India will drive more than 10 percent of the world’s growth in petrochemicals over the next decade and will need to set up one cracker every year until 2035 to meet domestic demand, according to a report released by Kearney. The sector provides a direct investment opportunity of more than $30 billion, which will cascade into downstream sectors—adding about 150 basis points to GDP and generating more than 100,000 jobs over the next decade.

 

The new report, Riding India’s Petrochemicals Wave, examines the state of India’s petrochemicals sector, the domestic and global trends shaping it, and the imperatives for stakeholders to succeed. 

 

“India has emerged as one of the world’s most attractive markets for petrochemicals investments,” said Sudeep Maheshwari, a principal in Kearney’s Energy and Process Industries Practice. “We see the COVID crisis as a short-term hiccup. The long-term fundamentals remain intact, thanks to underpenetrated markets. In fact, India is likely to benefit from a low crude outlook, which will improve domestic manufacturing competitiveness. In addition, the global supply chain reorganization is likely to spur demand for specialty chemicals out of India in the coming decade, which in turn will drive demand for petrochemicals.”

 

Manan Shah, a principal in Kearney’s Energy and Process Industries Practice, said, “The sector will undergo a significant transformation over the next decade. With refiners planning several petrochemicals expansions, domestic supply and demand dynamics will change. Players will have to reexamine their portfolio bets to ensure profitable growth. We will see more partnerships and M&As between domestic and global companies as players look to diversify away from commodity products, access technology, and manage capital risks.”

 

The report outlines five imperatives for Indian and global players to ride the petrochemicals wave:

 

1. Place the right portfolio bets. Incumbents and new entrants will need to assess the market dynamics, capability requirements, business model fit, competition landscape, and potential disruptions before making long-term bets. A robust portfolio strategy needs to build in flexibility to account for product evolution, product switches for netback optimization, and synergistic offerings for high-value propositions.

 

2. Adopt differentiated go-to-market models. India’s go-to-market models have seen limited innovation, and most channel partners and other intermediaries add limited value. Developing a distinct go-to-market model will be inevitable:

1. Commodity sales need to move toward low-overhead, no-frills, digital-first models to counter margin pressure.

2. To drive differentiation and customer stickiness in direct sales of specialty products, producers need to evolve from being product marketers to solution providers.

3. Channel partners will remain a crucial part of the overall go-to-market strategy for producers. However, the channel mix will need to evolve with market changes and the evolution of the distribution landscape.

 

3. Undertake a digital-enabled profit-and-lost reset. Operational excellence and cost-competitiveness are likely to emerge as significant drivers of success for Indian petrochemicals players. A focused enterprise-wide profit-and-loss reset to become cost-competitive is essential for incumbents.

 

4. Strengthen M&A and partnership capabilities. As players prepare for partnership opportunities, there are three imperatives for success. First, lay out a clear set of growth objectives, and identify the internal and external capabilities required to achieve them. Second, build strong in-house M&A capabilities to evaluate the opportunities. Finally, adopt a proactive and systematic approach to M&A, putting value creation at the core.

 

5. Embed sustainability into ways of working. Players need to carefully select their position in the sustainability value chain, be willing to experiment, and scout for the right partnerships. In addition, they need to develop a robust sustainability advocacy strategy across a variety of communication platforms.