Specialty chemicals' capex to spurt 50 pc on strong demand: Crisil
Sep 10, 2021
Mumbai (Maharashtra) [India], September 10 : A revival in domestic demand and continuing robust exports will spur 50 per cent on-year increase in the capital expenditure (capex) of specialty chemicals manufacturers this fiscal to Rs 6,000 to 6,200 crore, according to Crisil Ratings.
That will also be well above the Rs 5,000 crore spent before the pandemic in fiscal 2020, said a Crisil study of 106 speciality chemicals manufacturers it rates which account for a fourth of the sector's annual revenue of Rs 3 lakh crore.
Operating profitability is seen healthy at 18 to 20 per cent on better operating leverage. That along with strong balance sheet supported by healthy cash flows and equity raised in the recent past will keep the credit outlook of companies despite the ramp-up in capex.
The spurt in capex comes on top of substantial spend already incurred to add capacity in recent years, given the strong export demand for specialty chemicals, which has boosted revenue.
Gautam Shahi, Director at Crisil Ratings, said revenue growth is likely to improve sharply to 19 to 20 per cent on-year this fiscal compared with 9 to 10 per cent in the pandemic-marred last fiscal, driven by recovery in domestic demand, higher realisations owing to rising crude oil prices and better exports.
With western nations becoming more environment-focussed, production is increasingly getting outsourced to India which has also emerged as an efficient and cost-effective alternative to China.
"This has helped Indian players log a compound annual growth rate of 11 per cent in revenue between fiscals 2015 and 2021, increasing India's share of the global speciality chemicals market to 4 per cent from 3 per cent," said Shahi.
Export growth is expected to accelerate to 17 to 18 per cent from 12 to 13 per cent last fiscal, owing to competitive positioning of players, recovery in global demand and a 'China-plus-one' strategy of customers.
This will also be supported by weakened competitiveness of China due to implementation of stringent environmental norms, rising labour cost and geopolitical issues (US-China trade war).
Domestic growth on its part will surge to 20 per cent, riding on strong demand from agrochemicals, fast-moving consumer goods (FMCG), pharmaceutical and textile sectors as well as a rise in discretionary spend.
This compares with 5 to 6 per cent growth last fiscal when sluggish growth in income levels impacted discretionary end-user segments like colourants, polymers, textiles and FMCG.
However, said Crisil, the impact of volatile crude oil prices and ramp-up of new capacities will be key monitorables.
