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Credit rating agency Crisil in its latest report has said that the Indian specialty chemicals sector will see revenue growth of 6-7% in fiscal 2024, with higher domestic demand (60% of total revenue) driving up volume growth even as macroeconomic headwinds in the US and Europe subdue exports. Besides, realisations are expected to remain flattish this fiscal, which will have a moderating effect on the overall revenue growth. It noted that last fiscal, revenue growth had plunged to 11% from 41% in fiscal 2022 owing to steep correction in realisations in the second half triggered by dumping from China, where consumption fell sharply owing to strict zero-Covid policy. 

According to the report, growth trends would be different across sub-segments, with the agrochemicals and fluorochemicals sub-segments (over 35% of total revenues) likely to see double digit growth in fiscal 2024. Agrochemicals help improve nutrient in crops besides control pests, and has been growing at a steady pace, while 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 (together contributing over 40% of total revenues) shall see relatively lower growth as their demand is linked to discretionary spending. With realisations having bottomed out, higher sales volume and moderated crude-linked raw material prices will support operating margin, which is expected to stabilise at 14.0-14.5% this fiscal, almost similar to last fiscal.

The report further said operating margin had fallen 300-350 basis points last fiscal following dumping by China. Some companies, especially in the polymer segment, suffered material inventory losses. Capital expenditure (capex) is expected to remain high as manufacturers focus on augmenting capacity and expanding downstream to value-added products to seize opportunities emanating from Europe, where high labour cost makes local operations less competitive. This will be in addition to the continuing China+1 strategy adopted by global majors as part of their diversification strategy. Steady cash generation and healthy balance sheets will ensure debt metrics remain adequate, despite higher debt for capex and incremental working capital lending stability to credit profiles.