Specialty chemicals shares rally up to 9%; BASF, Bhansali hit 52-wk highs | News on Markets

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Shares of specialty chemical companies were in demand on Thursday as they rallied up to 9 per cent on the BSE in the intraday trade, in an otherwise subdued market, on expectations of margin improvement.

BASF India, Bhansali Engineering Polymers, Rossari Biotech, Chemcon Speciality Chemicals, Clean Science and Technology, Alkyl Amines Chemicals, Balaji Amines and Gujarat Fluorochemicals rallied between 4 per cent and 9 per cent in the intraday trade. 

In fact, BASF India and Bhansali Engineering Polymers hit their respective 52-week highs today. By comparison, the BSE Sensex was up 0.02 per cent at 77,349 at 10:52 AM.

The Indian chemicals industry holds a prominent position globally, ranking 6th in the production and 14th in the exports segment. Serving as a vital supplier of foundational materials, it caters to various sectors such as agrochemicals, pharmaceuticals, textiles, paper, paints, and soaps. Specialty chemicals constitute 22 per cent of the share in these segments. Further, India’s specialty chemicals and petrochemicals market is valued at around $60 billion, states Balaji Amines’ Annual Report.

In recent years, the speciality chemical sector has experienced significant growth. The industry is projected to grow at a 12 per cent CAGR between 2020 and 2025, reaching $64 billion by 2025.

Balaji Amines, in its FY24 annual report, said the agrochemical, dyes, and pigments segments account for 51 per cent of the Indian speciality chemicals market. While margins have dipped from around 22 per cent to 17 per cent during FY2021-24, they are expected to improve from FY26 onwards.

Globally, China contributes the most to the global speciality chemicals industry. But, businesses are looking to widen their sourcing base beyond China. This strategic diversification will benefit India over the coming years.

The emergence of the Indian speciality chemicals market has been driven by the country’s strong process engineering capabilities, low-cost manufacturing capabilities, and abundant workforce. Further, the government initiatives such as the Production-Linked Incentive (PLI) scheme have strengthened the confidence of manufacturers to invest within the country.

The agriculture sector is under the government’s spotlight as land for agriculture is progressively diminishing, and the population is steadily increasing. This reality has prompted the Indian Government to launch schemes and undertake initiatives to boost agricultural production. The growing demand for high-quality crops is expected to further drive the demand for Amines in agrochemicals.

The rising disposable incomes, the median age of the population, growing awareness, increasing urbanisation and rising demand from rural markets are driving the demand for personal care products.

“Despite the end of destocking, pricing pressure continues in the specialty chemical sector due to sluggish Chinese domestic consumption, with the China+1 strategy being a potential short-term solution. Management of various companies remain confident about long term prospects, with capex on track and a gradual recovery expected in H2FY25. However, pricing pressure is likely to persist through CY24,” according to Motilal Oswal Financial Services (MOFSL).

Although raw material prices and operating expenses declined Y-o-Y, it was not enough to arrest the decline in Ebitda amid severe pricing pressure, the brokerage firm said in a sector update.

“While destocking is over for most of the companies, pricing pressure persists in the sector as Chinese domestic consumption is not picking up as expected, with suppliers continuously looking for a market within the region, outside China. That said, the China+1 strategy could be one of the only saving graces in the near term for these chemical companies,” MOFSL said.

Managements of various companies sounded confident about their long-term approach starting in FY25, with already announced capex on track to be completed within the guided timelines. For the first time in almost a year, some company managements have clearly stated that H1FY25 is likely to be subdued, especially for companies with high exposure to agrochemicals, with a gradual recovery expected in H2FY25, it added.

First Published: Jun 20 2024 | 11:36 AM IST

Source: Latest News