Chemical industry’s Q4FY21 PAT estimated at 41.9% : ICICI Direct Research

ICICI Direct Research expects its chemical universe to register topline growth of 14.5% YoY, while bottomline is expected to grow 41.9% YoY in the last quarter

Crude oil prices have increased ~38% over October-December 2020, in which a major surge came in December. Further, since the start of Q4FY21, crude oil prices have gone up 14% over January-March 2021, which percolated into many chemicals prices to reach considerably higher levels, informs ICICI Direct Research.

ICICI Direct Research believes given there was apprehension of higher crude prices on the back of a revival in economic growth along with ongoing supply cut by Opec, majority of the companies built up low cost inventory during Q3FY21.

ICICI Direct Research expects this to provide a cushion to overall growth in Q4FY21. In terms of volume growth, since there has been restoration of demand across construction, auto, textile along with sectors being resistant during the pandemic such as pharma, agrochemical, FMCG, this should have supported volume growth for most chemical companies during last quarter.

ICICI Direct Research expects double digit volume growth for most companies under our universe. We expect majority of our coverage companies to report inventory gains on the back of higher end product prices, which should support better gross margins this quarter. Further, operating leverage can likely aid OPM for the quarter. In a nutshell, ICICI Direct Research expects its chemical universe to register topline growth of 14.5% YoY, while bottomline is expected to grow 41.9% YoY in the last quarter.

ICN carries here the forecast of ICICI Direct Research

Topline growth likely to be 14.5% YoY, led by recovery across end user industries

We witnessed a recovery in demand in sectors like textile, paper, metals, automobiles, to name a few along with sectors that were immune to Covid19 impact such as agrochemicals, pharma, etc. This should support higher volume growth for most companies under our universe especially from pigments, dyes, soda ash industries. Further, companies that into specialty chemicals and have large order backlog in place, should likely sustain similar momentum as witnessed last quarter. We expect companies like PI Industries and Navin Fluorine to report strong revenue growth in the CRAMS portfolio. Moreover, better domestic Rabi season along with higher agri input prices should translate into better performance for our agrochem universe pack last quarter. We expect our chemical universe companies to post topline growth of 14.5% YoY for Q4FY21.

EBITDA to grow 33.9% YoY with bottomline up 41.9% YoY

Increase in the value added segment revenue from the basket of specialty chemical companies along with a rise in realisation for select companies can aid the operational performance. We expect the OPM of our coverage universe companies to expand 280 bps YoY to 19.3%, leading to EBITDA growth of 33.9% YoY. Bottomline growth is expected to be up 41.9% YoY,largely on the back of lower tax outgo and higher other income.

Company Remarks

Navin Fluorine

We expect revenues to grow 15% YoY to Rs. 319 crore, largely led by growth in the CRAMS and speciality chemical segments. We expect the CRAMS business to report growth to the tune of 40% YoY on the back of improvement in capacity utilisation post cGMP3 coming on stream. The speciality chemical segment is likely to post growth of 20% YoY to Rs. 125 crore while other segments such as inorganic fluoride should post decent growth due to better demand from the steel sector for the quarter. We expect OPM to expand 280 bps to 27.7% on the back of better gross margins due to a change in the product mix and operating leverage, leading to EBITDA growth of 28.3% YoY to Rs.  88.2 crore. Adjusting MAT credit and tax reversal in Q4FY20, adjusted PAT is expected to grow 7.8% YoY to Rs.  62.4 crore.

PI Industries

We expect better growth from CSM to continue for this quarter as well on the back of strong order backlog and decent demand from the end industries. Along with this, decent performance from Isagro should also aid overall topline growth. We expect topline to grow at 38.5% YoY to Rs. 1185 crore. OPM should likely expand 267 bps YoY to 24.5% resulting in EBITDA growth of 56% YoY to Rs.  290 crore. PAT is expected to grow 92% YoY to Rs.  212 crore.

Sumitomo Chemical

Q4 is normally a lean quarter for the company. However, we expect a price hike for glyphosate in the last quarter due to higher demand to aid topline growth for Sumitomo India given the former constitutes ~12% of group revenue. Apart from this, we also expect a price increase for other intermediates, which should have aided the realisation of the company for the quarter. All these should have translated into decent topline growth. We expect revenues to grow at 12% YoY to Rs.  501 crore. OPM should expand 407 bps YoY to 13.5% largely due to higher gross margins, leading to EBITDA growth of 61% YoY to Rs.  68 crore. PAT is expected to remain at Rs.  44.3 crore (+93% YoY), largely due to a better operational performance.

Tata Chemical

Since there has been a revival in a construction activity across the globe, we expect flat glass demand to have also improved and, thereby, demand for soda ash. We expect the export business for the North America unit to have performed well. Thus, this should have given a respite to the overall performance. Apart from this, better demand from container glass should also have aided overall growth for the quarter along with base segment such as detergent that should have performed normally as expected. This, in turn, should lead overall topline growth of 3% YoY to | 2449 crore. OPM can likely remain flat at 16.8% resulting in EBITDA growth of 3% YoY to Rs.  412 crore. PAT is expected to fall 18% YoY to Rs.  151 crore on the back of higher depreciation, taxes and lower other income.

Rallis India

We expect some improvement in the inventory situation for key molecules in the international market, which should support overall growth for the company this quarter. We expect topline to increase 9% YoY to Rs.  378 crore. OPM should likely remain higher YoY owing to better gross margins. We expect EBITDA to remain at Rs.  9 crore against operational loss of Rs.  9.8 crore in Q4FY20. PAT is expected to remain in loss to the tune of | 0.4 crore against a loss of Rs.  10.7 crore in Q4FY20.