Chemicals Sector 4QFY23 Preview: Divergent Performances Likely To Continue

For the chemicals sector, the Kotak Mahindra Bank in a report has said that 4QFY23 earnings will likely be another mixed bag, with weak earnings from crop protection companies and certain others (Atul, SRF), but relatively good results from companies benefiting from specific growth drivers.

"Amid continued rich valuations in general and weakening macros, our preferred picks from a 4Q earnings perspective would be NFIL and TTCH, and from a more medium-term perspective would be SRF," it stated.

According to the report, crop protection sector earnings are likely to remain under pressure.

"The crop protection sector remains weighed down by a channel inventory overhang across key markets worldwide, including India, the US, and parts of Europe and Latin America," it mentioned.

Besides, agrochemical prices too have corrected sharply, particularly in the case of generics that feature intense competition from Chinese producers. 

"In this backdrop, we expect subdued or weak earnings from all four companies under our coverage in the agricultural chemicals sector," the bank added in the report.

It also stated that Godrej Agrovet may report the weakest results in the pack, but Bayer’s earnings could also be pressured by the correction in prices of glyphosate; Rallis and UPL also seem likely to report muted results. 

For UPL, the progress in deleveraging the balance sheet will be a key monitorable, it stated.