Chemical Sector Q3 Results Preview

Our agro-chemical coverage stocks are likely to report YoY decline in Q3 FY24 results – barring custom synthesis manufacturing major PI Industries Ltd. and its small cap peer Anupam Rasayan India Ltd. and Sumitomo Chemical India Ltd. (up a tad). Revenue/Ebitda is likely to be decline (except PI Industries and Anupam Rasayan) due to weak topline/margins amid persistent pressure on prices, unabated Chinese dumping at below cost and de-stocking.

Weak agronomic conditions – low soil moisture/water levels (weak SW monsoon combined with excess rains in Q3 FY24 has resulted in a subdued trend in Rabi cropped area – down 2.6% YoY). There are however some pockets in the South which are reported to be positive for states like Telangana and Andhra Pradesh. Also, Northern states like Punjab are said to have healthy soil moisture and water levels.

UPL Ltd. will see 407 basis points YoY decline in Q3 FY24 Ebitda margin due to muted India sales (weak crop protection chemical sales due to hit on Rabi crops) and a delayed recovery in Brazil – still saddled with high channel inventory. Consolidated profit after tax is likely to plunge from Rs 11.07 billion in Q3 FY23 to a loss of Rs 2.02 billion in Q3 FY24 versus street’s profit estimate of Rs 10.1 billion.

Anupam Rasayan is set to lead our coverage universe with 28.6% YoY increase in profit after tax. PI Industries will follow with 7.3% YoY growth in profit after tax followed by Sumitomo Chemicals with a miniscule YoY growth. We also expect Tata Chemicals Ltd. and Coromandel International Ltd. to report YoY decline in profit after tax at 48.9%/47.6%.

Watch out for management comments in earnings calls – on destocking, pricing power and any signs of revival in procurement by trade for future consumption. Also keep an eye on movement in inventory and receivables and any inventory-related adjustments through profit and loss.