Chemical companies may post 5-10% revenue growth in Q1 amid tariff concerns, weaker rupee

ET Intelligence Group: Chemical companies are expected to post 5-10% year-on-year revenue growth for the June 2025 quarter driven by order intake ahead of potential US tariffs and a weaker rupee that boosts export realisations. Decline in the prices of raw materials will help in shielding margins.

"While the chemicals sector fundamentals remain soft, some companies should benefit from front-loading of orders by customers ahead of the threat of US tariffs, ramp-up in specific growth projects, and firm prices of HFC (Hydrofluorocarbon) refrigerants," noted Kotak Securities in a preview report.

Lower input costs will help profitability of companies. Crude oil price averaged at $67 per barrel in the June quarter, reflecting a drop of nearly 20% year-on-year and 11% quarter-on-quarter. Prices of Butadiene, Toluene, Benzene and Propylene, major raw materials, decreased 4-9% from the year ago, according to Motilal Oswal Financial Services. The broking firm expects operating margin before depreciation and amortisation (Ebitda margin) to expand 20 basis points (bps) on an annual basis and a sales growth of 10% for companies under its coverage.

"In the first two months of the June quarter, nine out of 13 companies within our coverage universe reported an uptick in total exports," Motilal Oswal Financial Services mentioned in a report. The rupee depreciated nearly 3% in the quarter, making export revenue appear optically higher, it added.

Refrigerant gas players are expected to report strong results, supported by favourable global prices and solid export demand. Within agrochemicals, Axis Securities expects companies with a domestic focus to perform better. "Growth in the domestic market is expected to be supported by new product launches, strong volume growth ahead of the kharif season, and healthy demand driven by a normal monsoon outlook," the broking firm said in a report.

"Most of the companies under our coverage are likely to witness a pickup in volumes, also reflected in recent export data," noted PL Capital in a report. However, it expects margins to remain under pressure for agrochemical companies due to subdued demand and weak realisations.

Chinese competition, volatile input costs, and geopolitical risks impacting logistics and demand present a complex operating environment for the chemical sector. Uncertainty surrounding long-term tariffs continues to affect company decisions. Also, overcapacity in China poses a risk of heightened pressure on pricing. Investors will be closely watching management commentary on volume sustainability, pricing power recovery, and the impact of potential tariff shifts for clear signals on the sector's trajectory beyond the quarter.