall benefit from (1) the increasing contribution to revenue of the high-margin CSM business, (2) operating leverage kicking in, and (3) capacity ramp-up.
  • NOCIL: Revenue shall be muted in Q2 with a decrease of 532bps QoQ in EBITDA margin. Steady recovery has been seen in the tyre industry. China plus one strategy is seen to be faring well for NOCIL.
  • SRF: Strong growth could continue in the speciality chemicals and packaging films segment. The technical textiles segment is garnering better realisations, owing to restructuring of margin profile with long-term customers.
  • Sudarshan Chemical: Revenue shall grow by 15% QoQ in Q2 with an increase of 168bps QoQ in EBITDA margin as the blow of the second wave of COVID-19 eased in the second financial quarter. Input costs have escalated across multiple intermediates, but the company has been successful in passing through the price hikes partially to its customers.
  • Vinati Organics (VO): Increasing freight costs, along with increase in phenol and acrylonitrile prices, could impact Q2 margins. The butyl phenol plant will steadily ramp up and, once the amalgamation with Veeral Additives is completed (by Q4FY22), 50% of butyl phenol produced will be used by Veeral Additives to forwardly integrate and produce antioxidants. VO guided that antioxidants will contribute towards ~25% of the total revenue in the coming 2-3 years.


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