India chems distribution business to be worth €7.5bn by 2016-17

18 June 2013 14:07  [Source: ICIS news]

HAMBURG, Germany (ICIS)--The chemical distribution business in India is expected to be worth €7.5bn ($10bn) by 2016-17, more than twice what it was in 2011 when it stood at €3.7bn, David Brown, director at business intelligence, analysis and consultancy services company Chemagility, said on Tuesday.

However, the market is not an easy one for European distributors to enter and to date only a handful have made moves into the fast-growing country, he added.

Addressing delegates at the annual conference of the European Association of Chemical Distributors (Fecc), in Hamburg, Brown noted that the market is highly fragmented in terms of distribution, with much business still being done on an agency basis.

Also, he explained, India cannot be regarded as a single market as there are large differences between the 28 states and seven union territories.

“The Indian chemicals market is worth around €70bn and grew at 15-16%/year between 2005 and 2010. We expect growth rates to be 10-12%/year until 2017”, he said, based on increasing demand for chemicals from infrastructure investment, the growing population and increasing urbanisation and middle class wealth.

Chemical distribution should see growth rates around 14-15%, he added, with 80-85% of the market served by local distributors. Estimates suggest there are around 1,000 Indian distribution players of any significant size.

The challenges for Western companies wanting to take a slice of this business, he said, include the Indian local and government taxation structure, lack of developed logistics infrastructure, and product import duties, amongst others.

Entry through acquisition is difficult, he added, and extensive due diligence is required. The number of suitable targets is small and valuations are high. “But there are some good local-based companies that have developed a reasonable degree of professionalism.”

With entry costs low, Brown does not foresee consolidation in the market for some years, not perhaps until 2020.

“Now might be a good time to invest in India,” he said, “but it is a long term commitment and one that requires patience.” The most promising sectors are pharma, food and drink and personal care, he added.

The Fecc annual conference in Hamburg takes place from 17-19 June.

By: John Baker
+44 20 8652 3214

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