India’s chemical story is one of outperformance and promise. A consistent worth maker, the chemical industry stays an alluring center point of opportunities even in a situation of worldwide uncertainty. Overall patterns influencing the worldwide chemical industry could prompt close term open doors for chemical organizations in India. How chemical players organize and tap this worth making potential could shape the eventual fate of the industry in India just as the nation’s trade performance. India’s chemical industry is a worldwide outperformer in returns to investors and stays an appealing center for chemical companies. This outperformance has brought about exclusive standards for supported, consistent development of the business’ top line and bottom line. The full-scale point of view on India demonstrates that while the short-term outlook is testing, the nation’s long-term growth story stays positive. Also, the Indian chemical industry has been an outperformer in the tough times too, between 2016 and 2019, when the Indian economy wasn’t faring well, the chemical industry maintained a CAGR of 17 percent.
The growth curve is expected to have a positive slope
Notwithstanding financial difficulties that caused India’s GDP growth rate to drop to 4.5 percent in the second from the last quarter of 2019, a long-term point of view shows that India has averaged yearly GDP growth of 7 percent throughout the previous 30 years. The nation is likewise chipping away at turning into a USD 5 trillion-dollar economy. This long-term hopeful situation looks good for chemical organizations, particularly considering a long investment cycle. Chemical organizations can likewise profit by rising local demand in chemical end-use sectors, India’s engaging quality as a manufacturing hub, and its improved ease of doing business ranking.
COVID-19 crisis: Chemical industry faring better than most
Analyzing the impact of COVID -19 on various industries of the Indian economy, if we say that the chemical sector is faring better than the others then we would not be wrong. The constant demand for chemicals in the market whether it is the agrochemicals or specialty chemicals has kept the chemical sector up and running constantly through this situation of crisis. Firms are expected to show a positive revenue generation in the first quarter at least as the situation of crisis escalated in India at the end of March. The chemical industries supplying fertilizers for agriculture and raw materials like APIs to pharmaceutical industries has been running at a good capacity even in the lockdown period. One of the sub-sectors on the Indian chemical industry which has been soda ash manufacturers (like Tata Chemicals) is expected to report a drop in volume YoY due to the shutdown in domestic operations and lower prices throughout the March quarter. However, the drop in power costs should provide some relief from the negative impact of lower soda ash prices. That been said, the chemical industry has not been completely out of the zone of impact of the COVID-19 crisis. The slowdown of demand in the Q2, Q3, and Q4 of FY2020-21 would be seen in both domestic and exports market which in turn might lead to factories being shutdown which may impact capacity utilisations in FY21E and negatively impact operating leverage.
Post COVID: Opportunities for India’s Chemical industry
The performance of the sector has been fair and square up until now under the situation of crisis presented by COVID-19. The interesting part lies in the post COVID era of the industry each industry will be presented with opportunities that they need to grab on. Foreseeing the upcoming opportunities Capturing them in the near term could make a positive difference to Indian chemical companies and the industry overall.
Loss of China (25 percent share) as a reliable partner and continued shifts from EU/Japan (17 per cent/7 percent share) mean share of India (3 percent) will rise meaningfully. The availability of talent in chemistry and engineering will act to India’s advantage.
India could build self-sufficiency in petrochemicals to plug the domestic shortfall of 52% (by volume) in petrochemical intermediates. An opportunity of worth USD 11bn is present by just six of the value chains which make up around 77% of this shortfall.
Specialty chemical sector presents a huge opportunity on the global level, ramping up efforts to increase exports in this subsector will help India gain a significant share in the global exports.
There have been a lot of changes in the structure of the Chinese chemical industry due to stricter environment norms, tighter financing, and consolidation. The change in norms helps some of the large players of the industry, on the other hand, it could be a major cause of uncertainty for international layers who are dependent on China for sourcing their supply of chemicals. This shift in the global picture, in turn, would help Indian chemical companies to enter in certain value chains and segments, especially in short term.
Trade wars are erupting around the globe, especially among China, the united states, and western Europe. These trade wars have led to a shift in global supply chains, affecting bilateral trade between China and the united states. Large chemical markets that are still open in this scenario present opportunities for Indian chemical companies.
Many of the major oil and gas companies of the world are moving their heads on downstream chemical opportunities. This shift of focus can, in turn, be profitable for petrochemicals in India, and can open doors for higher investment in the sector which in turn would ease feed stock challenges and lift independence
To achieve the advantage of a greater scale a sense of prioritization of core business and consolidation can be observed in the industry mostly in the form of big-ticket mergers and acquisitions. The large-scale matters even more to the Indian players of the industry as it helps them in fortifying their competitive advantage over others.
Sustainable development is the new imperative and not just hype around the world. Chemical companies could move forward keeping the imperative in their vision. This, in turn, would help them protect long-term shareholder value while continuing to comply with local regulations.
Digitization is the new hot topic of the industry, as it helps companies improve on efficiency and productivity. A lot of companies globally are exploring digital’s potential; Indian companies could also walk on the same path to increase their profit margins.
The industries need to start transforming themselves from now itself. So that they are prepared to grab the opportunity and make the best out of it.
Shubham Mahla: A B.Tech graduate who is currently pursuing his MBA from Institute of Management, Nirma University is associated with J.Hirani as an intern. His keen inclination towards Finance and passion for learning has persuaded him to explore the field with excellent work in research and application tools. His contribution in this article has helped him to develop holistic deep insights.
Parth Hirani is leading a strategic advisory practice at J.Hirani & has helped various organizations align strategies across continents. A social & collaborative sapien by nature. He enjoys being a full time “dreamer” & loves challenging “possibilities”.
Success mantra- “We believe it’s possible; while maintaining flexibility on “How” we are “Rigid” on our “Goals”
About J.hirani: J.hirani is a Strategic Transformation team which works as a growth partner for different organisations in various industries by providing services like Agile transformation, Scenario mapping, Strategic alignment, Balance scorecard, Digital transformation, Incubating new ventures, Operation excellence and Aligning human capital.
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