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Chemical Q4FY22 Preview: Realisation growth likely to aid overall performance

ICICI Securities 11 Apr 2022

What’s buzzing:

Q4 is a quarter marked by high volatility in crude prices. Crude touched around US$130/barrel against average of US$85/barrel during Q3. With the unprecedented rise in crude prices, there was a surge in intermediate prices of most base chemicals.

Context:

Since most of our coverage universe companies carry inventories for at least a quarter, we expect minimal impact on the gross profit margin during Q4FY22E.

Our Perspective:

There was a recovery in demand in sectors such as textile, paper, metals, automobiles, pharma, etc. This should support higher volume growth for most companies under our universe, especially from pigments, dyes, soda ash industries. Further, better realisations are expected to aid the overall performance. Companies in specialty chemicals and having large order backlog in place, should sustain similar momentum as witnessed in the last quarter. We expect MTM inventory gains for few companies in Q4, which could lead to an improvement in gross margins, to some extent. On the other hand, given that crude is still hovering at US$100/barrel, it is prudent to see, how most chemical companies will be able to pass on input price inflation in Q1FY23E. We expect our coverage universe companies to report topline growth of 29.3% YoY. We expect OPM for our coverage universe to expand 283 bps YoY to 20.9%, leading to EBITDA growth of 49.6%. Bottomline of our coverage universe is expected to report growth of 75% YoY, led by higher other income and lower tax outgo.

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