Chemical companies may see muted growth amid pricing pressure

ET Intelligence Group: Chemical companies are likely to report a mixed performance in the September quarter, as volume recovery in some segments is being offset by weak pricing, oversupply, and subdued demand, resulting in modest top-line gains and largely flat net profits. While specialty and fluorine-based companies are expected to fare better due to higher margins, commodity and agrochemical producers are likely to face earnings pressure. Aggregate estimates from brokerages point to year-on-year sales growth of about 5%, a 4% increase in earnings before interest, taxes, depreciation, and amortisation (EBITDA), and net profit growth of roughly 1% for the sector.

While volumes have improved, particularly in specialty chemicals, weak spreads and pricing pressure are likely to limit profitability. EBITDA margins are estimated to contract both sequentially and annually as product prices such as benzene, toluene and acetone have remained significantly lower compared with last year. According to Motilal Oswal Financial Services, most organic compound prices fell sharply in September with butadiene down 31%, benzene 19% and aniline 22% year-on-year, reflecting continued weakness in global demand. Brent crude prices fell to $69 per barrel in the September quarter, down from $80 per barrel a year earlier.

Front-loading of orders ahead of potential US tariffs may have temporarily supported sales, but a slowdown in ordering may emerge in the coming quarters. “A slowdown in ordering by customers after the front-loading that occurred in the past two-three quarters will start to impact the results of some companies this quarter and may become more prominently visible starting the December quarter,” noted Kotak Securities in a preview report.

Refrigerant gas players such as SRF and Gujarat Fluorochemicals, are expected to do well. Their margins could expand and operating profit may rise in double digits, aided by healthy pricing of R-32 refrigerant gas and robust demand in specialty verticals.

“Fluorine-based companies may witness a 13-86% growth in EBITDA, led by higher margins,” said Elara Capital.

The agrochemicals segment is set for a weaker-than-expected quarter. Axis Securities and Elara have highlighted that excess rainfall across major states has severely disrupted the season, leading to damaged crops and missed spraying rounds. This has impacted the on-ground consumption of herbicides, insecticides, and fungicides, dimming prospects for a strong recovery. Fertiliser makers, however, may record mild growth supported by steady consumption. In the near term, investors will keenly watch the pace of new project launches, trends in refrigerant and fluorine prices, and US tariff decisions.