Result Preview - Chemicals - Players likely to continue with stable earnings performance

We expect Tata Chemicals to benefit the most in terms of higher volumes as compared to other peer companies.

Jul 22, 2018 01:07 IST India Infoline News Service

Caustic soda has witnessed additional demand from housing segment-led high chlorine consumption in the PVC industry. The overall rise in local and global demand, coupled with the closure of Chlor-alkali units across the globe, has tilted the demand-supply curve in favor of producers boosting caustic soda prices by 30% yoy during Q1FY19. We expect Tata Chemicals to benefit the most in terms of higher volumes as compared its peer companies.

Fluorine-based chemical companies like SRF, Navin Fluorine, and Gujarat Fluorochemicals are expected to witness stable revenue growth with minimal margin improvement. Post discontinuation of the fertilizer business, we expect improvement in EBITDA margin of Tata Chemicals, which will result in high PAT growth.

The upward trend for VAM prices is expected to restrict the gross margin of Pidilite Industries. However, the operating margin is expected to remain stable because of the improvement in product mix and cost optimization.

Top picks: Tata Chemicals

#1 Tata Chemicals Q1FY19E
(in Rs cr)
yoy qoq
Sales 2,726.7 6.0% 6.7%
EBITDA 517.3 15.0% 1.0%
EBITDA margin (%) 19.0% 148.5bps (108.4)bps
PAT 153.5 10.0% 31.9%
Tata Chemicals is expected to witness a 6% increase in revenue backed by steady volumes under soda ash segment and rupee depreciation. The increase in EBITDA margin is likely on account of an improvement in sales mix and the exit from low-margin fertilizer segment. We expect growth in PAT to be lower than EBITDA on account of higher effective tax rates and lower other incomes, as compared to the corresponding quarter in the previous year.

#2 Castrol India Q1FY19E
(in Rs cr)
yoy qoq
Sales 1,001.0 15.0% 8.0%
EBITDA 272.4 30.0% -0.7%
EBITDA margin (%) 27.2% 313.9bps (237.8)bps
PAT 182.0 32.0% 0.1%
Castrol is expected to deliver strong revenue performance with a 15% increase yoy on account of a low base effect in Q1FY18 because of channel de-stocking prior to GST implementation. We estimate EBITDA margin expansion of ~314bps yoy on account of low base effect and volume growth of ~10% providing operating leverage. PAT growth of 32% yoy in Q1FY19E will be largely driven by a rise in EBITDA, coupled with stable other incomes, and the effective tax rate of the company.

#3 Solar Industries Q1FY19E
(in Rs cr)
yoy qoq
Sales 552.0 18.3% -4.0%
EBITDA 123.5 21.2% 4.7%
EBITDA margin (%) 22.4% 54.1bps 185.1bps
PAT 70.0 16.9% 4.5%
Solar Industries is expected to post 18% revenue growth yoy in Q1FY19 backed by a traction in its export business and stable domestic volumes. However, realizations are expected to remain flat on account of rising raw material prices. We estimate EBITDA to broadly remain stable. PAT is expected to witness a growth of 17% led by EBITDA growth and a marginal increase in depreciation charge.

#4 Pidilite Industries Q1FY19E
(in Rs cr)
yoy qoq
Sales 1,702.7 12.0% 14.6%
EBITDA 369.2 15.0% 34.8%
EBITDA margin (%) 21.7% 56.6bps 323.9bps
PAT 260.5 15.0% 31.5%
Pidilite Industries' consumer bazaar segment will continue its double-digit sales growth on the gradual improvement in the demand environment. Further, the industrial segment is expected to have more than ~10% volume growth backed by waterproofing products and acquisition of the floor-coatings business. We expect a marginal expansion in EBITDA margin led by an improvement in sales mix and cost optimization offsetting increasing raw material prices as well as rupee depreciation. The increase in PAT is expected to be in-line with EBITDA growth, stable other income, and a marginal increase in depreciation charge.

Related Story