Q4 is a quarter marked by high volatility in crude prices. Crude touched around US$130/barrel against average of US$85/barrel during Q3. With the unprecedented rise in crude prices, there was a surge in intermediate prices of most base chemicals.

Since most of ICICI Direct’s coverage universe companies (SRF, PI Industries, Aarti Industries, Sumitomo Chemical, Vinati Organics, Tata Chemical, Navin Fluorine, Rallis India, Sudarshan Chemical, Neogen Chemicals and Astec Life) carry inventories for at least a quarter, we expect minimal impact on the GPM during Q4FY22E.

ICICI Direct also expects MTM inventory gains for few companies in Q4, which could lead an improvement in gross margins, to some extent. On the other hand, given that crude is still hovering at US$100/barrel, it is prudent to see, how most chemical companies will be able to pass on input price inflation in Q1FY23E.

In terms of topline growth outlook for Q4FY22E, ICICI Direct expects healthier demand environment across end user industries to have led to strong revenue performance for our coverage universe, amid better volumes & realisations growth.

ICICI Direct expects companies to report topline growth of 29.3% YoY. The research agency expects OPM for our coverage universe to expand 283 bps YoY to 20.9%, leading to EBITDA growth of 49.6%. Bottomline of the above mentioned companies is expected to report growth of 75% YoY, led by higher other income and lower tax outgo.

Topline likely to grow 29.3% YoY, led by volumes, realisation

There was a recovery in demand in sectors such as textile, paper, metals, automobiles, pharma, etc. This should support higher volume growth for most companies under our universe, especially from pigments, dyes, soda ash industries. Further, better realisations are expected to aid the overall performance. Companies in specialty chemicals and having large order backlog in place, should sustain similar momentum as witnessed in the last quarter. ICICI Direct anticipates companies will post topline growth of 29.3% YoY for Q4FY22E.

EBITDA to grow 49.6% YoY with bottomline growing 75% YoY

Increase in the value added segment revenue from the basket of specialty chemical companies along with a rise in realisation of select companies can aid the operational performance. ICICI Direct expects companies OPM to expand 283 bps YoY to 20.9%, leading to EBITDA growth of 49.6% YoY. Bottomline growth can be aided by 75% YoY growth, largely on the back of lower tax outgo and higher other income.