Article of the month
Specialty chemicals: Growth amid global uncertainty
Key messages
Stable domestic demand to drive revenue growth of 7-8% this fiscal amid global uncertainties
- Domestic revenue (64% of total revenue) to grow at a faster pace of 9-10%, supported by demand from diversified end-user segments
- Growth in exports (36% of revenue) to remain muted at 4-5% amid global trade uncertainties
- Overall growth will continue to volume driven as realizations remain muted
Operating profitability to improve slightly this fiscal; impact of US tariffs and steep crude price increase remains monitorable
- Operating margin seen improving upto 50 basis points (bps) upto 16.5%, supported by operating leverage gains despite slight increase seen in crude prices
- Anti-dumping duties on select products - PVC resin paste, epichlorohydrin, water treatment chemicals, insoluble sulphur - to support profitability
- With chemical exports to the US at 12-14%, the potential tariffs could erode profitability by up to 150 bps assuming full absorption
- Profitability impact could be higher for players with sizeable exports to the US
Capital expenditure (capex) to increase by 10% after remaining muted in the past two fiscals
- Investments of ~Rs.16,000 crore expected this fiscal
- Focus will be on applications in emerging technologies, downstream product value chains, and debottlenecking activities
- Capex intensity in the benzene and fluorine segments to remain sizeable owing to higher value addition and niche applications
Credit outlook ‘Stable’
- Sectoral headwinds and uncertainties in the global trade environment may pose challenges for large export-oriented players; domestic-focused players to fare better
- Healthy balance sheets and limited reliance on external debt to help sustain credit profiles
Monitorable
- Extent of dumping by China amid global trade uncertainties and regulatory support for domestic manufacturers
- Any sharp, adverse movement in prices of crude or other raw materials
- Macroeconomic developments in key export destinations, including currency fluctuations and tariffs`
Analytica