narendra investments delhi ltd Management discussions

FORWARD LOOKING STATEMENTS

Statements in the Management Discussion and Analysis, which describe the Companys objectives, projections, estimates and expectations, may be ‘forwardlooking statements within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could influence the Companys operations include economic developments within the country, demand and supply conditions in the industry, input prices, changes in government regulations, tax laws and other factors such as litigation.

INDUSTRY STRUCTURE

INTRODUCTION

Covering more than 80,000 commercial products, Indias chemical industry is extremely diversified and can be broadly classified into bulk chemicals, specialty chemicals, agrochemicals, petrochemicals, polymers, and fertilizers. Globally, India is the fourthlargest producer of agrochemicals after the United States, Japan, and China. India accounts for ~16% of the world production of dyestuffs and dye intermediates. Indian colorants industry has emerged as a key player with a global market share of ~15%. The countrys chemicals industry is delicensed, except for a few hazardous chemicals.

India holds a strong position in exports and imports of chemicals at a global level and ranks 14th in exports and 8th in imports at global level (excluding pharmaceuticals). Globally, India is the third largest consumer of polymers, fourthlargest producer of agrochemicals and sixthlargest producer of chemicals.

INDIAN CHEMICALS INDUSTRY MARKET SIZE

India is one of the largest producers of chemicals in the world, and the Indian chemicals and specialty chemicals industry has been growing rapidly in recent years. The industry encompasses a wide range of products, including basic chemicals, petrochemicals, fertilizers, polymers, dyes, pigments, and specialty chemicals. The specialty chemicals sector in India is also gaining momentum and is expected to grow at a faster pace than the basic chemicals sector. The Indian chemicals industry is driven by several factors such as the countrys large domestic market, cheap labor, and government incentives for the industry. India has a vast and growing middle class that is driving the demand for a variety of chemicals and products, ranging from consumer goods to infrastructure and construction materials. The industry has also received a boost from the Make in India initiative, which aims to promote domestic manufacturing and exports.

The specialty chemicals industry in India is poised for significant growth due to its focus on highvalue products such as agrochemicals, pharmaceuticals, and personal care products. The industry is also benefiting from the shift towards green chemistry, which emphasizes the use of sustainable and ecofriendly processes and materials. The Indian chemicals and specialty chemicals industry is also investing heavily in research and development to develop new products and processes. The government is also promoting innovation and collaboration between industry and academia to develop new technologies and products. This has led to the establishment of several worldclass research centers and innovation hubs in the country.

Despite the growth and potential of the Indian chemicals and specialty chemicals industry, it also faces several challenges such as high raw material costs, inadequate infrastructure, and environmental concerns. The industry is also facing increasing competition from countries like China, which has a larger chemicals industry and lower costs of production. The Indian chemicals and specialty chemicals industry is a key contributor to the countrys economic growth and is expected to continue to grow in the future. The industrys focus on highvalue products and green chemistry, coupled with government support for innovation and collaboration, is expected to drive further growth and development in the sector. However, the industry will need to address the challenges it faces to maintain its competitiveness and realize its full potential.

MARKET OVERVIEW

India has one of the largest global chemical markets and is ranked sixth in the world and fourth in Asia in terms of global sale of chemicals. India accounts for 2.5% of the worlds global chemical sales.

The industry is expected to reach US$ 304 billion by 2025 at a CAGR of 9.3%, driven by rising demand in the enduser segments for specialty chemicals and petrochemicals segment.

Specialty chemicals constitute for 22% of the total chemicals and petrochemicals market in India. India is expected to double its specialty chemicals market share in the next five years.

Specialty chemical companies are seeking at import substitutions while exploring export opportunities to accelerate their business.

The Indian dyes and pigments market is projected to reach US$ 63 billion by 2022, accounting for about 16% of the global dye production.

The petrochemical demand is expected to record a 7.5% CAGR between 2019 and 2023, with the demand for polymers growing at 8%.

India is the third largest polymer consumer in the world and is expected to consume 60 million tonnes by 2040.

Chemicals and Chemical Products gross bank credit grew at 15.6% in May 2022.

The agrochemicals market in India is expected to register 8.6% CAGR to reach US$ 7.4 billion between 2021 and 2026.

Specialty chemicals account for 20% of the global chemicals industrys US$ 4 trillion, with Indias market expected to increase at a CAGR of 12% to US$ 64 billion by 2025. This gain would be driven by a healthy demand growth (CAGR of 1020%) in the export/enduser industries.

ADVANTAGES IN INDIA

1. Growing Demand

Rise in demand from enduser industries such as food processing, personal care and home care is driving development of different segments in Indias specialty chemicals market.

The domestic chemicals sectors small and medium enterprises are expected to showcase 1823% revenue growth in FY22, owing to an improvement in domestic demand and higher realization due to high prices of chemicals.

2. Increasing investments and spending

FDI inflows in the chemicals sector (other than fertilizers) reached US$ 20.75 billion between April 2000September 2022.

An investment of 8 lakh crore (US$ 107.38 billion) is estimated in the Indian chemicals and petrochemicals sector by 2025.

3. Policy Support

The government plans to introduce productionlinked incentive (PLI) scheme to promote domestic manufacturing of agrochemicals.

Under the Union Budget 202223 the government allocated 209 crores (US$ 27.43 million) to the Department of

Chemicals and Petrochemicals.

The PLI plan for the National Program on Advanced Chemistry Cell Battery Storage has been approved by the Union Cabinet as of May 2021.

PLI schemes were introduced to promote Bulk Drug Parks, with a budget of 1,629 crores (US$ 213.81 million).

4. Opportunities

Indias specialty chemicals companies are expanding their capacities to cater to rising demand from domestic and overseas.

In July 2021, the government announced discovery of indigenous deposits of phosphatic rocks. This will help expand fertilizer production domestically and boost selfreliance in fertilizer production.

The Odisha government accepted investment applications worth ~US$ 345.3 million in the metal, cement, chemical, plastic, food processing and manufacturing sectors in April 2021. This is likely to generate 2,755 jobs.

KEY GROWTH DRVIERS

Growing demand

Higher real disposable incomes

Shift in production and consumption towards Asian and Southeast Asian countries.

Shift in consumer preference towards environmentfriendly products. Policy support

100% FDI under the automatic route in the chemical sector, except for hazardous chemicals.

MSIHC Rules to be merged with CAEPPR to safely handle hazardous chemicals. Increasing investment

Establishing PCPIRs (investment regions for petroleum, chemicals, and petrochemicals).

Domestic and overseas companies investing in greenfield or brownfield projects 74.

Increase in FDI investments. Rise in domestic demand

By 2030, India is likely to have ~80% of the households in the middleincome group.

The growing middleclass and increasing urbanization is driving the demand for personal care, agrochemicals, food, paints & coatings resulting in higher consumption of chemicals per capita.

FAVOURABLE INITIATIVES BY GOVERNMENT

The Petroleum, chemicals and petrochemicals investment region (PCPIR) was redrafted, with an aim to attract a combined investment of USD 142 billion by 2025, USD213 billion by 2030 and USD284 billion by 2035.

Productionlinked incentive (PLI) scheme

PLI scheme for chemicals is in development stages, aiming for 10 20 per cent output incentives, to boost domestic production and exports

Chemicals Promotion and Development Scheme (CPDS) CPDS was implemented to facilitate growth and development of the chemical industry, and specialty chemicals such as dye and dye intermediates

ImportExport governance It is mandatory to mention 8digit HSN or tariff code for 49 chemical based products, while issuing GST.

This is to curtail tax evasion and enable a better trade intelligence Public procurement policy

As part of the Make in India scheme, procuring entities should follow the local content criteria for a set of chemicals. The minimum local content would progressively increase till FY25

2034 Vision for Chemicals sector Government announced the settingup of a vision 2034 blueprint to explore opportunities to improve domestic production, reduce imports and attract investments in the sector.

The Indian Govemment supports the industry in research & development. reduced the basic customs duty on several products and offers support through the Make in India campaign.

100% FDI is allowed in the chemical sector under automatic route With exception to few hazardous chemicals

OPPORTUNITIES

Specialty chemicals aggressive capex to drive growth.

Specialty chemical companies in India have started accelerating their capex plan on the back of strong growth visibility and emerging opportunities.

Due to growing environmental concerns, many chemical companies in China ceased activities in 2018; this led to an increase in manufacturing of specialty chemicals in the Indian market to ensure uninterrupted supply.

Indian manufacturers have recorded a CAGR of 11% in revenue between FY15 and FY21, increasing Indias share in the global specialty chemicals market to 4% from 3%, according to the Crisil report.

A revival in domestic demand and robust exports will spur a 50% YoY increase in the capex of specialty chemicals manufacturers in FY22 to 6,0006,200 crore (US$ 815842 million).

Revenue growth is likely to be 1920% YoY in FY22, up from 910% in FY21, driven by recovery in domestic demand and higher realizations owing to rising crude oil prices and better exports.

Key growth drivers in the enduser industry for specialty chemicals include the following:

Paints & coatings: Increase in urbanization, increase in middleincome households, high replacement demand and increase in per capita income.

Textile: Increase in Indian export, increase in urbanization and higher disposal income.

Construction: Low expenditure on admixtures compared with China and the US.

Home care: Increased consumption