Exports offer hope for specialty chemicals units: CRISIL SME Tracker

India’s chemical exports logged a compound annual growth rate (CAGR) of about 13 per cent between 2015 and 2019, compared with about 7 per cent for China
Specialty chemicals manufacturers have been left bleeding, as demand from most end-user industries has dried up in the wake of the Covid-19 pandemic.

Small and medium enterprises (SMEs), which make up as much as 30-35 per cent of the industry, have been hit particularly hard.

Many SMEs have reduced capacity utilisation as downstream demand fell, and are expected to see realisation decline amid lower crude oil prices. Additionally, SMEs are having difficulties in accessing working capital, and may face a liquidity crunch. While the world is slowly opening up, there has been no major recovery in demand from key end-user industries such as automobiles, electronics and textiles. We expect demand from the food-packaging and health care segments to sustain, though.

In this milieu, exports offer a ray of hope. India’s chemical exports logged a compound annual growth rate (CAGR) of about 13 per cent between 2015 and 2019, compared with about 7 per cent for China. The key sub-segments likely to benefit from higher exports would be colourants and agrochemicals, with export shares of 45-50 per cent and 50-55 per cent, respectively.
Furthermore, significant capacity addition in other sub-segments, such as polymer additives, would help reduce the country’s import dependence.

Other key demand opportunities for India’s specialty chemicals players, including SMEs, could arise from the deteriorating relations between the United States and China, and closure of manufacturing units in China on environmental concerns.

Besides, global players are trying to diversify their supply chains and reduce their dependence on China. India, with its competitive labour cost, can emerge as a viable alternative.



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