Specialty Chemicals - Tomorrow’s Veneer Over Today’s Disappointment: Motilal Oswal

Motilal Oswal Report

Despite the end of destocking, pricing pressure continues in the specialty chemical sector due to sluggish Chinese domestic consumption, with the China+1 strategy being a potential short-term solution.

Company managements remain confident about long term prospects, with capex on track and a gradual recovery expected in H2 FY25. However, pricing pressure is likely to persist through CY24.

Our coverage universe saw a decline of 8%/18%/29% YoY in revenue/Ebitda/earnings in FY24, with Ebitdam down 240 bp YoY. Although raw material prices and operating expenses declined YoY, it was not enough to arrest the decline in Ebitda amid severe pricing pressure. PI Industries Ltd. was the only bright spot in FY24.

We estimate a compound annual growth rate of 13%/17%/19% in revenue/Ebitda/earnings during FY24-26E, albeit on a lower base. Ebitdam is expected to expand by 160 bp by FY26 versus FY24.

Alkyl Amines, Atul, Navin Fluorine, NOCIL and Vinati Organics are expected to see the highest earnings growth of 25-40% during FY24-26E. We remain positive on PI Industries, Vinati Organics and Galaxy Surfactants.

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