How Will The Next Opportunity Unfold in Speciality Chemical Products

Speciality chemical products is one of the few industries to resist the slowdown of coronavirus disease in 2019, and most companies in this field are now ready to grow in fy21. In the next 10 years, the changing geopolitical situation will continue to promote economic growth.

Lenin once said a famous saying: “there are decades of nothing happened, there are also a few weeks, decades happened.” A similar situation seems to be unfolding in India’s speciality chemicals industry. After a “dull decade,” hyperactive weeks began to emerge and changed the face of the industry forever.

In The Past Few Decades

Professional chemical products in India is actually one of the oldest industries. It has become a diversified industry from a supplier of natural extracts (from perfume dye indigo and flavor extracts) to cater to the global market and command ~ 5% of the market share in the $600 billion global special chemical market.

India’s auto industry has grown by 10% in the past 10 years, but it is dwarfed by China’s influence. China accounts for 35% and 25% of the global market share in automobile production and consumption respectively.

India is currently the sixth largest producer of chemicals in the world, and has been one of the world’s leading producers in the fields of dyes and pigments, polymers and agricultural chemicals.

Although Indian companies have been leading in many areas and have become part of the supply chain for most global customers, for investors, their focus is on China and its rapid growth in chemicals and specialty chemicals, which makes them part of the global supply chain.

A Few Weeks Ago

In the past five years, the basic business has been gradually transformed due to the further tightening of environmental regulations in China and the uneasiness of purchasing managers about their high dependence on a single source. In recent months, with China’s increasing provocation against important economies such as the United States, Japan, Australia and India, the escalating trade tensions between the United States and China have become a battle slogan for users to turn their eyes to other countries.

The US sanctions on some companies and the expected impact of the end-user industry persuade enterprises to reduce their dependence on China and turn to the “China + 1” procurement strategy.

India, with its huge domestic consumer market, well-trained workforce and a government focused on improving the business environment, should be a significant beneficiary of this shift.

Over the past few years, India’s specialty chemicals industry has been a priority for most investors, both local and global, which is also reflected in the substantial revaluation of the industry’s ratings and improved liquidity

The scale of India’s specialty chemical products industry is expected to double from US $30 billion to US $60 billion in the next five years. Our analysis shows that the industry will need more than US $10 billion to meet the requirements of incremental capital expenditure and working capital through the combination of foreign debt and equity. As enterprises seek to integrate backward, and greatly surpass what they have done in the past, the demand for capital may be higher.

From recent IPOs and acquisitions, we can see investors’ strong interest in the industry. Although we believe that capital allocation reflects a fundamental shift, this trend is expected to continue for some time. Increasing the availability of capital and the flexibility to raise funds to complete collaborative acquisitions will be key determinants of the rankings over the next five years.

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