The Indian specialty chemicals industry is expected to double its export share to 7-8% by 2028 from the current share of 4%. In this post-pandemic world, jargon like “Europe+1” and “China+1” have become as infamous as the words “lockdown” and “quarantine”. Surprisingly, the growth of the Indian specialty chemicals industry cannot be credited fully to either the European energy crisis or the supply volatilities emanating from China. The main catalyst for this growth is the “mindset shift” of Indian companies in today’s post-pandemic world.

Eccentric Nature

Specialty chemicals are known to be high value and low volume in nature. Plus, they add tremendous value to end products (e.g., UVA/UVB filters in sunscreen or advanced intermediate chemicals in active pharma ingredients). However, when it comes to India, the specialty chemicals industry is highly concentrated into two segments - pharmaceuticals and agrochemicals. This has worked out well for Indian companies in the past where they have grown to be not only major export suppliers to countries like the US, Japan, Germany, and Brazil but also strategic partners for global companies like BASF, Syngenta, Corteva, etc. in contract manufacturing.

While companies like Aether Industries, Jubilant Ingrevia, and Ami Organics have leveraged heavily on R&D to develop value added chemistries in India; companies like SRF, PI Industries, and Deccan Fine Chemicals, today stand tall vis-a-vis Chinese and European counterparts in the space of contract manufacturing by ensuring superior product quality, cost optimization, and supply reliability.

Another eccentric nature of the Indian specialty chemicals industry is due to the anomaly in upstream supplies of building blocks - methanol, ethylene, propylene, butadiene, benzene, and toluene. The limited availability of methanol, ethylene, and propylene for the merchant downstream segment has made India a net importer of key intermediates. An extremely basic example is specialty amine portfolio i.e., imidazole, morpholine, xylidine, piperazine, diethylenetriamine, aminoethyl ethanolamine, etc. On the other hand, due to easy availability of butadiene and benzene, companies like Vinati Organics and Aarti Industries have been able to maintain a well-balanced portfolio of both commodities as well as specialty chemicals.  

Due to higher dependency on the lifesciences (pharmaceuticals and agrochemicals) segment coupled with non-integrated value chains, the time has come for Indian specialty chemical players to adopt a new approach for the next generation of profitable growth. Fortunately, due to the “mindset-shift” Indian specialty chemicals industry is now ready for the revolution. 

Changing Scenario

From value chain integration to diversification, import substitution to export growth, and limited offerings to portfolio optimization are some of the major changes the Indian specialty chemicals industry is witnessing in current times.

Value chain diversification: Companies like Navin Fluorine and SRF have leveraged fluorination to diversify their sales outlets into multiple end industries - Agrochemicals, pharmaceuticals, fluoropolymers, refrigerants, etc. Simultaneously, these companies along with the new entrant Anupam Rasayan, have also been investing heavily into technical expertise to continuously grow their custom synthesis and contract manufacturing business.  

Rising export revenues: The Chinese supply crisis of 2021-22 was immediately followed by the Russia-Ukraine conflict causing a major energy crisis in Europe. This made the previously known stalwart European monopolistic suppliers (i.e., BASF, Clariant, Evonik, etc.) unreliable and costlier, leading to search of new supply source by customers in Southeast Asia, Latin America, Middle East, North Africa, and North America. Particularly, in non-life science segments like personal care, food & feed, and flavour & fragrance, companies like Privi Specialty, Camlin Fine Science, Galaxy Surfactants, and Clean Science and Technology have shown remarkable export revenue growth by both growing business in the existing geographies and entering new geographies.

Product portfolio optimization: One major challenge that has hindered the growth of many Indian companies is higher focus on selling commodity products. Companies like Jubilant Ingrevia, and Laxmi Organics have powerful products which can fetch them higher margins and values, but the focus has always remained on volume growth drivers in the past. Fortunately, this is now changing. Increasingly Indian specialty chemical companies are now vying to become staunch specialty chemical companies by focusing on complex molecules which have limited supplier base but multiple sales outlets. Jubilant Ingrevia’s powerful pyridine chemistries can do wonders like what fluorine has done fantastically to SRF.

Conclusion

Overall, the future looks bright for the Indian specialty chemicals industry with large investments, merger & acquisitions, and robust export revenue growth. With Indian specialty chemical companies focusing on higher R&D spent, collaboration with global companies (joint ventures/technology transfers, etc.) has catalysed the innovation wave for the Indian specialty chemicals industry. The spill-over impact of China's declining competitiveness has set the stage for India to intensify its effort to capture a larger market share. The powering trend of de-risking of input procurement from China by global demand centres offers significant export sales opportunities for the Indian specialty chemical industry.  

To summarize, let me share some more personalized views which I have collated post my visits to multiple Asian, Latin American, and Middle Eastern demand centres in the past six months. The make-in-India is happening on a real time basis for the specialty chemicals industry. The intent to buy from India is higher than it ever was among customers in South Korea, Indonesia, Japan, Turkey, Saudi Arabia, Thailand, Vietnam, Philippines, and Brazil. For big chemical companies in the aforementioned countries, there is a clear mandate by the senior management to have India as one of the Top 3 supply sources.