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India's chemical companies are going through a rough patch. Most of the big players have seen their revenue and profits drop in the last quarter.
We studied the top 10 chemical firms listed in the BSE 500 Index. However, we haven't included companies dealing in paint and explosives in this data. Even the data proves the downward trend.
Disappointing Q1 results
Exceptions aside, almost all major companies have recorded negative earnings growth
| Company | M-cap (Rs cr) | YoY revenue growth (%) | YoY PAT growth (%) | YoY change in operating profit margin (% pt) |
|---|---|---|---|---|
| SRF | 68216 | -14.3 | -40.9 | -6 |
| PI Industries | 56596 | 23.8 | 45.9 | 2.1 |
| UPL | 43952 | -17.2 | -81.1 | -7.3 |
| Coromandel International | 31539 | -0.6 | -1 | 0.4 |
| Gujarat Fluorochemicals | 31066 | -9.3 | -34.3 | -6.8 |
| Deepak Nitrite | 27361 | -14.1 | -36.1 | -5.6 |
| Tata Chemicals | 25505 | 5.6 | -9.7 | -0.8 |
| Navin Fluorine International | 22119 | 23.6 | -17.4 | -2.9 |
| Bayer CropScience | 21464 | 4.3 | 8.6 | 0.3 |
| Sumitomo Chemical India | 20223 | -26.5 | -55.3 | -8.6 |
| M-cap as of August 21, 2023 | ||||
Most companies are grappling with low earnings both in India and abroad. As a result, their stock prices are down too.
Aprajita Anushree
Why the downturn?
Monsoon
The first reason is an erratic monsoon. Most of the companies listed in this table generate revenue from agrochemicals. However, this year, India's monsoon has been unpredictable. Crop output has slowed down due to this and affected sales as a result.
For instance, PI Industries saw a 13.4 per cent YoY (year-on-year) fall in domestic sales of crop protection chemicals in Q1 FY24. UPL also saw its crop protection business drop by 20 per cent year-on-year.
China's influence
The slowing economy in China is hurting companies globally, including India's chemical sector. Chinese firms are selling chemicals cheaply, pushing their competitors to lower their prices too. As a result, the topline and operating margins have taken a major hit in the recent quarter. However, PI Industries and Navin Fluorine are still doing well, mainly because their earnings are contract-based (custom synthesis and contract manufacturing).
Covid and overstocking
The pandemic caused a frenzy in the entire supply chain process. So, companies stocked up to avoid supply chain problems. This boosted sales for a while and temporarily accelerated the growth of chemical companies during that period.
However, the orders started to slow down with the stabilising economy and competition in the international market intensified, which has led to a slowdown in the industry's growth.
What's next?
For the sector to bounce back, the global economy needs to stabilise, and weather conditions need to improve. China's strategy of dumping chemicals at cheaper prices is not sustainable, and the prices will eventually come up. Then, these companies will chase higher profitability along with growth in revenues. However, what remains to be seen is how long it will take for prices to rise again.
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