Specialty chemical sector companies to witness another weak quarter, say analyst
Chemical intermediate makers and crop-protection chemical companies in India are likely to report a week third quarterly results for FY24, says Kotak Institutional Equities.
“We see high risk of earnings downgrades for several companies including Navin Fluorine International Ltd (NFIL), RALI, SRF and UPLL (versus KIE estimates) and ATLP, DN and TTCH (versus consensus). Given rich valuations and recent strength in stock prices, we remain cautious on the sector and see risks of disappointing returns from most leading stocks,” the brokerage firm said in its report.
Also read: Q3 Result Preview: 4 key reasons why Agrochemical producers may see a weak quarterly performance
The third quarter was likely a difficult quarter for the crop-protection chemicals industry, with exports likely hurt more than domestic sales amid continued destocking by customers.
Even the domestic Rabi season was challenging amid low water levels, elevated channel inventories and intense competition. Some companies cut prices during the quarter; margins remained under pressure. United Phosphorus Limted (UPLL) may be the worst-hit amid customer destocking and pricing pressures, according to the report.
The report further projected that RALI is also likely to report sharply lower earnings owing to a collapse in export revenues, GOAGRO will likely report a subdued quarter, with strength in its domestic crop protection business offset by continued agony at Astec, meanwhile, BYRCS’ earnings growth may once again be supported by lower employee costs, although revenue growth may be lackluster.
No signs of recovery
“We expect another weak quarter for most chemical companies due to continued destocking, demand weakness across certain important end-use industries, and price erosion amid intense competition from China. In most cases, both revenues and margins are likely to remain under pressure,” the report added.
Also read: Goldman Sachs revises Nifty target to 23,500 for 2024, here’s why
The broking firm expects PI Industries to report the best result in the sector, which continued to benefit from robust demand for its biggest product, pyroxasulfone.
“Other companies under our coverage are all likely to post yoy declines in earnings. We think TTCH, SRF, NFIL and ATLP are likely to register the largest declines on a yoy basis, and all of them may also report qoq declines. Given that stock prices of most chemical companies have run up into the results, we think negative surprises on the earnings front could potentially spark corrections,” it said.
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Published: 09 Jan 2024, 11:23 PM IST
