By – Prathamesh Masdekar, Research Analyst, StoxBox
The chemical sector saw agony in recent quarters across all segments, severely impacted by supply chain disruptions, pricing pressure, and changing market conditions in the broader industrial landscape. We expect 2025 to be better than the previous year and expect production levels to continue to rise as the destocking cycle worries fade and demand rises across most products. We hope various headwinds, such as volatile crude oil prices, higher logistic costs, and demand-supply dynamics for specialty chemicals, will normalize in 2025 and expect chemical companies to perform better. Many chemical players are witnessing demand recovery from various end-user industries and utilization levels of most chemical companies have increased. We expect changing industry dynamics and prudent operational management to start reflecting in their financial performance from 2025 onwards. Given the changing landscape and growing reliance on India by international customers, we anticipate a rapid 8-10% growth in the chemical sector over the coming period as conditions stabilize.
The Indian government recognizes the chemical industry as a key growth element and is forecast to increase its share of the chemical sector to ~25% of the GDP in the manufacturing sector by 2025. The government has started various initiatives such as mandating BIS-like certification for imported chemicals to prevent dumping of cheap and substandard chemicals into the country. PLI schemes have been introduced to promote Bulk Drug Parks, with a budget of Rs. 1,629 crores. The Indian chemical industry has numerous opportunities considering the supply chain disruption in China and the trade conflict between the US, Europe, and China. Anti-pollution measures in China will also create opportunities for the Indian chemical industry in specific segments.
Indian chemical firms are actively enhancing their research and development (R&D) capabilities, adopting new chemistries, and expanding their product offerings. These initiatives align with a global trend toward supply chain diversification, presenting significant growth opportunities for Indian companies that emerge as a hub for exports. With contracts secured from various global innovators, the industry is increasing capacity and improving technical skills, process innovations, and cost optimization strategies to strengthen its competitive moat. China’s recent push toward producing value-added chemical products for sectors like EV batteries, solar cells, and semiconductors could Intensify the competitive landscape, posing risks to players in the generics segment. However, Indian companies could benefit from their niche offerings and backward-integrated operations, allowing them to capture market share from China and Europe through higher volumes, process innovations, and new product introductions.
Overall, the collective sector capex of Rs. 116 billion in the FY2022-FY24 period on multiple projects is on track and expected to be operational in the upcoming years. Despite the near-term headwinds, the chemical companies have delayed but not toned down their capex plans, which signifies long-term growth visibility for the sector. Indian chemical companies have been expanding their production facilities in a well-planned manner, investing heavily in R&D and securing contracts to make supply chains safer. Indian market is poised to grow substantially as global supply chains continue to diversify away from China. This put them in a good position to benefit from the global shift towards outsourcing. With high cost in Europe and companies to reduce dependence on China, Indian firms are stepping in to fill the gap.
Stocks to likely perform better in 2025: Aarti Industries Ltd., Archean Chemical Industries Ltd., Clean Science and Technology Ltd., Navin Fluorine International Ltd., SRF, and Tata Chemicals Ltd.
