Indian chemical Industry (Speciality chemicals) and value chain analysis

Introduction

India’s chemical industry is extremely diversified and can be broadly classified into bulk chemicals, speciality chemicals, agro-chemicals, petrochemicals, polymers and fertilisers.

India holds a strong position in exports and imports of chemicals at a global level and ranks 14th in exports and 8th in imports at global level (excluding pharmaceuticals).

The domestic chemicals sector's small and medium enterprises are expected to showcase 18-23% revenue growth in FY22, owing to an improvement in domestic demand and higher realisation due to high prices of chemicals.

Market Size

The Indian chemicals industry stood at US$ 178 billion in 2019 and is expected to reach US$ 304 billion by 2025 registering a CAGR of 9.3%., An investment of Rs. 8 lakh crore (US$ 107.38 billion) is estimated in the Indian chemicals and petrochemicals sector by 2025.

The speciality chemicals constitute 22% of the total chemicals and petrochemicals market in India. The demand for speciality chemicals is expected to rise at a 12% CAGR in 2019-22. India’s share in the global speciality chemicals market is 4%, , according to the Crisil report.

Expecting 50% YoY increase in the capex of speciality chemicals manufacturers in FY22 and revenue growth is likely to be 19-20% YoY in FY22, up from 9-10% in FY21.

Investments and Recent Developments

In November 2021, Indian Oil Corporation (IOCL) announced plans to invest Rs. 3,681 crore (US$ 495.22 million) to set up India’s first mega-scale maleic anhydride unit for manufacturing high-value speciality chemicals at its Panipat Refinery in Haryana.

In January 2020, Ultramarine & pigments have successfully commissioned the Sulphonation plant setup in Nellore, Andhra Pradesh, to manufacture surfactants and speciality chemicals.

In November 2020, Indian companies are witnessing interest from strategic investors led by Japan, Korea and Thailand, as they seek to diversify supply chains from China. This includes large deals in FY 2020—KKR’s $414 million acquisition of JB Chemicals and Pharmaceuticals Ltd. and Carlyle’s $210 million acquisition of SeQuent Scientific Ltd.

Govt Initiatives

The Indian government recognises chemical industry as a key growth element and forecast to increase share of the chemical sector to ~25% of the GDP in the manufacturing sector by 2025.

100% FDI is allowed under the automatic route in the chemicals sector with few exceptions that include hazardous chemicals.

The government has proposed several incentives for setting up a sourcing or manufacturing platform within an Indian SEZ:

- Effective April 1, 2020, 100% Income Tax exemption on export income for SEZ units for the first five years, 50% for the next five years thereafter and 50% of the ploughed back export profit for next five years.

- Single window clearance for central and state-level approvals.

- Duty free import/domestic procurement of goods for development, operation and maintenance of SEZ units.

Under the Union Budget 2021-22, the government allocated Rs. 233.14 crore (US$ 32.2 million) to the Department of Chemicals and Petrochemicals.

Chemicals Industry Value Chain

A value chain is a chain of activities that a firm operating in a specific industry performs in order to deliver something valuable (product or service). The value chain for the chemicals industry starts from “petrochemicals” and matures into “basic chemicals” and further develops into “polymers” and specialises in “specialities”.

Oil & Gas/Raw Materials ---> Petrochemicals/Raw Materials ---> Basic Chemicals ---> Polymers and Specialities ---> Marketing/Distribution/Sales

Various Business Models in Chemical Industry

Asset-Driven Business Model- The players using this business model to explore or buy oil/gas and refine it into petrochemicals and other basic chemicals. Access to raw materials is a critical success factor. In petrochemicals, many of the largest asset-driven players are in the Middle East.

Integrated Business Model - Players operating under an integrated business model go one step further “downstream” in the value chain into the production of polymers besides refining oil and providing basic chemicals

Specialities Business Model - These players buy intermediate products (i.e., basic chemicals or polymers) and process them into speciality products related to specific functionalities.

Future Outlook (Indian Perspective)

The Indian chemical industry has numerous opportunities considering the supply chain disruption in China and trade conflict among the US, Europe and China. Anti-pollution measures in China will also create opportunities for the Indian chemical industry in specific segments.

Additional support, in terms of fiscal incentives, such as tax breaks and special incentives through PCPIRs or SEZs to encourage downstream units will enhance production and development of the industry.

A fundamental research on top Speciality chemicals stocks in Indian markets (BSE, NSE) can found here: https://investpeer.blogspot.com/2022/03/a-fundamental-research-on-top.html

References:

India Brand Equity Foundation (https://www.ibef.org/industry/chemical-industry-india.aspx)

https://www.technofunc.com/index.php/domain-knowledge/chemicals-industry/item/business-model-value-chain-of-chemicals-industry

https://chemquest.com/specialty-chemicals-value-chain/

https://www.predictiveanalyticstoday.com/what-is-chemical-industry/