 "Chemical factory, chemicals, SRF chemicals")
The imposition of tariffs by the US is a negative for the chemical industry. Retaliatory tariffs add to the risk. The US tariffs will lead to slowdown in gross domestic product (GDP) growth, especially in key end-users like automotive, construction, and consumer durables, in addition to agrochemicals and pharmaceuticals. It will intensify competition in markets outside America and may lead to renegotiations with US-based customers. Valuation downgrades are likely to be widespread.
Industry confidence is below pre-Covid levels with order books down since January 2022. Global production levels have also trended down. The Indian chemical sector is experiencing slow recovery on volume growth. Pressure from Chinese imports persists despite anti-dumping tariffs.
Some Indian chemicals companies may give good Q4FY25 performance on a low base. There is restocking demand in agrochemicals, normalisation of demand in fluoropolymers and better pricing in refrigerant gases. But the 2024-25 March quarter (Q4FY25) results may move the market less than the projected impact of tariffs.
Chemicals companies most exposed to US sales include PI Industries or PI (43 per cent of revenues), Vinati Organics (20 per cent), Clean Science (17 per cent), and Navin Fluorine (14 per cent). In agrochemicals, even if Indian companies gain market share in the US at the expense of China (due to higher tariffs on Beijing), this may be offset by stiffer competition in other markets.
SRF’s chemicals business is likely to see strong revenue growth, led by pricing and volume gains in refrigerant gases and improved fluoro specialty business due to domestic demand pick-up. There is OEM support due to volume growth in room air conditioners. The packaging films business continues to face demand-supply imbalance with some improvement in volumes.
PI’s CSM (custom synthesis manufacturing) business revenue is likely to grow 5-6 per cent year-on-year (Y-o-Y) in Q4FY25 on low base while seeing single-digit quarter-on-quarter (Q-o-Q) decline. PI has seen price correction of up to 10 per cent in pyroxasulfone during Q4 while new and existing molecules have better sales. The domestic agrichem business should grow on better reservoir levels.
Gujarat Fluorochemicals (GFL) is expected to post a 12 per cent Q-o-Q improvement in revenue due to volume ramp-up in fluoropolymers. The domestic refrigerant gas segment and related exports could see higher volume Y-o-Y. The battery chemicals business has not started to contribute.
Deepak Nitrite may see revenue dip by mid-single digits Y-o-Y due to lower phenol-acetone realizations in Q4FY25. Overall revenue may grow 3-4 per cent Q-o-Q due to volume uptick in advanced intermediates.
Navin Fluorine International’s (NFIL’s) high-performance products vertical would log a better quarter, with 15 per cent Y-o-Y growth due to refrigerant gas, and stable contribution from a Honeywell contract. There could be mid-teens Q-o-Q revenue growth and better operating profit margin (OPM). Aarti Industries may report operating profit decline on account of slowdown in its energy business while the core portfolio is still to recover from the agchem cycle. Epigral’s chlor-alkali business contribution will decrease in Q4 due to some shutdowns in the caustic plant. Caustic prices have cooled to ₹40/kg (vs ₹44/kg in Q3FY25) and chlorine prices have moderated to ₹5-6 from ₹8-9. The derivatives & specialty chemicals business is likely to report a small decline in revenue.
Anupam Rasayan may report revenue growth of 6 per cent Y-o-Y amid recovery in export revenue in Q4FY25, along with delayed order offtake in the domestic business. Order backlog from late-Q3 has been realised for some key customers. Margins may hit the top of guidance at 26-28 per cent but high number of working capital days will continue in FY26.
GHCL’s consolidated revenue is expected to see a small rise Q-o-Q and small dip Y-o-Y as a result of improved volumes and marginally lower realisations due to cheaper imports. Lower soda ash prices in Q4 led to operating deleverage, thus lowering OPM by over 400 basis points (bps) Q-o-Q. Absolute net profit may also fall due to higher tax rate.
