Specialty Chemicals - Growth Set To Continue Despite Margin Blip: CareEdge

CareEdge Research Report

The Indian specialty chemicals sector has experienced significant growth, expanding by more than 17% in the last two fiscal years, ending FY22. According to us, this growth is expected to continue, with sales projected to increase by more than 19% until FY25. This growth is primarily driven by strong domestic demand and increased demand for exports, which has been bolstered by major global economies adopting the China plus one policy.

The operating profitability margins of this sector saw significant improvements in FY21 and FY22, largely due to supply chain disruptions caused by the spread of Covid-pandemic. However, these margins have moderated in nine months-FY23. We predict that there may be some pressure on operating profitability in the near future due to the recessionary conditions in major global economies. Despite this, the operating profitability margins are expected to remain healthy, hovering around 18%.

All sub-segments of the specialty chemicals sector have undertaken significant capex in the past three fiscal years, ended FY22, and a similar size of capex is currently underway and expected to be completed by the end of FY24. The next phase of growth is expected to occur post-completion and stabilisation of this capex.

Despite the large size of capex, the capital structure of the majority of sub-segments in the specialty chemicals sector remains comfortable. This is due to healthy internal accruals, which are expected to enable them to pursue substantial capex in the future.

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