Export Demand Mitigates Covid-19 Impact On Specialty Chemicals, Says ICRA
The rating agency said demand outlook in the near term for segments like agro-chemicals and surfactants is positive.
Even as domestic demand has remained subdued, improved export demand and positive outlook for segments like agro-chemicals and surfactants have reduced the Covid-19 impact on specialty chemicals, according to a report by ratings agency ICRA.
The Indian specialty chemical sector, which had witnessed healthy revenue growth in the past few years aided by growth in domestic demand as well as increasing exports, was adversely impacted in the first quarter of 2020-21 due to the coronavirus-induced lockdowns and disruptions, ICRA Ratings said.
ICRA expects the impact on the sector to be mitigated during the rest of the financial year, due to growing demand from the export segment and positive demand outlook in the near term for segments like agro-chemicals and surfactants. However, segments catering to construction and auto sectors will witness some demand pressure and have more gradual recovery, it added.
"With the impact on the specialty chemical industry mitigated by above-mentioned factors, the credit outlook for the sector remains stable, further aided by the robust balance sheets of the companies in this segment with moderate gearing and healthy coverage indicators," Sai Krishna, assistant vice-president and associate head (corporate ratings) at ICRA, said.
He added that additionally, companies with high product and geographic diversification are better placed to withstand any pressure on demand from specific end-user segments.
ICRA also stated that the 'China+1' strategy, being adopted by global players to diversify their supply chain due to the growing trade conflicts with China in recent years, could translate to multi-year growth potential for domestic companies.
Further, the disruption in global supply chains caused by the Covid-19 pandemic is also forcing multinational companies to diversify and reduce dependence on China.
K Ravichandran, senior vice-president and group head (corporate ratings) at ICRA, said the domestic specialty chemical sector has an established track record in exports.
He added, "With...availability of skilled manpower, growing cost competitiveness and expected favourable (government) initiatives... the domestic specialty chemical sector is well placed to benefit from the supply chain diversification strategy of global MNCs and can witness multi-year growth in the medium-to-long term," said.
However, in order to leverage its potential, some policy support from the government to reduce dependence on imported intermediates and towards better environmental policy and compliance will be needed, he added.