These 26 companies saw over 25% drop in Q3 sales, PAT; are they still worth betting on?

The December quarter show of India Inc though, was broadly in line to slightly better than street expectations, there were exceptions which failed to cheer up investors with good numbers.

Around 26 companies, with a market capitalisation of over Rs 2,500 crore, reported atleast 25% year-on-year (YoY) fall in both revenue and profits in the last quarter, and a majority of them were part of the chemicals and pesticides sector.

Of the 26 companies, 14 of them are in the chemicals and agrochemicals sector, while a few in the pharmaceutical and realty sectors.

Specialty chemical companies saw a decline in earnings for the third quarter in a row, primarily due to inventory liquidation across regions and aggressive pricing and dumping by China.

Meanwhile, agrochemical producers were weighed down by the pressure on the global front, with destocking continuing and companies offering rebates/discounts to collect payments.

While domestic demand remained firm and witnessed volume growth, prices were soft and therefore, specialty chemical makers saw a decline in the revenue.Gujarat Fluorochemicals reported a 30% YoY decline in revenue for the December quarter, while Gujarat State Fertilizers saw a steeper 42% decline. Their bottomline plunged 76% and 72%, respectively.Among agrochemical makers, Coromandel International reported a 34% decline in revenue and a 56% drop in profits in the last quarter. Meanwhile, UPL saw its revenue drop 28%, and it reported a loss against a profit in the preceding year period.

Brokerage firm Nuvama Institutional Equities cut its profit estimate for Coromandel International sharply by around 15% for FY24 on likely pressure in margins, eventhough it strongly believes that the government would increase subsidy rates to factor in increase in input cost.

Meanwhile, it downgraded rating on UPL to “reduce” from “buy” following the dismal Q3 show.

“Though margin pressure — amid falling RM prices and higher discounts to collect payments — shall subside in FY25, we see a risk of credit rating downgrades and pressure on the balance sheet,” Nuvama said.

Nuvama now expects UPL to report a loss of Rs 14 billion for FY24, against expectations of a profit of Rs 27 billion earlier.

As far as specialty chemicals are concerned, the brokerage firm sees entry opportunities in the sector amid expectations of a recovery in demand in the current quarter and stable prices.

The brokerage firm has a “buy” rating on Gujarat Fluorochemicals with a price target of

Rs 4,588, which is higher than the earlier target of Rs 3,565.

In the pharmaceutical segment, three companies saw a sharp drop in revenue in the last quarter and these include Suven Pharmaceuticals, Tatva Chintan Pharma, and Sun Pharma Advanced Research.

Suven Pharma’s revenue declined 38% and net profit plummeted 57%, largely due to a decline in specialty chemical division amid global supply chain destocking.

Tatva Chintan Pharma saw a 30% and 70% decline respectively, in revenue and profits during the last quarter.

Eventhough, the real estate sector has been booming by the strong demand for premium residential homes, there were a few outliers here as well.

Mahindra Lifespace Developers saw a sharp 57% drop in revenue, and the company slipped into red in the last quarter, posting a loss of over Rs 25 crore.

Despite the bad numbers, brokerage firm Sharekhan by BNP Paribas has retained its positive stance on the company, considering the strong scalability in the business over the next five years.

“MLDL (Mahindra Lifespace) has sustained healthy momentum in residential sales, while its industrial leasing business, although lumpy, has started to gain traction. We retain our Buy rating on the stock with an unchanged price target of Rs 736, considering robust scalability

in business over the next five years, well supported by the realty upcycle,” the brokerage firm said in a note.

Oberoi Realty, another prominent luxury properties developer in Mumbai, reported a 35% YoY fall in revenue and a 48% decline in profits.

While it’s been a tough quarter for some of the sectors, analysts remain positive on the overall earnings outlook for corporate India, and expect double-digit growth in FY24 as well as FY25.

(Data inputs from Ritesh Presswala)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

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