Indian chemical industry set for 15-20 pc growth amid China’s struggles with unused capacity: Report

In a report by Axis Capital, it has been mentioned that the Indian chemical industry is preparing to expand its presence in the global market. This comes in light of China facing challenges with excess production capacity, a situation that is expected to maintain stability in chemical prices.

India’s chemical industry is anticipated to witness rapid growth with a projected 15-20 per cent compound annual growth rate (CAGR) between CY22-30. This surge is attributed to continuous capacity expansion, investments in research and development, and strategic market positioning, outpacing the expected 4 per cent CAGR in the global speciality chemicals sector.

Indian chemical firms have strategically been scaling up their manufacturing capacities, making substantial investments in research and development (R&D), and clinching deals to enhance the safety of supply chains.

China currently holds a dominant share of more than 40 percent in the worldwide chemical market, while the United States and the European Union collectively contribute around 28-30 percent.

India currently holds approximately a 4 percent market share, a figure that is expected to see significant growth in the near future. This anticipated increase is largely attributed to the ongoing trend of global supply chains shifting away from China, thus opening up new opportunities for India’s market expansion.

Indian companies are well-positioned to take advantage of the worldwide trend towards outsourcing, as Europe grapples with high costs and businesses seek to diversify away from China. This presents an opportunity for Indian firms to play a significant role in meeting this demand.

India’s leading 20 chemical companies, covering speciality and bulk sectors, have notably increased their capital expenditures (capex) in the last ten years.

Between FY12-15, the yearly average capex saw a significant increase from around Rs 33 billion to Rs 70 billion. This growth continued over FY19-21, reaching Rs 116 billion by FY22-24.

Throughout the chemical industry, both specialized and large-scale companies have experienced a notable surge in acceleration. The capital expenditure for the fiscal year 2024 alone nearly matches the total investments made in the period spanning fiscal years 2012 to 2015.

During the fiscal years of 2012 to 2015, the average yearly capital expenditure skyrocketed to around Rs 33 billion, then increased to Rs 70 billion between 2019 and 2021, and eventually reached Rs 116 billion in the fiscal years spanning 2022 to 2024.

Throughout the years, there has been a noticeable increase in capital expenditures within both specialty and bulk chemical firms. In the fiscal year 2024, the amount invested nearly matches the total capital input from fiscal years 2012 to 2015 combined.

Through the utilization of internal funds, this robust growth has received substantial backing, leading to secure financial positions and effective management of working capital.

Over the fiscal years 2022 to 2024, chemical companies experienced a remarkable compound annual growth rate (CAGR) of 21-23 percent in their gross block, a significant leap from the 10-15 percent CAGR recorded in the previous period from FY12 to FY18.

Between the fiscal years 2020 and 2024, the specialty sector experienced a significant increase in their total assets, almost doubling their gross block. This growth was mainly driven by the surge in global commodity prices, leading to improved asset turnover for the industry.

Indian chemical companies are actively working towards enhancing their research and development departments by adopting novel chemical approaches and broadening their range of product offerings.

The outlined measures align with the current trend of global supply chain derisking, offering a noteworthy avenue for growth for Indian stakeholders.

By securing contracts from leading global visionaries, the sector is not just expanding its capabilities but also improving its technical expertise, innovating its processes, and optimizing costs to strengthen its competitive stance.

Sustaining growth in the face of escalating global competition will heavily rely on companies’ capacity to innovate and streamline expenses.

The generics segment faces potential risks due to China’s increasing focus on manufacturing value-added chemical goods for industries such as electric vehicle batteries, solar cells, and semiconductors, thereby heightening competition in the market.

Indian enterprises stand to gain from their specialized products and vertically integrated processes, enabling them to seize market opportunities in comparison to China and Europe. This could be achieved through increased production, innovative processes, and the introduction of new products.