ICICI Direct expects a mixed picture for the I-direct Chemicals sector in Q4FY23E as a result of divergent demand conditions across end user sectors. While agrochem, pharma and some specific specialty chemicals players are likely to maintain their growth tempo, we expect a slowdown among packaging, pigments, dyes and polymer players. Moreover, crude oil prices came off by

~9% QoQ over the course of quarter, which, in turn, may soften the cost of chemicals. We expect our coverage universe companies to report topline growth of 11.5% YoY. We expect absolute EBITDA of our coverage universe to grow YoY to 12.7%. Bottomline for our coverage universe is expected to report growth of 4.2% YoY.

Topline growth likely at 11.5% YoY, to be led by fluorine, CRAMS, other specialty players

The growth capex undertaken by most companies over the last few years will be the main lever for growth besides new forays. We expect strong traction to persist in fluorine chemistry, supported by high demand from the pharmaceuticals and agrochemicals industries. Companies dealing in specialty chemicals and having significant order backlog, should be able to maintain the momentum from the previous quarter. On the other hand, packaging films and pigments segments, among others, along with agrochemicals witnessing the seasonality trend in domestic market are likely to witness muted demand from end user industries. We expect our chemical universe companies to post topline growth of 11.5% YoY for Q4FY23E.

EBITDA margins to remain strong at 22%             

Softening of crude oil prices during the quarter besides lower logistical and freight costs is expected to grow EBITDA margins of our universe companies. The expected higher growth vis-à-vis revenues is also expected to be driven by higher growth from segments like fluorine and CRAMs, which normally fetch higher margins. Another margin contributor could be better operating leverage as significant capex (especially by fluorine players) undertaken a few quarters back is now coming to the fore. We expect our coverage universe EBITDA margins to grow ~350 bps to 22%, leading to EBITDA growth of 12.7% YoY.

Adjusted PAT to grow ~4.2% YoY            

PAT for the universe is likely to grow ~4% YoY to | 1694.6 crore. Lower growth vis-à-vis EBITDA is attributable to higher depreciation and taxation.