Exports offer hope for specialty chemicals units: CRISIL SME Tracker

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Specialty chemical manufacturers have bled as demand from most industries for end-users has dried up in the wake of the Covid-19 pandemic.

Small and medium-sized enterprises (SMEs), which represent up to 30 to 35 percent of the industry, have been particularly affected.

Many SMEs have reduced capacity utilization due to declining downstream demand and are expected to see their realization decline due to falling crude oil prices. In addition, SMEs have difficulty accessing working capital and may face a cash shortage. As the world is slowly opening up, there has not been a major upturn in demand from major end users such as automobiles, electronics and textiles. However, we expect demand from the food packaging and healthcare segments to continue.

In this environment, exports offer a glimmer of hope. India’s chemicals exports registered a compound annual growth rate (CAGR) of around 13% between 2015 and 2019, compared to around 7% for China. The main sub-segments likely to benefit from increased exports would be dyes and agrochemicals, with export shares of 45-50 percent and 50-55 percent, respectively.

READ ALSO : First economic contraction in 4 decades: India’s GDP shrinks 23.9% in Q1 FY21

In addition, a significant addition of capacity in other sub-segments, such as polymer additives, would help reduce the country’s dependence on imports.

Other key demand opportunities for Indian specialty chemicals players, including SMEs, could arise from the deterioration of the US-China relationship and the closure of manufacturing units in China for environmental reasons.

In addition, global players are trying to diversify their supply chains and reduce their dependence on China. India, with its competitive labor cost, may emerge as a viable alternative.

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