Specialty chemical companies line up highest capex for FY19 DILIP KUMAR JHA
The country’s specialty chemical companies are set to invest their highest amount for capacity expansion in the financial year 2019. They also plan to sustain their capex plan thereafter to capitalise on the rising demand from the domestic and overseas markets. This is following plant shutdowns in China, the world’s largest producer and exporter of such chemicals.
Data compiled by SBICAP Securities showed that specialty companies led by Aarti Industries, Fine Organic Industries, Himadri Specialty Chemicals and Bodal Chemicals have lined up ~9,200 crore for the financial year 2018-19 compared to ~1,400 crore in the previous year.
These companies have proposed capital expenditure of ~5,000 crore and ~6,500 crore for the financial year 2019-20 and 2020-21, respectively.
Specialty chemical companies in India have witnessed a sharp increase in demand of products in the last few years. Thus, profit margins of India’s specialty chemical companies are likely to remain robust in the next couple of years due to improved realisations on strong domestic and overseas demand following plant shutdowns in China.
“Indian chemical companies are expected to increase their capital outlay on capacity expansion to capitalise on the growth opportunities amid the China slowdown. With increasing focus on environmental pollution norms and stricter enforcement in China, the global chemical industry is experiencing a disruption. Competitive manufacturing costs, improvement in skilled manpower availability, stringent intellectual property protection laws and favourable government policies are expected to drive India’s growth over the medium term with rising investment in the chemicals sector,” said Dipesh Mehta, an analyst with SBICAP Securities Ltd.
Most importantly, these companies have diversified their product portfolio to meet the demand of their customers.
Aarti Industries, for example, diversified business model and strong execution capabilities to capitalise on the new opportunities. Expansion in toluene derivatives
and new long-term contracts are expected to drive the next leg of growth for the company.
With structural shift from synthetic products to naturallyderived ones, Fine Organic Industries is more than doubling production capacity from 64,300 tonnes per annum to 131,000 tonnes per annum by 2021 to meet their customer demand.
Himandri Specialty Chemicals is well placed to capitalise on the robust recovery in demand from the aluminium industry for its flagship product coal tar pitch.
It is now diversifying into higher value-added products such as specialty carbon black with an installed capacity of 20,000 tonnes per annum by FY21.
Similarly, Bodal Chemicals is moving into synergic expansion and related products such as dyestuff and thionyl chloride.
“Strict pollution norms have slowed down chemical production in China. Companies are either being shifted to dedicated areas or restrictions are being placed on production. These have the potential to increase costs of manufacturing for Chinese firms. Companies that previously sourced from China are now looking for alternative supply sources like India,” said Mehta.