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The Indian specialty chemicals industry has emerged as a vital component of India's economic growth and development.
In brief
- The Indian specialty chemicals sector is witnessing healthy growth.
- Sustainability is a top priority for all industries globally, and the specialty chemicals sector contributes to it.
The Indian specialty chemicals sector looks at a period of fast-paced growth driven by several market forces. India is emerging as a preferred manufacturing hub for specialty chemicals for domestic and export markets. Approximately 20% of the total chemicals market in India1, the specialty chemicals sector has been playing a pivotal role in driving the chemicals industry’s growth.
The Indian chemicals industry is a major player in the global market, ranking 6th in production and 14th in exports2. The sector provides essential building blocks and raw materials for many industries, including agrochemicals, pharmaceuticals, textiles, paper, paints, and soaps. It is valued at US$220b, and projected to grow by approx. 9% p.a. during 2020-25 to reach US$300b by FY 2025. The sector is expected to hit the US$1t mark by FY 20403.
Indian specialty chemicals companies are at their lifetime high capex with healthy revenue and earnings growth over FY19-22. They benefit from strong demand from global clients as they look beyond China and increase domestic consumption. Stock prices are also at their lifetime peak and remain well above global valuations.
In the future, strong demand uptick from domestic and international markets will continue to aid revenue growth for Indian specialty chemical players. This growth will result in strong earnings in the medium term and sustain high valuations. Companies with robust chemistry and technical skills and a healthy balance sheet are expected to continue outperforming cyclical/ bulk commodity players, which may experience price volatility once China ramps up production in CY23.
The fast-paced growth of the Indian specialty chemicals industry is inevitable. However, companies will need agility to adapt quickly to the evolving macroeconomic and industry landscape to ensure sustainable and transformative growth over the longer term. They also have to focus on customer value creation through product differentiation, identification of customer needs through focused customer collaboration, and building resilient supply chains supported by higher investments in R&D and digital. They must reduce their carbon footprint by adopting alternative methods that create a green ecosystem. The industry will seek continued government support to create a business-friendly environment and world-class infrastructure, including additional PCPIRs and feedstock availability to fuel growth. In conclusion, while the macroeconomic levers of growth, such as rising population and increasing disposable income coupled with exports, will provide the requisite tailwinds, the Indian specialty chemicals industry will need to consciously focus on innovation, decarbonization, digitalization, automation, and investing in skilling its workforce to make the quantum leap.
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Summary
Indian specialty chemical players stand to take advantage of the expected rise in domestic demand and government initiatives to replace imports and manufacture/ source locally.