Chemicals: Pinched, but optimism stitched in every seam

20 Feb 2024 , 12:14 PM

Analysts of IIFL Capital Services hosted 11 companies from the agriculture and chemicals industries at IIFL’s Investor Conference in Mumbai over February 13-16. Of these companies, 4 are under analysts of IIFL Capital Services existing coverage, while 7 others are currently not under their coverage. While these companies cater to a wide range of end-use industries, a couple of common themes that emerged are: 1) the widespread near term caution on the industry prospects given weak pricing, soft demand and ease of supplies; and 2) heightened optimism on the new age sectors like battery cells for electric vehicles and energy storage systems. Companies like Gujarat Fluorochemicals, Aether, Ami Organics, PCBL and Anupam have either got into contracts or have announced large capex to tap these opportunities. 

Pinched, but optimism prevails: 

All managements analysts of IIFL Capital Services hosted recognised the near term pain and indicated some demand recovery in segments like Dyes, Pigments, Polymers and select Speciality applications, while challenges persist for agrochemicals and pharmaceuticals. Major customers are managing lean inventory due to high carrying costs and moderate demand. The managements anticipate demand normalization over the next 2-3 quarters. 

Heightened optimism on the new age sectors: 

The Govt. of India is laying high emphasis on renewable energy and electric vehicles, which has kick-started the race for setting up Giga factories in India. With about 50% of value addition in batteries coming from anode, cathode active materials, electrolyte and separator, the chemical companies will play a critical role in the battery supply chain. These are now touted to be the new auto-ancs in the making. 

Several interesting stories: 

Deepak Nitrite has intensified capex plans and will spend Rs140bn over next few years. Gujarat Fluorochemicals intends to tap ~40% value of LFP battery cost and is setting up fully integrated battery complex in Gujarat. Aether too has signed up contract to supply additives for battery. PCBL and Ami Organics also talked about tapping battery chemicals. Clean Science is commissioning HALS soon and will invest Rs1bn in other capacities.