2/ Speciality Chemicals – The Future of India
By: Deepen Shah
Tags: Stockmarket, Market, Chemical, Analysis, Finance

The future belongs to a time when chemical companies will be in a position to provide potential solutions to a majority of problems arising in the FMCG/Pharma domain. Literally and figuratively, chemicals will be "the solution". Arun Mukherjee once said, “future multi-baggers are going to come from those companies who solve climate change or those who launch precision-based medicine to cure cancer”. If we look at this statement from a retail investor’s point of view, there is surely some insight that needs to be gathered before scanning for potential companies.

This article highlights the prospects of the speciality chemical industry. If you are an investor or planning to invest, this one is for you.

Where does the future belong?

Pharma and Speciality chemical industry are few industries that have gained a lot of traction over the past few months indicating huge growth potential over the years to come. Pharma-rightly so has got the majority of the attention and its justified. But what is so exciting about the speciality chemical industry? Well, it wouldn’t be wrong to say that to some extent pharma and chemical industry complement each other. Let us understand how...

What are Speciality chemicals?

Speciality chemicals are high value and low volume chemicals as compared to generic chemicals which are high on volume and low in value

Generic chemicals, as a product have one primary function for which they are consumed. Speciality chemicals, on the other hand, are highly customized products targeted towards meeting client-to-client or case-to-case requirements

Speciality chemical is a knowledge-based product and is developed on this solution-driven ideology, thereby creating value and enhancing customer experience. Barring the legal aspect, one can compare speciality chemicals to a performance-enhancing drug used in sports

It is this functional utility which it creates, helps the players in this industry to have an edge over generic chemicals

Globally, players in this industry are often compared with pharma companies as both have striking similarities with each other. Both industries are guarded with heavy entry barriers, extremely customized product lines and both of them due to the nature of their products, spend heavily on R&D costs

Speciality Chemicals - Global statistics

Global Speciality chemicals market size (US$ billion)

Region wise market share of Speciality chemicals

India will become a major beneficiary of better environmental compliance framework, stronger IP protection, an abundance of skilled manpower, and a younger workforce. These will result in an increase in demand for Indian made chemicals for global composition

Further with a lower share of India in global markets, the extent of opportunities and the potential it possesses magnifies

Growth drivers for the Speciality chemical industry

Speciality chemicals are used as inputs / raw material in a manufacturing process in order to produce the end product. As a result, the majority of the FMCGs, Paint and Additive cos. and textile giants in the Indian market are customers to these chemical players

Marginal growth in each of these customer segments will add up and result in a compounded growth driver for the speciality chemical industry. Thus growth in the speciality chemical industry is driven by end-user industries

Speciality Polymers (Plastic)

With a spurt in online deliveries during 2020, the packaging industry has seen a rise in the consumption of plastic polymers used in this process. Thus, the intensity of demand plays a huge factor in the growth of this segment.

Home care Surfactants

Surfactants are chemical agents which are used in sanitary and hygiene products. On account of COVID, sanitisation has now become a mandate amongst households and workplaces and thus the demand for hygiene based products and surface cleaners is expected to reach a new high in 2020.

Personal care & Cosmetics

With more disposable income left with people, growth in this segment is primarily driven by increased consumption. A lot of personal care players have emerged who cater to a niche market. Self-care has never been hyped as it is today and as a result, consumer focus has shifted towards personal grooming and hygiene.

The Indian perspective

Domestic industry is expected to grow at a compounded growth rate of 12-13% leading to an absolute growth of US$ 20-25 bn

Profit margins are expected to remain strong due to lower production cost coupled with higher global demand

The Indian speciality chemical industry is still a very niche market. Public sentiment and chatter have still not reached its door. With an industry like this one, teeming with opportunities and growth it can be reasonable to say that our next multi-bagger might be here in the making.

This was a brief attempt to provide meaningful information and an overview of the industry statistics.