Leading chemical companies post robust Q1 profits despite cost pressures

Mumbai: SRF, Deepak Fertilisers, Solar Industries, Gujarat Fluorochemicals, GHCL, NOCIL, and Meghmani Finechem are among the chemical companies that have surprised analysts with better-than-expected June quarter earnings, with sales rising 40% on average and profit climbing 30%. Volumes, both at home and overseas, have been robust.

Several companies in the sector are confident of sustained growth, while a few also raised capex plans further.

Profit growth has been underpinned by high gains in absolute revenue despite contracted Ebitda margin on account of volatile raw material prices, which have now started to soften, pointing to further margin expansion should the declining trend in input costs holds.
"Realisations are high due to low base and high input costs, and the industry has also benefited from higher demand for certain products, seasonal gains, and shortage in global supply," said Vinod Nair, head of research at Geojit Financial Services. "We expect the speciality chemical sector to do well in the long term given high investments in new products, the rising share of value-added products, and India's emergence as an additional sourcing destination."

SRF reported 44% and 54% year-on-year consolidated revenue and net profit growth, respectively. Its management has raised the capex guidance for FY23 to ₹3,100-3,300 crore from ₹2,500-2,700 crore earlier.

Gujarat Fluorochemicals reported 46% and 101% growths in revenue and net profits, respectively, in the June quarter, driven by an improved margin profile on the back of rising prices.

Solar Industries posted a strong performance with 96% growth in revenues and 81% growth in profits, on improved volumes and better realisations.

"Speciality and complex chemicals businesses, with significant value-added products portfolios, have seen continued growth in domestic demand both due to higher consumption and also some import substitution factor at play," said Narendra Solanki, head of research at Anand Rathi Shares. "In the international markets, demand has remained robust, especially after the China issue some years ago and now due to the Ukraine war." He added that Germany, historically a chemical manufacturing hub for the EU, is witnessing an energy crisis that is making Indian businesses "more competitive".

Atul reported strong revenue growth of 36.7% YoY and a sharp margin beat of 312 bps to 18.1%, reflecting stronger-than-expected growth in the life science chemical business. PCBL reported 39% YoY profit growth, led by an all-time high blended Ebitda margin.