Specialty Chemicals - Good sequential EBITDA growth for most companies - ICICI Securities

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. We expect Rossari (+64% YoY) to reflect benefit from acquisitions. Tatva Chintan's performance hurt from slowdown in auto (lower SDA sales) while Clean Science has gained from price hikes across products. Galaxy Surfactants volumes may remain muted, but EBITDA normalise to Rs16/kg. Chemplast's volumes will be healthy, but PVC spread contraction and high-cost inventory caused pain. PCBL's gross profit/kg is expected to improve on the back of better India sales, but higher operating cost may impact EBITDA. EPL and Sudarshan are likely to face cost headwinds. Gujarat Fluorochemicals is our top pick in the sector.

• SRF's chemical business EBIT to grow 75% YoY / 15% QoQ to Rs4.8bn. SRF's chemical business EBIT will gain from steady growth in fluorospecialty, and strong price increase in ref-gas (HFC) and anti-dumping duty on HFC imports in India. SRF should have seen lower HFC exports in Mar'22 due to licensing norms requirement, but we expect the missed revenues to be booked in Q1FY23E. Technical textiles was impacted from slowdown in auto sales while packaging films' EBIT is likely to be stable QoQ. We expect SRF's net profit to grow 59% YoY / 20% QoQ to Rs6bn.
• Navin Fluorine's EBITDA to rise 33.7% YoY to Rs1.13bn. Revenues are likely to grow 34.5% YoY to Rs4.4bn. This would be driven by 20% YoY growth in CRAMS (spillover from Q3FY22) and 30% in specialty chemicals. Inorganic fluoride and ref-gas revenues are expected to grow 60% and 40% YoY respectively on price increase. Gross profit / EBITDA margin may dip QoQ on RM inflation (optical). EBITDA / PBT may grow 33.7% / 16.7% to Rs1.13bn / Rs809mn, respectively.
• Gujarat Fluorochemicals' EBITDA may rise 66% YoY / 1.3% QoQ to Rs3.2bn. Incident in Ranjitnagar plant will impact ref-gas and fluorospecialty sales in Q4FY22. Despite price increase in PTFE, revenues may be flattish due to lower volumes on annual plant (maintenance) shutdown while new fluoropolymers will benefit from easing supplies of R-142B. Caustic soda realisation may increase, and new capacity addition is likely to impact chloromethane realisations. Gross profit margin may slightly dip QoQ and higher power cost may hit EBITDA margin. Net profit may rise 1.5% QoQ / 88% YoY to Rs2bn.
• Clean Science net profit to grow 23% YoY / 12.6% QoQ to Rs653mn. We expect Clean Science's revenues to grow across segments largely driven by price increases. Company has taken limited price hikes in past two quarters despite high RM inflation owing to annual contract renewal in Jan'22. Gross profit margins are expected to dip 100bps QoQ to 64%, though it would be optical. EBITDA is likely to jump 22.4% YoY / 12.7% QoQ to Rs858mn.
• Tatva Chintan's EBITDA to rise 3.3% YoY to Rs253mn. Revenues from PTC and PASC may grow sequentially with higher availability of capacity on lower SDA demand, which is impacted from slower offtake in autos (chip shortage has impacted auto production). Gross profit margin may dip 100bps QoQ on lower contribution from SDA, which is higher-margin business. We estimate net profit to grow 13% YoY on higher 'other income' and lower effective tax rate.
• Galaxy Surfactants' EBITDA to dip 13.6% YoY, but up 32.7% QoQ to Rs1bn. We expect volume growth to be flattish YoY and up 8.6% QoQ (company is recovering from supply-chain shock in EO) to 63kte. Last quarter, AMET volumes were impacted from supply-chain constraints, which are now resolved and should drive QoQ volume growth, while India demand to be muted. Revenue growth of 31.9% YoY to Rs10bn is entirely from raw material inflation. EBITDA margin will remain at compressed levels of 9.8% (optical), but EBITDA/kg should be within guidance of Rs16/kg. Net profit may dip 15% YoY / rise 47% QoQ to Rs670mn.
• Rossari's net profit to grow 13% YoY / 11% QoQ to Rs247mn. Rossari's YoY figures are not comparable as Q4FY22 has numbers from merger of Unitop and Tristar. This should potentially add Rs1.6bn to revenues, which is included in the HPPC segment. Rossari's consolidated revenues are expected to grow 113% YoY / 8.3% QoQ to Rs4.6bn, driven by a combination of volumes and price hikes (to pass on RM inflation). EBITDA should grow 41% YoY to Rs496mn, while EBITDA margin will slightly dip 20bps QoQ to 10.7%.
• EPL's EBITDA to dip 2.3% YoY to Rs1.4bn. Though revenues are likely to grow 14% YoY, it would largely be on the back of higher feedstock price inflation. Revenue growth will significantly come from AMESA segment (+26% YoY) and EAP (+26% YoY). Gross profit may be up 8.3% YoY to Rs5bn and EBITDA down 2.3% YoY to Rs1.4bn (due to higher operating cost). Net profit is likely to decline 15.3% YoY to Rs481mn.
• Sudarshan Chemical's EBITDA to rise 3.7% YoY / 22.8% QoQ. Revenues are expected to rise 19.8% YoY / 14.7% QoQ to Rs6.9bn, partly from price hikes to pass-on input inflation. Gross profit margin may dip 100bps QoQ to 39.5%; however, EBITDA would be impacted from higher power and freight cost. We expect net profit to decline 7.7% YoY to Rs493mn.
• Chemplast Sanmar's EBITDA to grow 0.6% QoQ to Rs3.5bn. Volumes are likely to grow 22% QoQ on low base from monsoon in South India, to 145kte. Revenues are estimated to grow 15.9% to Rs16.8bn on lower realisation. PVC spread is expected to shrink due to high base of Q3FY22 though, but in absolute, spreads continues will be healthy. Company had high-cost inventory of raw materials (as stated in the previous earnings call), which should add to pain. Gross profit may be higher by 4.4% QoQ to Rs6.5bn. However, higher power cost will eat into EBITDA growth. Net profit should contract 2.8% QoQ to Rs2.3bn.
• PCBL's EBITDA to dip 10.4% YoY to Rs1.7bn on high base. Volume growth will be constrained by capacity, hence will grow only 3% YoY to 116kte. Realisation will be higher on input cost inflation, and gross profit/kg will improve 5% QoQ (down 9.2% YoY) to Rs28.4 on better domestic mix. Operating cost inflation (freight) will restrict flow-through to net profit, which is likely to dip 13.7% YoY to Rs1.1bn.

Source : Equity Bulls

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ICICISecurities SpecialtyChemicals Q4FY22 ResultsPreview