Specialty chemicals' capex in India to spurt 50% in FY22: CRISIL

The rating agency conducted a study of 106 speciality chemicals manufacturers it rates that account for a fourth of the sector’s annual revenue of ₹3 lakh crore.

Operating profitability of the sector is healthy at 18-20 per cent on better operating leverage. That, along with strong balance sheet supported by healthy cash flows and equity raised in the recent past, will keep the credit outlook of companies rated by CRISIL stable despite the ramp-up in capex.

The spurt in capex comes on top of substantial spending already incurred to add capacity in recent years, given the strong export demand for specialty chemicals, which has boosted revenue, the rating agency said in a note.

“Revenue growth is likely to improve sharply to 19-20 per cent on-year this fiscal, compared with 9-10 per cent in the pandemic-marred last fiscal, driven by recovery in domestic demand, higher realisations owing to rising crude oil prices and better exports,” said CRISIL Ratings director Gautam Shahi.

“With western nations becoming more environment-focussed, production is increasingly getting outsourced to India, which has also emerged as an efficient and cost-effective alternative to China. This has helped Indian players log a compound annual growth rate of 11 per cent in revenue between fiscals 2014-15 and 2020-21, increasing India’s share of the global speciality chemicals market to 4 per cent from nearly 3 per cent,” he added.

Export growth in the sector is expected to accelerate to 17-18 per cent, from 12-13 per cent last fiscal, owing to competitive positioning of players, recovery in global demand, and a ‘China-plus-one’ strategy of customers. This will also be supported by weakened competitiveness of China due to implementation of stringent environmental norms, rising labour cost and geopolitical issues (US-China trade war).

Domestic growth of the sector will surge to nearly 20 per cent, riding on strong demand from agrochemicals, fast-moving consumer goods (FMCG), pharmaceutical and textile sectors, as well as a rise in discretionary spend. This compares with 5-6 per cent growth last fiscal, when sluggish growth in income levels impacted discretionary end-user segments such as colourants, polymers, textiles and FMCG.

Fibre2Fashion News Desk (DS)