In the recent past, Indian chemical companies have realised the importance of research and development (R&D), have consistently invested in R&D, and have reaped benefits in terms of innovative, more efficient, and value-added products.

The average R&D expenditure as a % of revenue for the 21 leading Indian chemical companies considered by us (excluding the recently-listed companies, which are Tatva Chintan, Laxmi Organic, Chemcon, Aether Industries, Neogen Chemicals, Fine Organics, Clean Science, Ami Organics and Anupam Rasayan) has remained ~0.6% p.a. from FY15-22. The aggregate R&D expenditure incurred by these companies (excluding the recently-listed companies) has grown by a 13% CAGR over FY12-22, ahead of their revenue CAGR of 9% over the same period. INR 5.9bn was spent in FY22 by these companies on R&D as compared to INR 1.8bn in FY12.

Navin Fluorine spent ~2.4% of its revenue on R&D activities in FY22. The company expanded its research capacities in Dewas by adding an analytical validation laboratory facility along with the increase in its team of scientists. Capex of INR 0.7bn is approved for further augmenting R&D and establishing a pilot facility at Surat. Aarti Industries spent ~1.7% of its revenue on R&D in FY22. The company is focusing on improving its product mix toward higher value-added segments, which shall increase its presence in the key regulated markets and improve the growth curve. The key contributors to these will be R&D and innovation driven initiatives, where the company has more than 40 products for speciality chemicals and more than 50 products for pharma segments in its pipeline.

The average R&D expenditure as a % of revenue for the 21 leading Indian chemical companies considered by us (excluding the recently-listed companies, which are Tatva Chintan, Laxmi Organic, Chemcon, Aether Industries, Neogen Chemicals, Fine Organics, Clean Science, Ami Organics and Anupam Rasayan) has remained ~0.6% p.a. from FY15-22. The aggregate R&D expenditure incurred by these companies (excluding the recently-listed companies) has grown by a 13% CAGR over FY12-22, ahead of their revenue CAGR of 9% over the same period. INR 5.9bn was spent in FY22 by these companies on R&D as compared to INR 1.8bn in FY12.

Navin Fluorine spent ~2.4% of its revenue on R&D activities in FY22. The company expanded its research capacities in Dewas by adding an analytical validation laboratory facility along with the increase in its team of scientists. Capex of INR 0.7bn is approved for further augmenting R&D and establishing a pilot facility at Surat. Aarti Industries spent ~1.7% of its revenue on R&D in FY22. The company is focusing on improving its product mix toward higher value-added segments, which shall increase its presence in the key regulated markets and improve the growth curve. The key contributors to these will be R&D and innovation driven initiatives, where the company has more than 40 products for speciality chemicals and more than 50 products for pharma segments in its pipeline.

We have also calculated average R&D expenditure as a % of revenue for the recently- listed companies, which has remained ~1.4% p.a. in the last three years. Companies are augmenting their research capabilities in order to be ahead of the curve and create their own niche in the industry. Aether Industries spent ~6.7% of its revenue on R&D in FY22. The company’s technical prowess and advanced R&D capabilities have led to significant innovation, which creates significant barriers for new entrants. Ami Organics spent ~1.4% of its revenue on R&D in FY22. The company focuses on consistent research-driven innovation and keeps a pipeline of products ready that are expected to be launched in 10-15 years. This gives the company a first mover advantage and secures its place in the drug master files (DMFs) of its customers. Clean Science’s backbone is its R&D infrastructure, which has led to its success. The company is one of the few companies in India that manufactures its own catalysts for its manufacturing processes and also targets clean and green chemistries.

Indian chemical companies are also expanding their R&D teams to ensure that they have the right talent to lead the company towards innovative products, chemistries and technologies. India has a big advantage compared to the other countries as it has a skilled talent pool that is available at a lower cost than in other countries.

India's share in the aggregate R&D spending incurred over the globe by chemical companies has grown from 2.8% in CY10 to 3.8% in CY20. What is worthy of attention is that only India's, China's and South Korea's shares have grown during this period. Indian chemical companies are trying to match their R&D capabilities with their global peers’, which will help them move up in their value chain.

The global chemical industry is also taking note of the value leadership demonstrated by the Indian chemical manufacturers by focusing on R&D, process engineering, developing capabilities of handling complex chemistries, etc. These enablers have changed the perception of the Indian chemicals manufacturers, which has led to higher business enquires and demand from global players.