The Indian chemical industry, known for consistently delivering higher shareholder returns compared to its global counterparts and related domestic sectors, is currently facing margin pressures. These pressures stem from global economic shifts and internal challenges, even though the sector boasted a remarkable compound annual growth rate (CAGR) of 20% in total shareholder returns (TSR) from 2014 to 2023. However, recent years have underscored the industry's vulnerabilities.

Historical Performance and Current Pressures

From 2014 to 2023, the Indian chemical industry distinguished itself with a 20% CAGR in TSR, far outpacing the global average of 8.5% CAGR. This success was driven by strong demand, operational efficiencies, and favorable manufacturing conditions. Yet, the past three years have seen a slowdown in TSR growth to 9% CAGR, mirroring broader global industry trends and reflecting specific local challenges.

Source: McKinsey & Company

Factors Impacting Margins

Recent margin pressures can be attributed to several key factors:

• Global Overcapacity: The European and American chemical markets are dealing with overcapacity, expected to reduce utilization rates below     70% by 2030, leading to lower prices and demand.
• Stalled APAC Demand: The Asia-Pacific region, especially China, has experienced a slowdown, resulting in a 7% year-on-year decrease in     European exports to China.
• Commodity Price Fluctuations: The period between 2021 and 2023 saw significant increases in feedstock prices coupled with a decline in global utilization rates by 3 to 5 percentage points, further squeezing margins.

Q3 Review of Key Players in the Chemical Industry

Gujarat Fluorochemicals(GFL)

• Financial Performance: GFL witnessed a significant downturn in financial metrics, with revenues, EBITDA, and PAT falling by 30%, 61%, and 76%, respectively, due to weak industry demand and margin pressures.
• Growth Plans: GFL is shifting focus towards the electric vehicle (EV) battery chemicals market through its subsidiary, GFCL EV, planning a capital expenditure of INR 60 billion over the next 4-5 years, targeting the lucrative EV battery segment.

Galaxy Surfactants

• Volume Growth: Galaxy reported consistent double-digit volume growth in India, with expectations of recovery in AMET by FY25 and forecasted overall volume growth of about 11% for FY25.
• Segment Performance: The company experienced an 8.4% YoY volume growth in 3QFY24, with EBITDA per kilogram expected to rise from Rs 19.2 in FY24 to Rs 22.5 in FY26E.

PI Industries

• Financial Performance: Despite a 6% YoY decline in domestic revenue, PI Industries achieved an overall growth of 18%, supported by a     healthy 13% YoY growth in exports and a 27% YoY increase in PAT.
• Product Performance: The company's major product, Pyroxasulfone, is expected to see volume growth, highlighting confidence in strong export     performance.

SRF

• Financial Performance: SRF's results showed significant declines, with EBIT margins dropping sharply in both its chemicals and packaging segments.
• Guidance: Despite current challenges, management remains optimistic about the specialty chemicals segment, expecting sequential growth and improved profitability through ongoing investments and the commissioning of new projects.

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