Domestic demand to push speciality chemicals sector’s revenue higher in FY24: Report

India’s speciality chemicals sector is expected to witness about 6-7% revenue growth in FY24 as higher domestic demand will push volume growth despite macroeconomic headwinds in the US and Europe, according to CRISIL Ratings. However, realisations are expected to remain flat this fiscal, which will have a moderating effect on the overall revenue growth.

In contrast, revenue growth had plunged to about 11% last fiscal, from 41% in fiscal 2022, due to steep correction in realisations in the second half triggered by dumping from China, where consumption fell sharply owing to strict restrictions related to the pandemic.

An analysis of 121 specialty chemical companies rated by CRISIL Ratings, accounting for nearly a third of the ~Rs 4 lakh crore industry, indicates as much.

“We expect exports — accounting for ~40% of industry revenue — to rise just 2-3% as the main markets such as the US and Europe are battling economic slowdown,” said Anuj Sethi, Senior Director, CRISIL Ratings.


CRISIL Rating stated that growth trends differ across sub-segments in the speciality chemicals sector, with the agrochemicals and fluorochemicals sub-segments likely to see double digit growth in fiscal 2024. Both these sub-segments account for over ~35% of total revenues. The rating agency noted that agrochemicals, which help improve nutrients in crops and control pests, have been growing steadily. Meanwhile, fluorochemicals cater to niche emerging verticals such cold storage, semi-conductors, EV batteries, and hydrogen fuel cells.

On the other hand, sub-segments such as dyes & pigments, personal care & surfactants, and flavours & fragrances, which contribute over 40% of total revenues, may see relatively lower growth as their demand is linked to discretionary spending.

Sector's financial health

The rating agency expects operating margin to stabilise at 14-14.5%, helped by higher sales volume and moderated crude-linked raw material prices which would offset lower realisations.

The agency also estimates capital expenditure to this fiscal rise owing to manufacturers’ focus on augmenting capacity and expanding downstream to value-added products to seize opportunities from Europe, where high labour costs make local operations less competitive. This is in addition to the ongoing China+1 strategy adopted by global majors as part of their diversification strategy.

Moreover, steady cash slow and healthy balance sheets will ensure debt metrics remain adequate, despite higher debt for capital expenditure and incremental working capital lending stability to credit profiles.

“Even with capital expenditure spends remaining elevated at ~Rs 22,000 crore over fiscal 2023 and 2024 and ~ 50% higher compared to pre-pandemic levels, debt metrics such as gearing should remain healthy at below 0.5 times,” said Poonam Upadhyay, Director, CRISIL Ratings.

Finally, demand from key end-user segments, fluctuation in crude-related raw material prices, and macroeconomic developments are key monitorables, according to the rating agency.