Specialty
chemicals, which comprise low volume, high value chemicals with specific
applications, constitute a significant part of the Indian chemical industry.
The
shift of manufacturing to the East and India’s export competitiveness is
expected to strengthen India’s position as a manufacturing hub for specialty
chemicals. A glimpse of India’s emergence as a major export hub is already seen
in segments such as agrochemicals and colorants, in which a significant part of
India’s production is exported.
A more
tangible metric to distinguish between specialty and bulk chemicals is the
EBITDA margin of the business. Specialty chemicals, by virtue of being high
value, specialised products command higher margins than most bulk products.
Specialty
chemicals can be sub-divided based on end-user industries. End-use driven
segments (agrochemicals, personal care ingredients, polymer additives, water
chemicals, textile chemicals and construction chemicals) and application-driven
segments (surfactants, flavours and fragrances and dyes and pigments) constitute
over 80% of the specialty chemicals universe.
The
nine segments that we have covered cumulatively constitute a market of USD 18.8
bn in India and are expected to grow at 12% p.a. to reach USD 33.2 bn by 2019.
The largest segments are agrochemicals and dyes and pigments; these are
expected to grow at 11–12% p.a. Water treatment and construction chemicals, are
expected to be the fastest growing segments with expected growth rate of 15%
p.a. over 2014-19.
Specialty
chemicals finding applications across consumer (eg. personal care chemicals),
industrial (eg. water chemicals) and infrastructure (eg. construction
chemicals) segments are driven by the overall growth of the Indian economy.
Agrochemical growth has a strong linkage to the growth of the rural economy.
In
certain segments (such as agrochemicals, dyes and pigments, flavours and
fragrances), a significant proportion of production in India is exported.
Key trends in the Market
Regulatory
and environmental considerations : Developed markets are tightening their
import regulations due to environmental concerns and also to protect domestic
manufacturers.
Shift
of production to Asia : Many MNCs are focusing on Asia, particularly India and
China, as their manufacturing hubs as a result of tighter environmental norms
in the west. This has been particularly evident in relatively standardized
products with low differentiation, such as textile chemicals and dyes and
pigments, wherein IP protection hasn’t been a significant threat.
Recently,
tightened pollution control norms in China have led to multiple plant shutdowns
in the country in chemicals and other manufacturing segments. As a result of
this, Indian chemical manufacturers have gained from production shift to India,
especially visible in segments such as Dyes and Pigments.
Inbound
activity :
•
Gaining market access / increase in market share : Eg. Evonik’s acquisition of
Monarch Catalysts (May, 2015)
•
Creating a manufacturing base : Cost efficiencies and shifting base from the
west due to more stringent environmental regulations
•
Sourcing and strengthening of supply base (intermediates/ ingredients) : Eg.
Mane’s acquisition of Kancor Ingredients(Nov, 2014)
•
Acquiring brands and distribution network : Eg. Nihon Nohyaku ‘s acquisition of
Hyderabad Chemicals (Nov, 2014)
•
Enhancing product portfolio : Eg. Clariant’s acquisition of Plastichemix (Apr,
2014)
Outbound
activity :
•
Technology access : Eg. Sudarshan’s acquisition of Ekcart (Dec, 2011)
•
Market access : Eg. UPL’s acquisition of DVA Agro do Brazil (Jul, 2011)
•
Enhance product portfolio : Eg. Indofil’s acquisition of Dow’s dithane business
(Mar, 2012) ; Dorf Ketal’s acquisition of Exxon’s
lubricant
additives business (Mar, 2007)
•
Strengthen global market share : Eg. Dorf Ketal in organometallic titanates :
DuPont, Johnson Matthey, etc. (Jan, 2010 and Aug,
2010
respectively); Kiri’s acquisition of Dystar (Dec, 2009)
Agrochemicals, Flavours and Fragrances (F&F) and Personal Care are the three most attractive sectors in our opinion. They are characterized by strong product differentiation / specialization and strong end industry growth. Amongst these, Agrochemicals and F&F have a large market and a number of scaled up investible assets.
Taken from a report by Avendus
