In India, the chemical industry plays a crucial role in the economy by supplying essential raw materials and finished products to various sectors, including pharmaceuticals, agriculture, automotive, textiles, and construction. This dynamic industry, with significant growth potential, is constantly evolving.
India produces a wide range of chemicals, contributing 7% to the nation’s GDP. The industry encompasses over 80,000 commercial products, including bulk chemicals, specialty chemicals, petrochemicals, agrochemicals, fertilizers, and polymers. Notably, India is a leading supplier of dyes, accounting for approximately 16% of global production.
Valued at $220 billion in 2022, the Indian chemical industry is projected to grow to $300 billion by 2025 and reach $1 trillion by 2040.
India’s chemical exports to North America dropped significantly, from 21% between 2019 and 2021 to just 2% from 2021 to 2023, according to McKinsey.
Stalling global demand and overcapacity in key export markets have caused Indian chemical exports to decline by 4% annually over the past two years. McKinsey’s study indicates that India’s chemical exports fell from $36 billion in 2021 to $33 billion in 2023.
Additionally, increased competition from Chinese suppliers, leading to price cuts, may have further contributed to the decrease. Europe and APAC, which together account for nearly 50% of India’s export market, also experienced a consumption slump from 2021 to 2023 compared to the previous two years. In Europe, consumption growth slowed from 11% annually to just 1%, while in APAC, it dropped from 10% to 4%.
In response, India plans to offer incentives of up to ₹18,000 crore ($2.2 billion) to boost local manufacturing in six new sectors, including chemicals, shipping containers, and inputs for vaccines, according to reports.
Maulik Patel, chairman and managing director of Epigral, notes signs of recovery in the domestic market and foresees a return to normal global demand by the latter half of FY25. He anticipates that the increased capacity in the domestic chemical industry will start showing results by then, with domestic demand playing a key role in the industry’s recovery. Patel expects an improvement in FY25 following a challenging FY24, with FY26 potentially yielding even better results.
Harin Kanani, Managing Director of Neogen Chemicals, suggests that while the specialty pharma business has largely rebounded, a resurgence in agrochemicals demand may not occur until the second half of April-March 2024-25.
Rajendra V Gogri, CMD of Aarti Industries, an Indian manufacturer of speciality chemicals with a global presence, anticipates that demand for agrochemicals will stabilize by the latter half of the upcoming fiscal year (FY25). Concurrently, there has been an observed uptick in demand on the discretionary side.
Aarti Industries has outlined a capital expenditure plan totaling approximately ₹2,500-3,000 crore over a span of two years, including an allocation of ₹1,200-1,300 crore for FY24 to address projected future demand.
In a CNBC TV18 interview, Harin Kanani, Managing Director of Neogen Chemicals, expressed expectations for agrochemical demand to escalate in the latter part of April-March 2024-25.
Further, Neogen Chemicals, focusing on its non-battery business, anticipates revenues of ₹750-800 crore for the current financial year and aims for around ₹1,000 crore by FY26. Additionally, it targets consolidated revenues of approximately ₹850 crore for FY25.
Despite challenges in the global chemical market, analysts anticipate that Indian chemical companies will witness a recovery in margins starting from the second half of FY24. This resurgence is attributed to strong interest from global companies in sourcing from India, a growing market share of specialty chemicals, and substantial capital expenditures by Indian chemical firms.
The First half of 2025 is anticipated to witness a resurgence in demand within the Indian chemical industry. This resurgence is underpinned by expectations of a brighter global economic scenario and a rise in local consumption.
Notably, Foreign brokerages UBS and Morgan Stanley have revised their outlook, shedding light on the overlooked strengths and growth opportunities of various chemical companies. These brokerages have given a buy target, indicating a strengthening trend of recovery in the latter half of FY25.
Despite the persistent impact of the pandemic, there are indications of a gradual rebound in volume, instilling a sense of optimism among investors, as noted by the brokerage.
Furthermore, global brokerages have initiated a ‘buy’ recommendation for PI Industries and Navin Fluorine, recognizing their potential for future expansion. In the case of PI Industries, a target price of Rs 4,800 and Deepak Nitrite a double upgrade from Morgan Stanley, with a target price set at Rs 2,985 per share.
Written by Omkar Chitnis
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