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The chemical sector in India is primed for swift expansion, with speciality chemical companies in India projected to be the most lucrative segment. Speciality chemicals serve as crucial components or primary materials in the various phases of pharmaceutical manufacturing, cosmetics, and textiles.
As per KPMG, this segment accounts for 22% of India’s total chemicals and petrochemicals market, boasting a market value of $32 bn. Additionally. the speciality chemicals market has been growing exponentially, and the industry in India is likely to grow at a CAGR of more than 12% from 2020 to 2025.
Interestingly, China is known as one of the leading suppliers of speciality chemicals to other countries across the globe. However, as the country grapples with economic downturns and the US-China trade war continues, India has become a prominent player in this space.
India’s fiscal year begins on April 1 and ends on March 31. With record high capex and healthy financials from FY19 to FY22, Indian speciality chemical companies are going strong. According to analysts, stock prices of speciality chemical companies are above global valuations.
The rise of the Indian speciality chemicals market has been driven by the nation’s robust process engineering capabilities, large skilled manpower base, and low-cost manufacturing capabilities. To add to this, government initiatives such as the production-linked incentive (PLI) schemes and the petroleum, chemicals, and petrochemicals investment region (PCPIR) policy have encouraged several manufacturers to foray into the sector.
“In the future, strong demand uptick from domestic and international markets will continue to aid revenue growth for Indian speciality chemical players. This growth will result in strong earnings in the medium term and sustain high valuations,” says EY.
Meanwhile, several analysts believe that the speciality chemical industry in India is going through a correction phase currently, which could be a good buying opportunity. A research report by SMIFS says, “Despite global headwinds, India still remains on a strong footing in chemicals led by increasing interest of global companies to source from India to de-risk their supply chain, increasing share of speciality chemicals in overall product mix and robust capex aligned by chemical companies to capture future growth.”
How to invest in Indian speciality chemical companies?
For investors interested in Indian speciality chemical companies, here is a list of three stocks that are worth having a look at.
Pidilite Industries Limited
Pidilite Industries Limited is an Indian speciality chemical company founded in 1959 and has operations in over 50 countries. The company specialises in consumer and speciality chemicals. With its strong brand recognition, Pidilite serves industries in the construction, manufacturing, and automotive sectors.
For the fiscal year ended March 2023, the company’s operating income climbed 4.2% over the year to Rs 17.1 bn ($205.99 mn). Additionally, Pidilite saw year-on-year revenue growth of 19.4%, totalling Rs 118 bn ($1.42 bn).
With a market capitalisation of Rs 1.235 tn ($18 bn), the company is listed on the Bombay Stock Exchange (BOM: 500331). Its shares surged 19.5% over the past one year. Pidilite boasts a PE ratio of 87.99 and a price-to-book ratio of 17.22.
UPL Limited
UPL Limited is an Indian multinational speciality chemicals company with operations in over 80 countries. The company’s product line-up includes agrochemicals, industrial chemicals, and speciality chemicals.
The company saw a 12% year-on-year increase in its operating profit, reaching Rs 87.4 bn ($1.05 bn) in the fiscal year ended March 2023. During this same period, UPL’s revenue witnessed a 16.5% year-on-year increase, amounting to Rs 535.8 bn ($6.44 bn).
UPL, with a market capitalisation of Rs 453.55 bn ($5.45 bn), has its shares traded on the Bombay Stock Exchange (BOM: 512070). Over the past year, the company’s stock has experienced a 12.4% decline. Along with that, UPL shares have a price-to-earnings ratio of 59.33 and a price-to-book ratio of 6.41.
Aarti Industries Limited
Launched in 1965, Aarti Industries has operations in over 20 countries. Besides speciality chemicals, the company’s product line-up includes basic chemicals and agrochemicals.
For the fiscal year ended March 2023, the company saw a year-on-year surge of 19.4% in its revenue earnings, reaching Rs 72.8 bn ($0.87 bn). During that same period, its operating profit came in at Rs 7.8 bn ($93.59 mn).
Aarti’s shares are traded on the Bombay Stock Exchange (BOM: 524208). The company currently holds a market capitalisation of Rs 176.63 bn ($2.12 bn). In the last 12 months, Aarti’s stock has experienced a decline of 36.93%. Additionally, its shares are characterised by a PE ratio of 36.77 and a price-to-book ratio of 3.58.
Editor’s note: All stock movement figures as of October 5, 2023.
