HDFC Securities: Indian Speciality Chemical Sector - Evolution To Revolution
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HDFC Securities Report
Our positive stance on our speciality chemicals universe is premised on -
1. domestic availability of raw materials,
2. accelerated capital expenditure (capex) to build product development capabilities and backward integration resulting in Ebitda and profit after tax compound annual growth rate of 19/23% over FY21-23E,
3. investment in research and development, which would allow these companies to step up their position in the speciality chemicals manufacturing value chain to become 'proprietary chemical producers', and
4. import substitution along with export opportunity.
Being a B2B business industry, the growth of the industry tends to mimic the growth of its end-user industry.
We believe that companies supplying speciality chemicals to pharmaceutical and agrochemical industries are in a sweet spot due to steady growth and stringent regulations that create entry barriers for competitors.
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