Specialty Chemical Makers Expect Double-Digit Growth This Fiscal

The managements of SRF Ltd., Aarti Industries Ltd., Vinati Organics Ltd., Navin Fluorine Ltd. and PI Industries Ltd., in their post-earnings commentary and interaction with BloombergQuint, remained optimistic about growth in a year disrupted by the Covid-19 pandemic on hopes of revival in global demand and cheaper crude.

While Aarti Industries expects pharmaceuticals business to boost growth in the ongoing fiscal, PI Industries hopes agrochemicals to be the key driver. SRF, in its conference call, said the chemicals business may lead growth. Navin Fluorine, however, expects to witness growth across verticals.

Vinati Saraf Mutreja, managing director at Vinati Organics, told BloombergQuint that a rise in demand for isobutylbenzene, a key raw material for painkiller ibuprofen, is expected to aid growth. The company, Mutreja said, has acquired new customers for the compound. BASF, a German chemical company and one of Vinati’s largest clients, has resumed operations. That’s expected to boost demand.

The virus struck India’s economy when it was already growing at its slowest pace in over a decade. The lockdown, effective March 25, stalled businesses, barring essential services, and hurt consumption. That pushed the economy to what may be its first full-year contraction in more than four decades. Specialty chemical makers, too, faced disruptions but they are expected to rebound faster than others as they continued to operate at reduced capacity and supplied to essential sectors such as pharmaceuticals, personal health and hygiene and agrochemicals.

Most specialty chemical makers managed to resume operations by last week of April after receiving government’s approval. That led to a rise in utilisation levels. Aarti Industries’ capacity utilisation nearly doubled from 40-50% in April to 80% now.

Specialty chemical companies have the potential to scale up production once economic activity resumes, according to Emkay Global. The shutdown will definitely hurt first-quarter numbers but the companies can manage to complete the annual orders in the remaining period of the year, provided the Covid-19 issue normalises in second half of the fiscal, the research house said in a note.

Besides, a fall in crude price earlier in the year lowered the raw material costs for most companies. Vinati Organics, however, may face some challenges as some of its products are directly linked to crude price. Higher contribution of -added products aided margin of the companies.

India’s specialty chemical companies are also finding favour among global multinational corporations as they look to reduce dependence on China, the nation where the coronavirus pandemic began.

“The structure of China’s chemical industry is changing due to stricter environment norms, trade conflicts with U.S., etc. While these shifts spell uncertainty, they could create opportunities for Indian chemical companies in certain chains and segments, especially in the short term,” McKinsey & Company said in a report.

According to Edelweiss, these companies earn 50-60% of their revenue from international business. A weak rupee, which slumped to an all-time low of 76.90 against the U.S. dollar, acts as a tailwind for exports, it said.