Page 165 - CW E-Magazine (31-12-2024)

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CHEMICAL INSIGHTS

Single-digit growth likely in 2HFY25; Weak pricing

could defer margin recovery to FY26

ndia Ratings and Research (Ind-Ra) and agrochemical segments remained SIDDHARTH REGO
has published the fi fth edition of its fl attish to lower y-o-y in 2QFY25, Associate Director
IChemical Insights Report cover- although those within the dyes and Corporate Ratings
ing the quarterly performance trends pigment segment have improved due to an Ind-Ra
of the chemicals sector. The report improving textile demand. Despite the
contains a detailed review of revenue subdued sectoral margin levels, the sec- the agrochemicals sector. However,
growth, EBITDA margins, and price toral absolute EBITDA could be high- the 2QFY25 margins remained range-
trends across key chemicals, i.e., com- er y-o-y in FY25 due to the revenue bound at 13.2% (1QFY25: 13.5%;
modity chemicals, specialty chemicals, growth on the back of a low FY24 reve- 2QFY24: 13.9%), and well below
agrochemicals, dyes & pigments and nue base. Notwithstanding a weakness the past six-year average of around Fig. 2: Comfortable credit metrics
various key chemistries, i.e., soda ash, from the medians levels, the credit met- 16%, largely due to the weak pricing Source: Company quarterly results & presentations, Ind-Ra
caustic soda, benzene, fl uorine, poly- rics are expected to remain comfort- environment. Margins are likely to coverage of over 2x during the quarter, While revenue growth was seen movements to customers remaining
vinyl chloride (PVC), oleochemicals, able at the sector level, refl ecting there- gradually recover over FY25, with a indicating limited pockets of stress. Fur- across CRAMS, non-CRAMs, and tech/ critical to mitigate margin volatility.
amines, phthalic anhydride, carbon latively comfortable debt servicing abi- y-o-y improvement; but are unlikely to thermore, the net leverage in 1HFY25 green segments, each segment wit- Caustic soda (24%) and soda ash (21%)
black, thermoplastics, and styrene. lity with pockets of stress being limited. recover to the mid-cycle levels of stood at around 1.3x (1HFY24: 1.2x; nessed a slight contraction in the mar- collectively account for around 45% of
around 16%% witnessed over FY23. FY24: 1.6x), refl ecting the adequate gins. The specialty chemical segment the overall commodity sectoral turn-
The domestic chemical sector is High single-digit growth to continue; borrowing headroom available. EBITDA margins were at 15.2% in over. The commodities segment revenue
likely to witness continued single-digit recovery in profi tability to be gradual Credit metrics largely comfortable 2QFY25 (1QFY25: 16.1%; 2QFY24: in 2QFY25 rose 2% y-o-y, led by volume
growth in revenue over 2HFY25, led by After the 5.4% y-o-y growth in despite rise in debt Specialty chemicals EBITDA to 16.8%). CRAMS segment (which is growth in caustic soda and soda ash,
a gradual demand rebound. The sector revenue in 1HFY25, Ind-Ra expects Despite the subdued operating en- grow y-o-y despite limited upside to largely skewed towards pharma and amid a weak pricing environment.
revenue grew 7% y-o-y in 2QFY25 – the chemical sector to record mid-to- vironment, the sectoral gross interest margins; volumes to drive growth agrochem) players with a large expo-
highest since 3QFY23, largely attribut- high single-digit growth in revenue in coverage (interest expense/operational Ind-Ra expects the specialty chemi- sure to agrochem continued to witness While caustic soda witnessed some
ed to the specialty chemicals segment. 2HFY25 with a gradual recovery in EBITDA (excluding other income) re- cals segment to record higher absolute margin pressures due to weak pricing recovery in margins, soda ash registered
However, prices could remain under demand. The domestic chemical sec- mained comfortable at around 4.9x in EBITDA y-o-y in FY25, led by higher as the destocking of channel invento- a fall. While improving sequentially,
pressure, resulting in a limited reco- tor’s revenue grew 7% y-o-y– highest 2QFY23 (1QFY25: 5.5x; 2QFY24: volumes supporting higher revenues ries continued with improvement ex- soda ash margins were lower y-o-y at
very in EBITDA margins as witnessed since 3QFY23 in 2QFY25, of which 5.8x), refl ecting the relatively strong and mitigating minimal margin growth. pected only over 2H. On the fl ipside, 17.2% in 2QFY25 (1QFY25: 16.3%;
in 1HFY25 (13.4%, 1HFY24: 14%). around half is attributable to the spe- debt servicing ability within the sector. The specialty chemical revenue wit- players catering to tech/green space, 2QFY24: 21.2%) due to the lower
Margins within commodity, specialty cialty chemicals sector and a third to 85% of the entities reported an interest nessed volume-led growth of 11% surfactants (oleochemicals), aromatics prices y-o-y. Caustic soda margins
y-o-y in 2QFY25 even as prices remain (amines) continued to record strong improved y-o-y to 13.4% in 2QFY25
lacklustre. However, this comes on a margins in 2QFY25. (1QFY25: 14.4%; 2QFY24: 9.7%) as
low revenue base of FY24 when the inventory losses came to a halt with
revenue had dipped due to weak pricing Commodity chemicals still under prices bottoming out in FY24.
and limited volume offtake. The reve- pressure but margins to see some
nue growth was primarily driven by the recovery Higher prices y-o-y were the key
non-CRAMS segment where the reve- Ind-Ra expects soda ash margins revenue driver for petrochemicals.
nue had grown 12.4% y-o-y. CRAMs to improve slightly in FY25, if prices The sectoral margins were at around
segment’s revenues grew around 5% are range bound. Furthermore, margins 10.7% in 2QFY25 (1QFY25: 10.9%;
y-o-y in 2QFY25, with volume growth within the caustic soda segment are 2QFY24: 11%), on par q-o-q but lower
being balanced by weak pricing. Play- expected to improve slightly in FY25 y-o-y (4QFY24: 10.3%; 1QFY24:
ers within the tech/green chemicals y-o-y, despite the large domestic over- 12.6%).
space recorded strong 13.5% y-o-y supply with inventory losses abating.
revenue growthin 2QFY25, primarily Margins within chemicals such as Easing of channel inventory to support
due to the strong volume growth within styrene and phthalic anhydride are agrochem players in 4Q; prices to
performance chemicals and specialty expected to remain volatile, with swift- remain benign
Fig. 1: Sector revenue sustains y-o-y in 2QFY25 driven by higher volumes
Source: Company quarterly results & presentations, Ind-Ra additives segments. ness in passing on raw material price Within the agochemicals segment,

164 Chemical Weekly December 31, 2024 Chemical Weekly December 31, 2024 165

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