Indian speciality chemical companies all set with huge CAPEX to cater to the demand

Indian speciality chemical companies are all set with huge CAPEX to cater to the demand

Twitter Handle: @shuchi_nahar

The Indian chemical industry is one of the fastest-growing industries in the world. Currently, it ranks 3rd in Asia and is the 6th largest market in the world with respect to output, after the US, China, Germany, Japan and South Korea. The industry's growth is mainly driven by consumption growth and export opportunity.

Demand for speciality chemicals is owing to their performance-enhancing applications instead of composition. Businesses operating in this sector require deep knowledge and the ability to bring about consistent innovations. The speciality chemicals industry is a mature sector with proven benefits accruing to a wide range of end-use customers. It comprises about 17% of the global chemicals market and is expected to grow at an average of 5.3% between 2019 and 2024, picking up the pace on the back of emerging usage applications in a variety of industrial sectors.

The speciality chemicals industry can be sub-divided based on end-user industry into agrochemicals, dyes and pigments, personal care ingredients, polymer additives, water chemicals, textile chemicals and application-driven segments. These are the largest constituents of the speciality chemicals industry and cumulatively constitute over 80% of the speciality chemicals universe.

The last two decades have seen a significant shift in the global speciality chemicals industry with developed countries losing their production supremacy (particularly the US) to emerging market nations in Asia. Key facilitators for this shift include stricter environmental norms in western countries and cost advantages enjoyed by emerging markets in terms of logistics and labour. Further, companies wanted to shift closer to demand centres and optimize their supply chains. The Asia Pacific (APAC) region, with a share of 48-50%, was the key contributor to the global speciality chemicals market.

Indian speciality chemicals market to witness sharp growth

In terms of region-wise demand, India’s speciality chemicals industry is expected to witness the growth of 10-12% CAGR between 2020 to 2025, due to rising demand from end-user industries, coupled with tight global supply on account of stringent environmental norms in China. Markets like the Americas, Europe and Japan are expected to clock less than 3% CAGR over the next five years, due to industry saturation in these regions. China’s speciality chemicals industry, which saw historical growth rates of ~20% and above until 2013, is expected to witness slower growth, of 4-6% CAGR, between 2020 to 2025, due to various factors like environmental regulations, leading to an overall slowdown in the industry.

At present, specific areas of usage include:

• Agriculture, requiring fertilizers and crop protection applications

• Electronics, needing agents to produce printed circuit boards and other components
• Housing, which relies on chemicals for construction materials, sealants, coatings, paints and plastics
• Consumer goods, such as perfumes, detergents, paper items and pharmaceuticals Sub-segments within the Speciality Chemicals sector based on end-usage

Key growth drivers for speciality chemicals industry in India

Increase in consumption intensity

Higher end-user demand

Government initiatives

Favourable Global factors

Capital expenditure in the Indian chemical space

Indian chemical industry has been revving up its Capex over the past decade to be well equipped and more competitive to grab future opportunities. Aggregate Capex incurred by 31 leading chemical companies considered by us has grown at a 17% CAGR over FY15-20 and a 9% CAGR over FY10-20. INR 95bn was spent in FY20 by these companies on Capex as compared to INR 39bn in FY10. Capex as a percentage of revenue was 9.6% in FY20, the highest ever in the past decade.

Companies are continuing to spend heavily on Capex to meet the demand of these industries as they pose great growth opportunities, given the current pandemic situation. Some companies have delayed their Capex investments due to the COVID-19 crisis but have not abandoned them.

Consolidation of vendor ecosystems is an emerging theme across global chemicals supply chains, with many products being sourced from countries with robust ecosystems. These trends stem from cutting the need to cut costs, drive volumes and adhere to global environmental regulations. India is well-positioned with a scalable, compliant ecosystem for manufacturing chemicals. With the US-China political equations impacting trade over the last few years, tariffs on Chinese exports to the United States are rising significantly. Thus, manufacturing imports from China to the US are declining and buyers are actively looking for new supply sources across the world.

India is positioned to benefit from the situation, as an emerging global manufacturing location possessing strong product/process capabilities across a growing number of chemistries. Its robust manufacturing ecosystem is supported by diverse raw materials availability, safety/health/environment compliance is strictly followed, and client relationships have been deepened over the years, supported by a deep culture of R&D as well as strong IP governance.

List of companies with huge CAPEX - Aarti Industries, SRF, Alkyl Amines, Balaji Amines, Navin Fluro, Vinati Organics, Tata Chemicals, Neogen Chemicals, DMCC

Twitter Handle: @shuchi_nahar

Disclaimer: The information provided on Shuchi Nahar’s Weekend Blog is for educational purposes only. The articles may contain external links, references, and a compilation of various publicly available articles. Hence all the authors are given due credit for the same. All copyrights and trademarks of images belong to their respective owners and are used for Fair Educational Purpose only.