Chemicals – T2FY22 Results Snapshot Report – HDFC Securities


Mr. Nilesh Ghuge, Institutional Research Analyst, HDFC Securities and Harshad Katkar, Institutional Research Analyst, HDFC Securities

Our chemical universe is expected to experience moderate sequential growth due to global supply chain disruptions. Revenues from our hedging universe are expected to improve by approximately 35/5% year on year / quarter. The EBITDA margin could deteriorate 81 basis points year-on-year and remain stable sequentially at 24%, due to the increase and volatility of raw material costs and transportation costs.

  • Aarti Industries: Higher usage, a rebound in demand to pre-COVID levels, and high operating leverage would help the company show 25-35% year-over-year growth, in our opinion. EBITDA margin will remain stable, due to pricing pressures and supply chain disruptions.
  • Alkyl Amines (AACL) and Balaji Amines (BLA): Revenues will increase 2/6% QoQ for AACL / BLA in the second quarter. We expect EBITDA margins for AACL / BLA to decline from 28/29% in the first quarter to 26/27% in the second quarter due to high prices for methanol and ammonia. We are downgrading BLA from ADD to REDUCE with a revised TP of INR 4,220, largely because its share price has risen by around 32% in two months.
  • Deepak Nitrite: QoQ revenue will increase 8% in Q2 with an EBITDA margin of 33%. Higher prices for phenol could significantly boost realization.
  • Fine Organic: Sales will remain stable in Q2, with a sequential 158bp improvement in EBITDA margin to 16%. Margins will improve thanks to reduced raw material price volatility, reduced import duties for vegetable oils, and company-led contract renegotiation to reduce soaring input costs to his clients.
  • Galaxy Surfactants: QoQ QoQ revenue will increase 13% in Q2, due to higher achievement, driven by higher raw material prices, while EBITDA margin is expected to remain stable at 13%. Growth will be driven by product launches.
  • Navin Fluor: Specialty chemicals and the CRAMS BU will continue to post strong growth, thanks to a better product mix, sustained demand and market share gains. The EBITDA margin could deteriorate sequentially by 114 basis points.
  • Neogen Chemicals: The company will benefit from (1) the growing contribution to revenue from the high-margin CSM activity, (2) operating leverage and (3) the ramp-up of capacity.
  • NOCIL: Revenues will be reduced in the second quarter with a 532 basis points (QoQ) decrease in EBITDA margin. A steady recovery was observed in the tire industry. The China plus one strategy is doing well for NOCIL.
  • SRF: Strong growth could continue in the specialty chemicals and packaging films segment. The technical textiles segment recorded better achievements, thanks to the restructuring of the margin profile with long-term customers.
  • Sudarshan Chemical: QoT QoT revenue expected to grow 15% in Q2 with a 168bps QoQ increase in EBITDA margin as the hit from the second wave of COVID-19 eased in the second fiscal quarter. Input costs increased in several intermediaries, but the company was able to partially pass the price increases on to its customers.
  • Vinati Organics (VO): Increased transportation costs, as well as higher prices for phenol and acrylonitrile, could impact second quarter margins. The butyl phenol plant will gradually expand, and once the merger with Veeral Additives is complete (by T4FY22), 50% of the butyl phenol produced will be used by Veeral Additives to integrate and produce antioxidants. VO said antioxidants would contribute about 25% of total sales over the next 2-3 years.


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