Chemicals & Petrochemicals share price target

SRF: R-22 prices rose to INR 350/kg (+0.4% QoQ) in Q1FY24; volumes were up 110% YoY to 4.7kte. In packaging films segment, spreads have stabilised at lower levels in BOPET, while for BOPP, it has expanded.

1) SRF: R-22 prices rose to INR 352/kg (+0.9% QoQ) in Q1FY24-TD; volumes were up 120% YoY to 3.6kte. In packaging films segment, spreads expanded MoM for both BOPET and BOPP during the month of May’23. 2) Gujarat Fluorochemicals: PTFE prices declined 0.6% QoQ / rose 11.6% YoY to INR 1,044 while volumes dipped 10.9% YoY to 1.7kte.

Cut to the present, the overall market is once again turned bullish. But this time around, the chemicals industry is not part of the party.

In Q1FY24, the chemicals and agrochemicals sectors are expected to have a soft quarter, primarily due to slower-than-expected pickup in demand and aggressive pricing strategies employed by Chinese players. This will particularly impact companies dealing in commoditised chemicals. The sector was anticipated to revive after facing challenges related to high-cost inventory in previous quarters, has continued to be affected by muted global demand.

Q1 FY24 PREVIEW: CHEMICALS & MIDCAP (OUTLOOK)

We estimate our specialty chemical coverage universe’s revenue to dip 7% YoY in Q1FY24E due to destocking and weak demand. EBITDA is expected to decline 16.4% YoY on weaker spreads and operating deleveraging.

1) SRF: R-22 prices rose to Rs356/kg (+2.1% QoQ) in Q1FY24-TD; volumes were up 111.4% YoY to 1.9kte. In packaging films segment, spreads contracted QoQ for both BOPET and BOPP, which will put pressure on SRF’s packaging films margin in Q1FY24.

In the past five years, India’s chemical industry has come out of the shadows, with significant growth and an expanding number of listed companies. The global chemical market is in flux - while global consumption per capita has increased, China and Europe, the world’s largest chemical producers, have scaled back their production due to environmental concerns. This has created a favourable opportunity for India to ramp up production, and fill the supply gap.