Speciality chemicals account for 20% of the $ four trillion chemicals industry globally, and India's market is predicted to increase at a CAGR of 12% to $64 billion by CY25.
The COVID-19 pandemic has been a windfall for the speciality chemicals industry, with India's market share expected to quadruple in the next five years, according to a report by Motilal Oswal.
Speciality chemicals account for 20% of the $ four trillion chemicals industry globally, and India's market is predicted to increase at a CAGR of 12% to $64 billion by CY25. According to the brokerage, a robust demand CAGR of 10–20 percent in the export/end-user industries will drive this rise.
The brokerage recently initiated coverage on the sector with a positive outlook. Deepak Nitrite is its top pick in the segment while there is a ‘buy’ rating on Vinati Organics, Galaxy Surfactants, and NOCIL. It has assigned a 'neutral' rating to Atul Limited, Alkyl Amines, Navin Fluorine, and Fine Organics.
The domestic speciality chemicals industry, which clocked double the global CAGR (11.7 percent) over CY15-20, is valued at $32 billion, noted the brokerage. India’s ranking in speciality chemicals is not available; it is the sixth-largest producer of chemicals globally.
As per MOSL, various factors favour the speciality chemicals industry in India, including 1) strong domestic consumption, 2) favourable labour cost (one-third that of China/half that of Vietnam), and 3) government impetus.
It further noted that China is the leading speciality chemicals exporter with an 18 percent market share in global exports. As nations look for alternatives away from China, India stands to benefit from lower labour costs and a large consumer base, it stated.
"Domestic players (such as Navin Fluorine, Vinati Organics, and NOCIL) are benefitting from the China+1 strategy with new orders and capex plans. The new projects would primarily be export orders, which would enable Indian companies to capture a larger global market share in the speciality chemicals space," the report mentioned.
The brokerage also noted that its coverage universe has incurred a Rs 3,800 crore capex in the last three years ended FY21 and would spend a similar amount over the next three years ending FY24E. Along with an increase in the asset turnover rate, it estimates multiplicative growth in revenues (53 percent over FY21-24E).
It stated that Alkyl Amines and NOCIL are well-placed to cater to sudden demand after their capex spree over FY19–21; Vinati Organics and Navin Fluorine are likely to commission ongoing projects by the end of FY22-23, while Deepak Nitrite is yet to announce new capex plans for its DPL business.