What Led To A Selloff In Indian Specialty Chemical Makers’ Stocks
Global chemical companies issued a “profit warning” for the second quarter of 2019.
Lower demand forecast by global chemical companies for the ongoing financial year led to a selloff in stocks of domestic manufacturers in the last one month.
Shares of SRF Ltd., Atul Ltd., UPL Ltd., Aarti Industries Ltd. and PI Industries Ltd., among others, fell in the range of 5-13 percent during the period, according to Bloomberg data.
Emerging slowdown in the agri-chemical end market and domestic auto sales could weigh on the near-term performance of SRF and PI Industries, especially after they rallied more than 40 percent in the January-June period, Citi said in a note.
SRF, Atul, UPL, Aarti Industries and PI Industries didn’t immediately respond to BloombergQuint’s emailed queries.
U.S.-based Ashland Global Specialty Chemicals Inc. and Germany’s Brenntag AG issued a “profit warning”—lower-than-expected profit—for the second quarter of the calendar year 2019, Emkay Global said in a report. Ashland—with a revenue of $3.7 billion in 2018—expects “lower-than-anticipated sales in personal care and certain industrial end markets” to hurt its profit. On the other hand, specialty chemicals distributor Brenntag—with an annual sales of 10 billion euros in 2018—said a “sharp decline in demand late in the second quarter” was the key concern area.
While Ashland expects its Ebitda to fall by about 10 percent over last year in 2019 (against a growth forecast earlier), Brenntag sees no growth during the period (compared with 7 percent growth earlier).
“We have adjusted our outlook to reflect our Q2 results along with expectations that the dollar will remain strong and demand weakness will last at least through the current quarter in the markets,” William A. Wulfsohn, chairman and chief executive officer of Ashland, said in a conference call.
Earlier this month, Germany’s BASF SE also cut its full-year forecast, signaling weakening global economy. Slowing markets from cars to crops and the U.S.-China trade war, according to a Bloomberg report, forced the world’s largest chemical company to cut profit by 30 percent this year. Also, uncertainties around Brexit negatively impacted the economic development in Europe, it said.
Emkay Global expects an impact on Indian chemical makers in the near term even though they are well-placed to gain from the U.S.-China trade tensions. The brokerage turned cautious on SRF and Atul, citing their higher exposure in auto and agricultural segment.
