The Chemical Story of India

Kotak Insights | Date 06/12/2023

Picture a world where every aspect of your day, from the screen you're reading this on to the food you eat, is a result of a grand chemical symphony. Think of the chemical sector as the unseen architect, blending elements to create the products we use daily.

Over the years, this sector has gone from mixing basic elements to innovate complex compounds for various use cases.

So, let's explore the chemical sector’s journey and what the future might hold for it.

Starting Small to Growing Up and Diversifying

Back in the day, the chemical sector was like a chemistry lab—small and experimental.

Companies like Reliance and Tata Chemicals were the pioneers, transforming from simple industries into big players in the chemical game.

As time went on, the chemical sector grew up. Companies got smarter, focusing on specific types of chemicals.

Aarti Industries and SRF Ltd, for example, started making special chemicals that are like the VIPs of the chemical world—valuable and in demand globally.

Simplifying Chemical Locha

Fast forward to today, the sector includes diverse segments catering to various needs.

To understand chemicals, look at it like a relay race where different players pass the baton, each adding value to the final product. This chain begins with the production of basic chemicals, the raw materials of the industry.

These basic chemicals then move to the manufacturing of intermediate chemicals, which are more complex compounds.

Specialty chemicals, the stars of the show, come next, offering unique properties for specific applications.

Finally, end-use products, such as pharmaceuticals, plastics, and agrochemicals, complete the chain.

Today's Scene: Riding the Global Wave

Now, India is like the cool kid in school everyone wants to be friends with. Companies like Deepak Nitrite, PI Industries among others are making chemicals that the world needs. It's like being the go-to person in class for notes.

Especially, specialty chemicals are like the superheroes, creating unique solutions for specific needs. Over the past decade, the specialty chemicals market has witnessed robust growth fueled by increasing demand from sectors like pharmaceuticals, agriculture, and electronics.

Looking Ahead: Challenges and Triumphs

The future looks exciting! Imagine the chemical sector as a chef trying out new recipes. Companies like UPL Ltd are working on chemicals that help crops grow better, and that's like ensuring we have good, healthy food on our plates.

The sector is also becoming more eco-friendly. The rise of specialty chemicals brought triumphs in niche markets. Besides, companies with huge capex plans and within specific segments like PCBL, Galaxy Surfactants, SRF, could do well compared to commodity bulk chemical companies.

As the chemical sector grew, so did the challenges it faced. Regulatory complexities became hurdles, and the need for continuous innovation added layers of complexity.

Enter the dragon—China. The global chemical chessboard witnessed China emerging as a formidable player. Indian companies had to strategize, finding their moves in this intricate game. Some focused on specialized chemicals, carving a niche away from the dragon's fiery breath.

Meanwhile, the pandemic, like an unexpected gust of wind, disrupted global supply chains. The sector had to adapt as the macroeconomic breeze continues to blow even today.

Speaking of overall sector, India’s chemical trade ticked up slightly in October 2023 sequentially, suggesting a demand bottom may be near, but the timing of a recovery is unclear amid economic softness and oversupply.

In a Nutshell

The Indian chemicals sector has attained the status of being the 6th-largest chemical producer, with a market size of $178 billion in 2021. The sector is poised to reach a value of $290-310 billion by 2027. It is forecasted that the industry had a rapid capex program in the last 5 years by expanding its capacity by more than 3 times. Along with this, innovations, and a focus on niche markets, this segment is poised to play an even more pivotal role.

Overall, the chemical sector's story is a bit like a journey from a small lab to a global kitchen.

Keep an eye on the sector. As the chemical story continues, who knows, there might be more exciting chapters to come.

It's like investing in a story that's still being written—one chemical reaction at a time.

Until next time…

Stay Tuned!

Sources: Kotak Securities, McKinsey & Company, Livemint, Kotak Institutional Equities

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investors should conduct their own research and consult with financial professionals before making any investment decisions. Read the full disclaimer here.