Over the last three years, we witnessed enormous volatility in the crude prices from negative US$40/barrel to US$139/barrel in March 2022. This was on the back of a recovery in demand environment across the globe post Covid-19 along with disruption in crude supply due to Russia-Ukraine war in February 2022.

It led most crude intermediate prices to reach vigorously higher, in turn, affecting cost dynamics of most chemical downstream manufactures. Additionally, rise in logistic cost along with higher power remained a key whammy on the chemical companies’ performance. Despite all the above headwinds, our chemical universe coverage companies reported strong growth last quarter (revenues growing 31.6% YoY to Rs 13305 crore, while EBITDA and PAT jumped by 51.2% YoY & 77% YoY to Rs 2767 crore and Rs 1746 crore respectively).

Going ahead, since the strategy of most of our coverage universe companies changed to embrace additional inventories to contain the impact of RM volatility during recent unprecedented times, we expect most of our coverage universe companies to sustain gross margins.

ICICI Direct expects the Indian chemical industry to perform in line with the growth of Chinese chemical industry during the era of 2008-18. This is on the back of China plus one strategy across US & Europe leading domestic players to garner incremental market share. Apart from this, greater focus towards backward integration, rise in the R&D spending, higher capex into petrochemicals & improvement in the logistic activity to assist domestic specialty chemical companies to hold meaningful market share in the value added portfolio over the long run.

Since China constitutes ~20% of the global speciality chemical industry ($800 billion), even ~5% shift in market share from China to India can translate into an $8-billion opportunity for the Indian speciality chemical companies. Indian speciality chemical industry holds around 3-4% market share currently.