New Delhi: According to CRISIL Research, the chemicals industry is expected to experience revenue growth of 5-7% in 2023-24, with micro, small, and medium enterprises (MSMEs) in the specialty chemicals segment playing a crucial role. These MSMEs constitute around 28-30% of the overall sector and primarily cater to dyes and pigments, agrochemicals, and some niche chemicals. In FY24, they are expected to witness revenue growth of 2-4%, supporting the overall growth of the industry.
However, despite robust domestic demand, geopolitical tensions may hurt their profits, partially offsetting the weak exports. The specialty chemicals segment makes up around 19-21% of the overall chemicals industry in FY22 and is projected to grow by 7-9% in FY24. This growth will be driven by construction chemicals and agrochemicals, where end-users are expected to log double-digit revenue growth.
On the other hand, dyes and pigments are expected to grow in single digits in FY24 due to a major natural calamity in Turkey and a potential slowdown in major economies such as the US and Europe. Exports, which constitute 48-50% of Indian production by value, have decreased by 25-30%, with Turkey accounting for around 10% of the total exports of the dyes and pigments industry.
Revenue growth for some specialty chemicals sub-segments is likely to moderate in line with the correction in feedstock prices. Additionally, rising global inflation, interest rate hikes by central banks, and volatility in European markets have led to negative growth in the overall chemicals industry.
In FY23, raw material prices surged by 18-20%, causing a significant impact on the margins. To maintain their margins in the current fiscal year, MSMEs are turning to lean inventory and renewing new contracts on an ex-factory basis to avoid the impact of fluctuating freight costs and higher working capital needs.
The chemicals industry, like many others, has faced headwinds due to the ongoing pandemic and other geopolitical factors. However, it is noteworthy that the MSMEs in the specialty chemicals segment are expected to continue playing a significant role in supporting the overall growth of the industry. The use of lean inventory and other cost-cutting measures will help them maintain their margins in the face of these challenges.
