The Indian specialty chemical sector, which had witnessed healthy revenue growth in the last few years aided by growth in domestic demand as well as increasing exports; was adversely impacted in Q1 FY2021 due to Covid-19 pandemic induced lockdowns and disruptions thereof.
However, ICRA expects the impact on the sector to be mitigated during rest of the fiscal year, due to growing demand from the export segment and positive demand outlook in the near term for segments like agro-chemicals and surfactants, although segments catering to construction and auto sector will witness some demand pressure and have more gradual recovery.
According to Sai Krishna, AVP and Associate Head- Corporate Ratings, ICRA, "With the impact on specialty chemical industry mitigated by above mentioned factors, the credit outlook for the sector remains stable, further aided by the robust balance sheets of the companies in this segment with moderate gearing and healthy coverage indicators. Additionally, companies with high product and geographic diversification are better placed to withstand any pressure on demand from specific end user segments."
ICRA also takes note of the "China+1" strategy being adopted by global players, to diversify their supply chain. This trend has been driven by growing trade conflicts with China in recent years and other geo-political disputes. Further, the disruption in global supply chains caused by Covid-19 pandemic is also forcing MNCs to diversify and reduce dependence on China. The trend coupled with policy initiatives by GOI under the 'Atmanirbhar' push, should aid the domestic speciality chemical sector.
Commenting on the trends, K Ravichandran, Senior Vice President and Group Head- Corporate Ratings, ICRA, added, "With an established track record in exports in several specialty chemical segments; availability of skilled manpower; growing cost competitiveness and expected favourable initiatives under GOI's 'Atmanirbhar' push; the domestic specialty chemical sector is well placed to benefit from the supply chain diversification strategy of global MNCs and can witness multi-year growth in the medium to long term. However, in order to leverage its potential, some policy support from Gov't to reduce dependence on imported intermediates and better environmental policy and compliance will be needed."
