What Indian Specialty Chemical Makers Must Do To Boost Global Share

India’s specialty chemical companies are gaining favour with global multinational corporations because of the geopolitical shift after the new coronavirus outbreak as the world looks to reduce its dependence on China.

This will not happen overnight, said Vinati Saraf Mutreja, managing director of Vinati Organics Ltd. “It will take four-five years,” she told BloombergQuint in an interview. “But there’s a shift from China to India.”

Mutreja isn’t the only one identifying this trend. Brokerages and research companies such as Emkay Global, JM Financial and IIFL have highlighted growing foreign interest in Indian companies.

But Indian companies still have a long way because of China’s superior position in the global chemical market. India’s neighbour accounts for around 35% of the world’s chemical chemical markets and 17-18% of the world’s exportable specialty chemicals material. In comparison, domestic industry has a mere 5-6% share, Deepak Palekar, independent business adviser to chemical and financial companies, told BloombergQuint.

If the sector’s exports are worth Rs 70,000 crore globally, India only stands at Rs 1,500-1,600 crore, he said. While this means the country has large scope of improvement, it also has to face short-term and longer-term challenges to reach its potential, he said.

The Covid-19 pandemic has led to shortage of manpower as migrant workers across the country are returning to villages in a mass exodus. Citing the example of his own clients, Palekar said companies that manufactures 10 products can now only manage five to six at best and it’s worse for smaller firms. “Some of them think it could take about three to six months, maybe by end of second quarter of this financial year, they should come back to normalcy.”

Companies focusing on chemicals meant for pharmaceuticals and food products needn’t worry, Palekar said. Vinati Organics has witnessed a 30 percent uptick in the IBB chemical sales meant for ibuprofen, Mutreja said.

Palekar has one concern though: that of safety. “Because of the shortage of manpower and rush to get back to production, we have had at least five major accidents in last two months... Companies really need to start operations in a safer way.”

Palekar and Mutreja expect the industry to move past these challenges in a few months. And to compete with China, India’s specialty chemicals industry needs efforts from both the public and private sector, Mutreja said.

With most Indian drugmakers and agro-chemical companies importing their chemicals from China, import substitution is the first step, she said. For bulk export to the rest of the world, government’s support in terms of infrastructure and incentives is necessary for companies to achieve economies of scale, she said.

Without this help, the industry’s growth will be limited to downstream niche chemicals, she said. Companies, too, need to focus on improving efficiency, bringing in new technology and expanding portfolio.

“The macros are in place,” she said. “Now it’s up to the micros and how you implement those in your factories and production costs.”

Watch the discussion with Vinati Mutreja and Deepak Palekar: