HDFC securities has predicted a slump in the overall Indian chemical sector in Q1 FY21 quarter as per its latest forecast and stated that the revenue is likely to decline by ~26/24% YoY/QoQ and EBITDA would decline by 29/33% YoY/QoQ owing to the lockdown. 

 

Chemical companies directly/indirectly cater to sectors such as automobiles, FMCG, pharma, textile, agrochemicals, foods, dyes & pigments. Despite obtaining permissions to resume manufacturing in the 2H of 1Q, lack of demand and logistics challenges, particularly in supply of goods, forced chemical companies to operate their plants at lower utilisation.

 

The average Brent price fell 38% QoQ to USD 31.3/bbl in 1Q. Sharp correction in oil prices and benign gas prices (~USD 2.3/mmbtu) have resulted in a fall in raw material prices for chemical manufacturers. We believe that companies will only partially pass the benefit of falling raw material prices, resulting in a gross margin expansion. EBITDA margin shall decline, courtesy low utilisation. 

 

Some of the company's covered in the performance tracker of HDFC are listed below: 

 

Alkyl Amines (AACL) and Balaji Amines (BLA): Revenues shall fall, given (1) a fall in raw material prices, particularly methanol (-31/-49% QoQ/YoY) and acetic acid (-8/-24% QoQ/YoY) and (2) lower sales volumes, courtesy the lockdown. Non-pharma demand (~40% of product mix for AACL and BLA) shall decline in 1QFY21, given lower plant utilisation of their customers due to the lockdown. We expect EBITDA margin for AACL/BLA to decline from 28.8/22.7% in 4Q to 24.3/21.9% in 1Q.

 

Galaxy Surfactants (GSL): We expect blended volume contraction of 23/27% YoY/QoQ, owing to the decline in volumes by (1) 35/29% YoY/QoQ in specialty care segment and (2) 15/26% YoY/QoQ in performance surfactants. We estimate per unit EBITDA of ~INR 12,250/ton, down 30% on a YoY and QoQ basis.

 

Vinati Organics (VO): Earnings shall be impacted owing to low demand for ATBS due to weakness in oil and gas prices. Demand for IBB is expected to improve QoQ as the company acquired a new customer and BASF resumed production of Ibuprofen. EBITDA margin shall be down to 39% vs 41% in 4Q, attributable to a change in product mix (lower sales of high margin ATBS).

 

Navin Fluorine (NFIL): Specialty chemicals shall demonstrate strong YoY growth, owing to robust demand from agrochemical and pharma industries, while inorganic and refrigerant gases segments are expected to remain muted QoQ/YoY. We expect steady performance from the CRAMS segment; ~7% fall in fluorspar prices shall aid gross margin expansion.