Chemicals Q3FY19E Result Preview: Robust demand to sustain performance

The chemical sector is expected to maintain its strong performance trajectory backed by increase in volumes, moderation of input costs, and strong competency as an alternative to China.

Jan 15, 2019 07:01 IST India Infoline News Service

Upstream chemical companies are likely to continue their strong performance trajectory during the quarter backed by sustainability in the demand scenario and strong levels of realization. The strong performance is also expected to be on account of increasing competency of Indian players across the globe as the disruption of chemical market in China continues to persist.

Basic chemical players stand to benefit from both high demand volumes and strong commodity chemical prices globally. Speciality chemical players with presence across the value chain would continue to sustain significant improvement in their operating margins.

Further, the decline in crude oil prices by 20-25% from peak levels during Q2FY19 is likely to provide significant tailwinds, despite moderation in realization levels. We expect this to significantly aid gross margin expansion during the quarter.

Chemical players who are net importers are likely to witness easing of input cost pressures with the decline in prices of crude derivatives and INR appreciation vs. USD.

Tata Chemicals (Rs cr) Q3FY19E YoY QoQ
Revenue 2,934 14% (1%)
EBITDA 603 7% 0%
EBITDA margin (%) (change in bps) 20.5% (133.8) 20.0
PAT 342 5% 6%

Tata Chemicals is expected to witness a 14% yoy increase in revenue in Q3FY19 backed by higher realizations of soda ash, rupee depreciation, and volume traction in the consumer products business. The qoq increase in EBITDA margin is likely on account of marginal recovery in international segments and greater operating leverage. Overall, as the Q3FY18 profit consisted of discontinuing operations, a one-time tax write-back, and exceptional items, we expect a 5% yoy increase in net profit on a like-to-like basis.

Aarti Industries (Rs cr) Q3FY19E YoY QoQ
Revenue 1,336 35% 3%
EBITDA 258 45% 7%
EBITDA margin (%) (change in bps) 19.3% 137.3 70.0
PAT 135 50% 10%

Aarti Industries is expected to post 35% revenue growth yoy in Q3FY19 backed by its improving competitive position in the global markets and INR depreciation which is expected to aid its topline. The EBITDA margin is expected to expand by ~137bps yoy due to greater operating leverage and value-added exports. The PAT is expected to witness a growth of 50% led by EBITDA growth coupled with the benefit from rupee depreciation given that the company is a net exporter.

Atul (Rs cr) Q3FY19E YoY QoQ
Revenue 997 24% (1%)
EBITDA 193 53% 2%
EBITDA margin (%) (change in bps) 19.4% 367.3 50.0
PAT 115 75% (3%)

Atul Limited is likely to post 24% revenue growth yoy in Q3FY19 on account of the continuous ramp-up of newly commissioned plants coupled with a lower base effect. The EBITDA margin is expected to expand by ~367bps yoy due to greater operating leverage and improvement in the product mix. The company's PAT is expected to witness a growth of 75% led by EBITDA growth and benefit of a low base.

SRF (Rs cr) Q3FY19E YoY QoQ
Revenue 1,956 40% 2%
EBITDA 359 55% 8%
EBITDA margin (%) (change in bps) 18.4% 179.3 100.0
PAT 167.0 45% 1%

SRF is expected to post 40% revenue growth yoy in Q3FY19 on account of a ramp-up of newly commissioned plants under the chemicals segment coupled with a strong traction under packaging films and technical textiles segments. The EBITDA margin is likely to expand by ~179bps yoy on account of stable realizations and moderating input costs. The PAT is expected to witness a growth of 45% led by EBITDA growth and benefit of a low base.

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