Chemicals & Petrochemicals share price target

Better realization + Higher RM cost = Moderate earning growth in Q4 We expect the companies under our chemicals coverage to report strong revenue growth (25.3% YoY) mainly led by steady demand in end-user industries and higher realization (raw material price increase pass on). We expect moderate volume growth for most companies under our coverage universe. Due to severe disruptions on supply routes, increased freight costs continued to impact imports, resulting a jump in chemical prices in the domestic market. Behind the sharp increase in the Crude oil price (+59% YoY), the base chemicals like Benzene, Toluene, Xylene, Phenol etc. have also surged between 40-90% on a YoY basis. High input costs coupled with an abnormal increase in...

We estimate our chemical coverage universe revenues to grow 34% YoY (9% QoQ) in Q4FY22 on sharp rise in prices due to input cost inflation. However, we expect gross profit to grow 24% YoY (+5.8% QoQ), which indicates strong underlying trend led by: 1) SRF’s robust growth (37% YoY) on pricing benefit in ref-gas, 2) Gujarat Fluorochemicals (35.5% YoY) on turnaround in fluoropolymers, and 3) Navin Fluorine (34% YoY) on spillover of CRAMS revenue from Q3FY22.

There was a recovery in demand in sectors such as textile, paper, metals, automobiles, pharma, etc. This should support higher volume growth for most companies under our universe, especially from pigments, dyes, soda ash industries. Further, better realisations are expected to aid the overall performance. Companies in specialty chemicals and having large order backlog in place, should sustain similar momentum as witnessed in the last quarter. We anticipate our chemical universe companies will post topline growth of 29.3% YoY for Q4FY22E....

by healthy performance from export oriented players like UPL, Sharda Cropchem, PI Industries and Sumitomo Chemical. Better growth from currency impact. While on the domestic front, we expect companies to post subdued growth (mid to high single digit growth YoY) led by a) seasonally lean quarter for the domestic players; b) erratic weather conditions...

Capex programmes are on track but witnessing cost overruns, because of the increase in building material costs, shipping costs etc. Chemical companies are expected to deliver improvement in performance QoQ on pass through of higher costs (without/ with a lag from previous quarters) and steady demand aided by recovery post a milder wave of covid. Petrochemical feedstock (crude oil, naphtha, natural gas) prices are up ~20% QoQ while oleochemical feedstock prices (vegetable oils viz palm, rapeseed, soyabean, sunflower oil etc) are up 10-20% QoQ, largely on Russia-Ukraine...

R-22 prices rose to Rs244/kg (down 5.0% QoQ / up 37.5%) in Q4FY22-TD, but volumes were down 81% YoY to just 325te. This could be partially due to plant shutdown for Gujarat Fluorochemicals, but we are not worried as companies sell their entire quota allocated for full year. In packaging film segment, spread has increased for both BOPET and BOPP. This is despite anticipation of spreads dipping due to new capacity expansion, while higher margins should keep helping SRF.

R-22 prices rose to Rs246 (up 28.0% QoQ) in Q3FY22-TD catching up with inflation in other ref-gases, which will benefit SRF, Navin Fluorine and Gujarat Fluorochemicals (GFL). In the packaging film segment, spread has increased for BOPET but has been lower for BOPP.

We expect the companies under our chemicals coverage to report strong revenue growth (25.9% YoY) mainly led by restoration of demand in end-user industries, base effect and higher realization (raw material price increase pass on). We expect double-digit volume growth for most companies under our universe. Increased freight costs due to severe disruptions on supply routes continued to impact imports, resulting in a surge in selective chemical prices in the domestic market. The growth trajectory from the export market looks promising with the commissioning of new capacity for selective players. We believe that most chemical companies have ramped up their utilization levels, resulting in margin normalization. Overall, our Chemical coverage would post a Revenue/EBITDA/PAT growth of 25.9%/14.2%/14.1% YoY in Q3FY22. We expect the EBITDA margin of our coverage universe to contract by 187bps YoY, owing to elevated input costs, freight and power costs....

by healthy performance from export oriented players like PI Industries, Sharda Crop chem and UPL. While, we expect the domestic industry to post midsingle digit growth during 3QFY22 led by abnormally higher base of last year. The export focused players like UPL and Sharda Cropchem are expected to post decent performance led by better cropping season in Europe, LATAM and NAFTA regions (aided by favorable currency impact in NAFTA and LATAM); while adverse currency impact in European markets may marginally dent the...

We have witnessed a recovery in demand for sectors like textile, paper, metals, automobiles, pharma etc. This should support higher volume growth for most companies under our coverage universe, especially from pigments, dyes, soda ash industries. Further, better realisations can aid overall performance. Companies in specialty chemicals and having large order backlog in place should likely sustain momentum similar to last quarter. We...