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The downturn in China's specialty chemicals market will bring opportunities to India

2019-08-13 03:08:51 admin Read 542

This is due to the recent downturn in China's specialty chemicals market, which provides potential development opportunities for India, another emerging economy in Asia. According to data from the consulting firm Ambit Capital, from 2013 to 2018, the global agrochemical market is expected to grow by 5.2%, and total sales are expected to rise from $619 billion in 2014 to $761 billion in 2018. Although India's market is small, accounting for only 1% to 2% of the world, its market share is growing rapidly.


Dhiraj Sachdev, vice president of HSBC Global Investment Management, believes that “commercial trade will be transferred from China to India. The main reason for this phenomenon is that in China, companies are facing more stringent pollution emission standards and increasing wage costs. The market for specialty chemicals is only 1/8 or even 1/10 of China's, which brings a lot of opportunities to India's specialty chemicals companies, including the expansion of the company's scale and continued growth."


In various industries, specialty chemicals are used to improve the quality of products such as electronics, paints, coatings, plastics and the automotive industry. Despite the huge potential of this industry, there are still many factors that investors need to consider and be wary of.


“This is a huge game, you have to invest very carefully,” says Hansal Thacker, head of the Lalker Group. “We are currently putting chips in ABS, a basic specialty chemical that is widely used in consumer durables, toys. , electronic circuits and automotive interiors – the range of applications is endless. The current consumption patterns are about to change, and this will promote ABS consumption. The reason this industry can be a good investment choice is that it is a high-tech The industry provides a natural barrier to entry. And unlike the pharmaceutical industry, in the pharmaceutical industry, market participants from emerging markets with technical and safety qualifications are very limited."


Ritesh Gupta, co-author and analyst at Ambit Capital, said his preferred investment options include PI Industries and SRF. “Because of regulatory, cost, and capacity issues, global agrochemical investors are outsourcing their manufacturing processes to India. This will bring many opportunities to Indian companies in the next 5-10 years.” PI Industries' price-to-earnings ratio (P/E) is expected to be fixed at 20.3 times between 2017 and 2018, and SRF's price-to-earnings ratio will be fixed at 15 times.


“Because India has a chemical production base, research and development skills, and a national economy, India’s specialty chemicals companies will become more prosperous,” said Manish Bhandari, CEO of Vallum Capital. “The paradigm shift in the Chinese market, the source The urgency of reducing pollution and rising labor costs in China. We have established an ecosystem of basic chemicals, a key input factor for specialty chemicals and the pharmaceutical industry."


According to the report, the specialty chemicals industry has become one of the best performing industries, with most investors getting a 50%-100% return on investment over the past few years. This has increased the industry's expected profit from five times a year to 12-30 times a year. The report believes that due to the development model and the high capital gains offered by these companies, the expected earnings of 15-20 times a year are not very high. "Special chemicals don't sell a product, they sell a solution, which means their profits will not be affected.


The truth is that Indian investors' preferred value proposition is processing capacity, chemical purity and intellectual property protection, not just capital arbitrage, analysts say.