The chemicals sector s recovery could be delayed until FY25 if the current trends of weak demand and flat pricing continue.
Following a subdued September quarter, the revenue and profit performance of listed chemicals companies are anticipated to fall short of initial expectations of an improvement.
Despite some price stability, the demand trajectory remains uncertain.
Q3 Result Preview: Consumer Durable producers to see a mixed bag performance amidst weak demand. Air-conditioner manufacturers to see volume growth led by inventory stocking ahead of peak season. Stable raw material prices to remains supportive for margins for all.
Rise in input costs, inventory write-off, and pricing pressures led to a drop in gross margins.
Higher competitive pressures led to cuts in operating profit margins and earnings estimates for FY24 and FY25.
Most brokerages have a neutral or a reduce rating on the stock on account of valuations.
The weak April-June quarter (first quarter, or Q1) results of the largest listed specialty chemical maker, SRF, and multiple global headwinds for the sector are expected to weigh on the prospects of Indian specialty chemical companies in 2023-24 (FY24).
Stocks in the sector (down 7-18 per cent) have underperformed the benchmarks (up over 10 per cent) in the past three months, and given the multiple challenges, the trend is likely to continue.
Kotak Institutional Equities expects a very weak quarter (Q1FY24) for the sector due to destocking, demand weakness across certain critical end-use industries, and price erosion amid intense competition from Chinese suppliers.