Specialty chemical companies line up highest ever capex in FY19

India’s specialty chemical companies are set to invest the highest ever on capacity expansions in the financial year 2019 and continue capital expenditure to cater to rising demand from domestic and overseas markets, following plant shutdowns in China, the world’s largest producer and exporter.

Data compiled by SBICAP Securities showed specialty companies such as Aarti Industries, Fine Organic Industries, Himandri Specialty Chemicals and Bodal Chemicals have lined up Rs 9,200 crore for FY20 compared to Rs 1,400 crore for the previous financial year. These companies have proposed capital expenditure of Rs 5,000 crore and Rs 6,500 crore for FY20 and FY21 respectively.

Specialty chemical companies in India have witnessed a sharp increase in demand of their products over the last few years. Thus, profit margins of India’s chemical companies are likely to remain robust in the next couple of years due to improved demand.

Most importantly, these companies have diversified their product portfolios to meet demands from customers.

Aarti Industries, for example, diversified its business model and strong execution capabilities. Expansion in toluene derivatives and new long term contracts are expected to drive the next leg of growth for the company.

With a structural shift from synthetic products to naturally derived products, Fine Organic Industries is expected to more than double its production capacity to 131,000 tonnes per annum by 2021 to meet demand. 

Himandri Specialty Chemicals is well placed to capitalise on the robust recovery in demand from the aluminium industry for its flagship product coal tar pitch. It is now diversifying into higher value-added products such as specialty carbon black with an installed capacity of 20,000 tonnes per annum by FY21.

Similarly, Bodal Chemicals is eyeing synergic expansion into related products such as dyestuff and thionyl chloride.

“Strict pollution norms have disrupted and slowed down chemical production in China. Companies are either being shifted to dedicated areas or restrictions are being placed on production. Either of these has the potential to increase costs of manufacturing for Chinese firms. Companies that previously sourced from China are now looking for alternate supply sources like India,” said Dipesh Mehta, an analyst with SBICAP Securities Ltd.

“China’s pain is India’s gain. The decline in supply from China offers immense opportunity for Indian players to ramp up their supply to the world market and explore new markets for sustained exports,” said Punit Makharia, chairman and managing director, Shree Pushkar Chemical and Fertilisers Ltd, one of India’s largest players in specialty chemicals.

Meanwhile, cheap labour cost and extensive government support are also set to help the specialty chemical sector in India. To support the industry, the Centre has allowed 100 per cent foreign direct investment (FDI) in the sector.

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