Overview of Chemicals Industry in India

• Overview of the Chemical sector in India
• Current state and performance
• Outlook

Overview and Performance

India is the sixth largest producer of chemicals in the world and contributes 3.4% to the global chemical industry. The chemicals industry is a knowledge intensive as well as capital intensive industry. It includes basic chemicals and its products, petrochemicals, fertilizers, paints, varnishes, gases, soaps, perfumes, toiletry and pharmaceuticals. The diversification within the chemical industry is large and covers more than 80,000 commercial products. The industry is the main stay of industrial and agricultural development and provides building blocks for several downstream industries, such as textiles, papers, paints, varnishes, soaps, detergents, pharmaceuticals, etc.

The production of Total Major Chemicals and Petrochemicals in 2019-20 (up to September 2019) was 13,871 thousand MT. Total Chemicals and Petrochemicals registered a CAGR of 4.78% in production during the period 2014-15 to 2018-19. The current per capita consumption of chemical products in India is one-tenths of the global average indicating that demand has potential to grow due to rising population, and increasing disposable income.

The demand for credit in India’s Chemicals sector is largely dependent on bank credit due to its capital-intensive nature of operations. As of FY20, the metals sector contributes 6.4% or USD 27 billion (INR 2,056.6 billion) of the total credit outstanding under Industrial category in India. Furthermore, Chemical sector has a Gross NPA of 6.9% of total advances during FY-20, which is the lowest among the total industrial credit in India during the same period. Good repayment track and the healthy overall total shareholder returns, along with large capacity addition plans on account of lower tax and the Government policy support bode well for the bank credit growth towards Indian chemicals industry.

The revenue growth for the chemical industry recorded a CAGR increase of ~3.8% during the past 5 years while Gross Credit from banks grew at a CAGR of 4.3%. Broader growth has been in line wherein rise in revenue has aided the companies to command higher pie of gross loans from banks for further expansion. Modest fall in revenue for the sector in FY 2016 and 2017 led to lower credit expansion though recovery in the same led to decent support in gross credit for last 3 years. Gross credit for March 2020 for the chemical industry stood at USD 26.90 billion (INR 2,029 billion) as against USD 21.81 billion (INR 1,645 billion) in FY 2016.

Drop in revenue for the sector in 2017 led to sharp drop in EBITDA margin for most companies in the listed space in India. Nevertheless, despite drop in profitability, corporates managed to see decent improvement in GNPA for the sector a whole. In the last 4 years, EBITDA margins have witnessed modest but continued amelioration with strong increase in FY 2020. This aided the performance for GNPA further which also saw extended improvement and came down to 6.9% in FY 2020.

While the gross credit for the chemical industry has increased over the past few years, though, the debt to equity ratio has shown a declining trend over the last 5 years. This is driven by consistent improvement in the profitability of companies which aided increase in net worth of companies alongside fresh issue of equity capital by many. The ratio is likely to see a rise in coming years as increasing demand for the agriculture inputs such as seeds and fertilizers, indirectly enhance the requirements for chemicals and other related products higher while extended growth and demand for pharmaceutical products also lead to higher capital expenditure in coming years in the country.

Outlook

During FY-19, the total export of chemicals and petrochemicals was USD 31.59 billion (INR 2,382.9 billion), growing at a CAGR of 12.35% over the past four years. Although India is a net importer of Chemicals, with a net import of USD 14.79 billion (INR 1,115.5 billion) during FY-19, the growing penchant for research and Government’s Make in India initiative are going to benefit the chemicals industry. The pandemic is expected to slow down the growth however the structural shift in China’s chemicals industry due to stricter environmental norms, tighter financing, and consolidation is expected to create opportunities for India’s chemical companies in certain value chains and segments, especially in the short to mid-term. The total market size of chemical industry was USD 163 billion (INR 12,295 billion) in FY 18 and is expected to reach USD 304 billion (INR 22,930 billion) by 2025 (Source- FICCI).