Indian Speciality Chemicals: Characteristics

Indian Speciality Chemicals: Characteristics



1. The Export Presence of Indomitable India:


Indian Speciality Chemicals – India has low-cost manufacturing capabilities and a workforce with strong engineering skills. It also has a lot of human resource. These characteristics have made India a top manufacturing destination for players around the world.



2. An increase in the potential growth of the domestic market


India is still behind major developed countries in terms of chemical consumption per capita. The growth of disposable income and urbanization have led to an increase in end-user segments like paint, textiles, and adhesives. This has also been a major contributor to the top-line growth in speciality chemicals in India.


Indian Speciality Chemicals


3. Low cost availability of skilled labour


India is able to compete because it has skilled labour at a lower price. This results in lower operating costs and other costs than other countries.



4. R&D is less important:


India’s major players spend less than 3% on R&D, compared to their global counterparts who spend 6-10%. Domestic speciality chemicals are highly generic as only a few companies develop innovative and unique products.



5. The government’s policy push


To prevent the dumping of substandard and cheap chemicals in India, the government has taken measures such as mandating BIS-like certifications for imported chemicals.

The government also allowed 100% Foreign Direct Investment (FDI) under the Automatic Route in the Chemical Sectors, except for hazardous chemicals. India’s draft National Chemical Policy has been proposed by the government. It aims to increase the Chemical sector’s share to 6% of GDP in 10 years.


Indian Speciality Chemicals


6. Strong barriers to entry are a key driver of growth


Speciality chemicals sector growth is aided by a differentiated business model and strong barriers to entry. Right from the beginning hefty processes like vendor acquisition, customer loyalty, long and tedious process of product registration/approval, play their cards constructing a barrier for many small players to enter this segment.



China’s Problem


China has enacted stricter laws regarding the protection of the environment since January 2015. Since January 2015, China has made it mandatory to build effluent treatment facilities and imposed a green tax to ensure that pollution does not exceed a certain limit. The chemical companies needed Capex to increase their production and build these plants. This impacted their bottom line.

China had made it mandatory for small and mid-sized chemical companies to move their base to special chemical parks, far from the habitat, by 2020. These factors have slowed down China’s growth in the chemical industry.

International players are increasingly looking to India for their next manufacturing destination of Speciality Chemicals, due to the US-China trade dispute and COVID 19.



Are anti-China sentiments responsible for the rapid growth of speciality chemicals in India?


Yes, many of India’s major chemical companies have invested in R&D over the past few years. Over the past decade, R&D spending as a percentage increased by three-fold.

This growth was also helped by the Chinese Bluesky policy. If one factory is not in compliance, the entire park would be shut down. This caused disruption in supply chains, which allowed Indian players to establish themselves.

This sector has experienced a significant inflow of investment and a fair amount of M&A since the government allowed 100% FDI. Both Indian stakeholders and the government are considering adopting sustainable manufacturing methods for chemicals.


Indian Speciality Chemicals


Which sub-segment has the greatest investor coverage?


This segment is worth investing in if you are looking for companies trying to be global leaders in their sub-molecule. Navin fluorine, for example, is a leader in fluorine chemistry and has become a major player in the fluorine market.

Also, search for companies that are driven by end-user growth. Recent end-user growth has been impressive in sectors like flavours and fragrances, agrochemicals, and flavours and fragrances. Good monsoon coverage is the main reason for the growth in agrochemicals. It is also well protected from pandemics like COVID19.

Whereas due to surge in demand for packaged foods and fragrances(sanitizers and soaps) have led to the growth of foods and fragrances. Avoid dyes and pigments because they can cause cyclical upturns and downturns in their EBITDA margins. Recently, there has been an increase in demand for API manufacturers of agrochemicals.



Unorganized Market


The sector’s major problem is the large number of unorganized players that cater to the smaller, less organized customers of their sub-segments. In flavours and fragrances, for example, the market is dominated by tobacco and incense sticks, while surfactants cater to unbranded soaps manufacturers and detergent makers.

In some sub-segments, such as base ingredients, the unorganized market actually has a larger market share than the organized. Inversely, the size of the industry’s unorganized market is proportional to the amount of R&D required and innovation needed.



Trade Flow


India is a net importer overall of chemicals, but this is not true for all sub-segments.

India can produce its own Petrochemicals. India has RIL for the majority of petrochemicals building blocks, such as ethylene, propylene and benzene. Public sectors like IOCL or ONGC have large refining capacity.

Most of these petrochemicals, however, are directed at bulk chemicals. This speciality means that sub-segments must rely on imports to obtain their feedstock.

India is a net importer and exporter of bulk chemicals and petrochemical intermediates. As we go down, India becomes a net exporter of a large range of specialty chemicals around the world.


Indian Speciality Chemicals




The Indian specialty chemicals market is characterized by low manufacturing costs and skilled labour, as well as a track record of producing high quality products.

This segment is limited by a lack of feedstock supply and a majority of players operating at a smaller scale than their Chinese counterparts. This is a major reason India continues to import chemicals.

Despite these factors, the Indian specialty segment is expected to rebound to a strong performance in the coming year. With China losing its market share within the Chemical sector, and the US-China trade war, Indian companies have a great opportunity to scale up.