Ernst & Young has just released a report on the Indian speciality chemicals sector which accounts for around 24% of the US$40bn Indian chemicals industry.
The report presents a favourable outlook for the sector with growth expected to be around 15%/year as compared to a global growth of around 7%.
India’s attractiveness as an outsourcing hub will be the principal gorwth driver. Ernst & Young expects merger and acquisition activity to increase as India’s edge in speciality chemicals becomes more visible.
Indian speciality chemical exports are projected to grow at 22%/year from US$4bn in 2007 to US$13bn in 2013.
Indian companies, it says, are well placed to expand as profitability has improved in the last few years due to product innovation, operational efficiencies and volume growth. The EBITDA for Indian speciality chemical companies has grown by 16%/year during 2002-06 to reach US$47.7m in 2006. Net profit has gorwn by26%/year during the same period to US$25.5m. Net profit margin has increased by 270 basis points to 7%. Return on capital employed has expanded from 22.7% in 2002 to 29.4% in 2006.
But the major concerns are poor infrastructure, shortage of power and high power costs and the cost of complying with Reach.
Ernst & Young recommends that companies should ramp up R&D expenditure to offer high value added and differentiated products and practice systematic cost management and innovation programs to remain globally competitive