These Indian Firms Are Expanding Like Never Before With Some Help From China
Granules of fertiliser samples sit on display at a fertiliser plant. Photographer: Andrey Rudakov/Bloomberg

These Indian Firms Are Expanding Like Never Before With Some Help From China

Indian specialty chemical makers are expanding on the back of rising domestic demand, China’s crackdown on polluting units and the government’s thrust on Make in India initiative.

The companies that make chemicals used in the manufacture of items like dyes, pigments, and agro- and construction chemicals registered strong earnings growth over the past five years, according to Bloomberg data.

And rising demand for these companies has led to a corresponding increase in their utilisation levels. Fine Organic Industries Ltd., India’s largest manufacturer of oleochemical based additives, for instance, said its utilisation rose to nearly 95 percent in the quarter ended December.

The companies also said in their recent earnings calls that they anticipate strong growth in the next few years and are investing to ramp up their capacities. Aarti Industries Ltd., India’s largest producer of nitro-chlorobenzene, said it would increase capacity by nearly 44 percent to 108,000 tonnes per annum in two stages by 2020-21.

Even mid-sized and smaller specialty chemical makers are following suit.

Here’s Why Chemical Makers Are Expanding

Shift To India

With China tightening its pollution control norms, many chemical producers and other manufacturers had to shut their units in the world’s second-largest economy.

The supply disruption and increasing cost of compliance for Chinese players led to global industries diversifying their vendor base, including in India, according to Anuj Sethi, senior director of Crisil Ratings.

“Over the past two fiscals, China, which has a near 20 percent share of global specialty chemicals revenue, tightened environmental norms resulting in closure or shifting of capacities in 50 chemicals manufacturing clusters,” Sethi told BloombergQuint. “And more closures are expected in the Jiangsu province (of China) over the next two fiscals.”

High Domestic Demand

Indian specialty chemical makers not only benefit from greater export opportunities but also robust domestic demand and substituting imports for key intermediates. JM Financial said in a report that it expects the demand for specialty chemicals to grow at an annualised rate of 10-15 percent during FY18-FY25. The demand, it said, would be led by agrochemicals, pharmaceuticals and home care products.

“The implementation of stricter environmental laws in China could also provide Indian manufacturers the opportunity of import substitution,” the brokerage said.

Indian companies have tasted success in import substitution in the past few years. Deepak Nitrite Ltd. informed the exchanges last year that India was able to meet most of its phenol requirements. That, the company said, came after it commissioned its Rs 1,400-crore phenol-acetone plant at Dahej in Gujarat in November 2018.

“Earlier, the availability of phenol in India was only around 22 percent of total demand. With our plant commissioning, supply has gone up by 80 percent,” Deepak Mehta, the company’s chairman and managing director, was quoted as saying in the filing. “Most importantly, annual import substitution of phenol will now bring foreign exchange savings of $400 million to the nation.”

Push From Government

The government’s measures to support local chemical production under initiatives such as Make in India and the imposition of anti-dumping duty on chemicals from countries like China and South Korea, according to Gautam Shahi, director of Crisil Ratings, aided the financials of domestic firms.

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