Informist, Tuesday, Mar. 18, 2025

By Gopika Balasubramanium

MUMBAI – A tax write-back of INR 6 billion for UPL Ltd. changed the entire financial performance of chemical companies that are part of the Nifty 200 index. The write-back, which was higher than the net profit reported by seven Nifty 200 chemical companies excluding UPL, lifted the net profit growth of the eight Nifty 200 chemical companies for the December quarter to over 63%, sharply higher than the over 40% rise expected by analysts. Excluding UPL, the seven companies reported a 23.5?ll in their net profit, against the 16?cline analysts had expected.

To put it differently, the aggregate performance of the eight Nifty 200 chemical companies was better than expected despite seven of them missing the estimate for the sector! Only one of these eight companies – Solar Industries India Ltd. – actually beat the sector aggregate net profit growth estimate.

There were no estimates available for Fertilisers and Chemicals Travancore Ltd – the ninth chemical company part of the Nifty 200. Including FACT, the net profit of the nine Nifty 200 chemical companies rose over 61% and sales grew 8%.

Only four companies, including UPL, exceeded analysts' estimate for net profit at the company level. In terms of revenue growth, only three of the eight exceeded company-level estimates.

UPL recorded a net profit of INR 9.04 billion, excluding exceptional items, compared to a net loss of INR 12 billion in the year-ago quarter. This sharp jump in the company's bottom line was due to a tax credit of INR 5.92 billion on reversal of provisions.

The top line of the eight companies grew nearly 9% during the quarter, slightly lower than the 10% growth estimated by analysts. Of the eight chemical companies, only one – Solar Industries – beat the sector estimate for both net profit and sales. Four of the eight companies – Solar Industries, Grasim Industries Ltd., SRF Ltd., and UPL – managed to outperform the sales growth estimate.

NET PROFIT

Solar Industries outperformed the sector estimate, while the remaining seven to do so. SRF Ltd. and Pidilite Industries Ltd. reported a net profit excluding exceptional items that was sharply lower than the sector estimate. Grasim Industries was the only company to report a net loss of INR 1.69 billion, against an INR 2.36-billion profit in the year-ago quarter.

Tata Chemicals' net profit excluding exceptional items declined the most, followed by Asian Paints and PI Industries. UPL handsomely beat the INR 1.85-billion net profit expected by analysts for the quarter.

Explosives-making company Solar Industries outperformed all others in the pack with steep growth of 55% on year in its net profit, driven by strong growth in its defence vertical. A 38% rise in net sales also boosted its profit for the quarter.

For SRF and Pidilite Industries, the growth in net profit, excluding exceptional items, came in high single digits. SRF's net profit grew 7% on year, driven by margin expansion in its packaging film segment. The segment's earnings before interest and tax margin expanded 240 basis points to 6.5% during the quarter.

Pidilite Industries posted volume-driven net profit growth for the December quarter. Its net profit grew 8% on year, while the underlying volume grew 10?ross categories. Pidilite's consumer and bazaar segment posted an over 7% on-year rise in underlying volume. PI Industries, on the other hand, reported a drop of almost 13% in net profit, which was narrower than the fall expected for the sector, excluding UPL. The company's net profit declined as a 3.4% rise in sales could not outpace the 5% rise in total expenses. The profitability of PI Industries was affected due to weak demand and muted sales growth in its core agrochemical and pharmaceutical segment.

Among the underperformers, Tata Chemicals' net profit excluding exceptional items plunged over 89% during the quarter. This fall was due to lower prices of soda ash across geographies and higher fixed costs in the US due to a plant production outage, according to the company's post-earnings press release.

Apart from this, Tata Chemicals also incurred a one-time expense of INR 700 million in the December quarter as one of its step-down subsidiaries decided to cease its soda-ash production in the UK due to the plant's sustained financial underperformance. Including this exceptional item, the company reported a net loss of INR 530 million.

The net profit of Asian Paints excluding exceptional items declined over 23% due to an on-year fall in its revenue for the December quarter. Asian Paints' net profit declined for the third consecutive quarter due to unfavourable demand conditions, a customer shift to lower priced products, and weak demand in the festival season, the company said. Grasim Industries reported a net loss of INR 1.69 billion for the quarter, against a net profit of INR 2.36 billion a year ago. The company's profit was dragged down by a 23% surge in raw material costs, which accounted for 45% of the company's total expenses.

The net profit margin of the eight chemical companies for the December quarter expanded to 7.9% from 5.4% in the year ago period and 6.7% in the previous quarter. UPL's net profit margin was 7.6%, a sharp improvement from the 12.3% loss margin a year ago. Solar Industries and Pidilite also improved their net profit margins in the latest quarter by 173 basis points to 15.96% and 9 bps to 16.40%, respectively. However, the net profit margin of the other five companies contracted on year. Grasim Industries and Tata Chemicals reported a negative margin of 2.1% and 1.5%, respectively, for the December quarter.

TOP LINE

Solar Industries, Grasim Industries, UPL, and SRF outperformed the Street's view on aggregate sales growth in the December quarter. PI Industries and Pidilite Industries reported single-digit growth in their respective revenue for the quarter, but missed the consensus estimate of aggregate sales growth. Only Asian Paints and Tata Chemicals reported an on-year fall in revenue for the December quarter.

Solar Industries' net sales rose 38%, the most among these companies, driven by an increase of over six times in revenue from its defence vertical, which accounted for 21% of the total sales. Its total order book rose to INR 71.22 billion as of Dec. 31 from INR 57.57 billion on Sept. 30, according to the company's investor presentation.

Grasim Industries, on the other hand, reported 27% sales growth, the highest in nine quarters. Improved realisation of caustic soda and profitability in chlorine derivatives drove the sales growth of the company's chemical business. The segment reported a 12% on–year rise in its revenue for the quarter.

SRF reported 14% on-year growth in net sales due to strong growth in its chemicals and packaging films business. The 27% sales growth in its packaging and films segment offset the 16% on-year rise in the company's total expenses. The segment accounted for nearly 40% of the total sales for the quarter.

UPL's sales for the December quarter were up 10% on year, mainly driven by a 9% increase in volumes in Latin America, especially Brazil, and Europe. The growth was also driven by a 5% price hike, and a 4?cline in currency exchange, mainly in Brazil, the company said in a post-earnings press release.

Tata Chemicals saw a near 4?cline in its net sales due to fall in revenue from its basic chemistry products and speciality products segment. Sales of speciality products fell 11% on year and those in the basic products segment were down 2% on year. Asian Paints' net sales fell 6% due to muted revenue growth in its decorative paints business as customers opted for lower priced products. The segment's revenue fell nearly 8% on year, despite 1.6% growth in the underlying volume.

The following table shows the performance of eight companies in the chemical sector vis-a-vis the consensus estimate for each company as well as against the consensus estimate for the chemical sector and the Nifty 200 index.

The following table shows the profit margins of eight chemical companies that are a part of the Nifty 200.

End

Data compiled by Vinod Bhovad

Edited by Avishek Dutta

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