An Insight into the Indian Chemical Sector

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An Insight into the Indian Chemical Sector


The Indian chemical sector is poised for a phenomenal growth in the coming years. It is believed that the firms providing specialty chemicals to pharmaceutical, personal care and agro-chemical industries are in a sweet spot due to a steady growth and stringent regulations that create entry barriers for competitors. The Indian chemical industry is one of the fastest-growing in the world. The growth is mainly driven by consumption and export opportunity. The chemical industry contributes significantly to India's export-import trade in terms of value. Its specialty chemicals segment has a lot of space to grow.

As per estimate, global specialty chemical market is likely to reach $1000 billion FY22.  China and North America dominate the global specialty market and having more than 50 percent of market share. India's share is merely 3 percent. This shows that the specialty chemicals market in India is at a lower level as compared to the US and China, creating significant scope for growth. Further, China+ factor has been creating huge opportunity for Indian companies as Europe and other developed countries are looking for alternate source of their requirement.  Post pandemic era, many western countries are preparing themselves now for self-reliance in pharmaceuticals and personal care sectors.  They are looking for alternate source (other than Chinese suppliers) for API (active pharma ingredient) and KSM (key starting material). Indian companies are best positioned to fill this gap of the global demand as certain Indian manufacturers have built up good capacities for manufacturing of API and KSM. 

Agriculture sector growth in current fiscal is likely to see 5% growth as monsoon this year has shown good performance.  There is ample man power available this season in rural area as many of the migrant workers did not return to their previous work place and are contributing greatly in farming resulting in to one of the highest sowing in the recent years. Therefore, we can expect a significant increase in the demand of agro-chemicals. Agro-chemical manufacturing companies will be showing a phenomenal growth in their revenues. The specialty chemical companies who are providing raw materials to agro-chemical companies are also expected to show good growth in medium term.

We foresee EBITDA and PAT CAGR of about 20-25 percent over medium term during (FY21-FY23) in many specialty chemical companies.  Domestic availability of raw materials, CapEx to build product development capabilities; backward integration, investment in research and development and import substitution along with export opportunities would allow several companies to step up their position in the specialty chemicals manufacturing value chain to become proprietary chemical producers.

Financial details of leading specialty chemical companies are being highlighted hereunder for reference purpose. With promising future looking ahead, investment in the specialty chemical sector is strongly recommended for decent return over medium term. Although, prices of many companies have run up rapidly in recent past but there still remains plenty of scope for appreciation over medium term.  However, one should put money in staggered manner and with buy on decline strategy.

         ( EPS & PE Ratios have been calculated on the basis of Q1 Results. Source: Money Control )

- Rajendra Jhanwar

 

 

 

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