EXEMPLAR REPORT ON CHEMICAL INDUSTRY

Overview of Chemical Industry

Petrochemicals, man-made fibres,

 The chemical industry comprises of companies which industrial gases, fertilisers, chlor-
manufacture industrial chemicals like polymers and Base chemicals alkali, other organic & inorganic
plastics, petroleum products, industrial gases, ceramic chemicals
products, oleo chemicals, explosives, consumer products,
life-science materials, agricultural products etc. Dyes and pigments, leather
 The industry functioning involves the use of chemical Specialty chemicals, construction chemicals,
chemicals personal care ingredients& other
processes like chemical reactions and refining methods specialty chemicals
to produce materials in all three product states.
 The chemical products can be broadly categorized into
base chemicals, specialty chemicals and knowledge
chemicals (also called fine chemicals). Pharmaceuticals Active Pharmaceutical Ingredients
(APIs) & formulations
 The total production quantity of the three product types in
the descending order are base chemicals, specialty
chemicals and fine chemicals.
 It produce both organic and inorganic products by Agrochemicals Insecticides, herbicides, fungicides
following two type of flow i.e. Upstream and downstream & other crop protection chemicals
processes.
 The birth of the heavy chemical industry coincides with
the Industrial revolution.
Bio-pharma, bio-agri, bio-services &
 The chemical products are used in wide range of end- Biotechnology bio-industrial products
users thus making this industry an intricate part of the
manufacturing activity.

Global Chemical Industry Scenario

 Globally, chemical industry was valued at $ 4.5 Tn in 2016 and is expected to grow at 5.5% per annum
till 2020 driven by demand from end use industries.
 The industry is increasingly shifting eastwards in line with the shift of its key consumer industries (e.g.
automotive, electronics, etc.), to leverage higher manufacturing competitiveness of emerging Asian
economies and to serve the increasing local demand.

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 China, as result of this shift, is the largest contributor with 34% share followed by European Union
(17%) and North America (16%) to the global chemical industry.
 The global growth rate of the chemical market will be largely determined by developments in China,
which accounts for more than a third of worldwide production. There, the upward trend may continue to
slacken but producers in China are still important. The chemical industry at USA is improving but at a
growth rate less than 3%.
Indian Chemical Industry

 In terms of value and production volume, Indian chemical industry is the 3rd largest
producer in Asia & 6th by output in the world. Indian chemical industry could grow at 11 percent p.a. to
reach size of USD224 billion by 2017
 One of the most diversified sectors, covering more than 80,000 commercial products
 Total chemical production in India was 9632 MT in FY15 & reached to 9884 MT in FY16. The growth of
2.61 per cent was registered from FY15 to FY16
 Government of India allows 100 per cent FDI in the chemical sector
 10.6 per cent of total exports & 10.5 per cent of total imports in FY16
 In 2016, India chemicals industry had a market size of USD139 billion. By 2025, the Indian chemical
industry is projected to reach USD403 billion.
 The chemical industry in India is a key constituent of Indian economy, accounting for about 2.11 per
cent of the GDP
 India accounts for approximately 16 per cent of the world production of dyestuff & dye intermediates,
particularly for reactive acid & direct dyes

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 India is currently the world’s 3rd largest consumer of polymers & 3rd largest producer of agrochemicals
Value exports of inorganic chemicals from India is estimated at USD1.21 billion in FY16,with the
organic chemical market reaching USD11.51 billion in FY16. Exports of organic chemicals from India
stood at USD4.02 billion in FY16
 The top chemical companies in India are Pidilite Industries Ltd, Tata Chemicals Ltd., Asian paints,
Gujarat Fluoro Chemicals Ltd., BASF India Ltd., Aarti Industries Limited (AIL), Gujarat Alkalies &
Chemicals Ltd, Linde India Ltd., UPL, Solar Industries India Ltd., Gujarat Heavy Chemicals Ltd. etc.
 For setting up of PCPIRs, the government approved states including Odisha (Paradip), Gujarat (Dahej),
Tamil Nadu (Cuddalore-Nagapattinam) & Andhra Pradesh (Vishakhapatnam- Kakinada)

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Porter’s Five Forces for Chemical Industry

Suppliers power Porter's Analysis

• Small chemical companies rely on supplies from larger plants
or petrochemical units Competitive Rivalry
• Inputs for chemical plant cannot be easily substituted 5

Bargaining power of consumers Threat of new entrants

Intensity of rivalry
• Bargaining power
Chemical industry is highly fragmented of supplies
with intense Threat of Substitute Products
rivalry amongst companies
Buyers power
Barriers to entry • Since, 100 per cent FDI is allowed, hence domestic
competitions face stiff competition from foreign • Buyer have multiple
• Huge capital sources of supply
competitors as well
requirements and • Chemical companies
• International companies may also chemicals at low
patent protection are are bound by long-
price
significant barriers term contracts
• Other barrier • Niche specialty
includes- R&D and Threat of substitutes chemicals have some
personnel pricing power unlike
requirements • Buyers tends to have specific chemical
requirements the base chemical
• There are no direct substitutes for a specific producers
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 EXEMPLAR REPORT ON CHEMICAL INDUSTRY

Growth Drivers

 Rise in GDP and purchase power of Indian have given rise to increased chemical demand for various
domestic and industrial purposes.
 Supportive policies from government for increasing FDI has resultant in high FDI inflow and the
increased support to the chemical industry has acted as a big driver
 The government has announced a number of measures to improve competitiveness in the sector.
100% FDI in chemicals, set up integrated Petroleum, Chemicals & Petrochemicals Investment Regions
(PCPIR), excise duty reduced from 14 per cent to 10per cent and strong laws on anti-dumping to
further promote the industry are among those measures.
 Huge growth potential in the domestic market and the increased in M&A activities in the chemicals
sector have given impetus to the chemical industry performance.
 The big infrastructure investment, world class engineering, feedstock, sustainability and strong R&D
capabilities introduced in the processes have been a key growth factor in the Indian market.
 The synergies made between the Indian companies along with the developed chemical experts abroad
will help in improving the efficiency of the chemical production in India.
 The rapid growth of the manufacturing opportunities in India due to the Make in India scheme will
propel the demand for industrial goods thus creating a strong market for base sectors like chemical
industry.

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Company Analysis: BASF India Ltd
 BASF India Ltd (BASF India), a part of BASF SE, the largest chemicals company in the world
 It is a manufacturer of chemicals and specialty chemicals. Its products portfolio includes leather chemicals, textile
chemicals, dispersion chemicals, speciality chemicals and high-value fine chemicals for the food.
 As of 25th October, 2017 it had a market capitalization of 72,700 Million INR and 55,258 Million INR as revenue for
the year 2016-17 which ended on March 31st, 2017.

SWOT Analysis
Strengths

 It is a subsidiary of one of the leading global chemical manufacturing company, so it has financial,
technological support as well as adequate number of raw-material suppliers.
 The wide range of product range by BASF India helps in maintaining its market share and strong
position in Indian chemical market.
 The reduced labor cost and the high investment on R&D has positioned BASF as one of the prominent
player in India
Weakness

 The increased environmental regulations and the cost of environmental hazards has been a big
challenge in the rapid growth of India’s chemical industry.

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 The fluctuation in the price of raw-materials and feedstock along with the high cost involved in importing
them from outside India locations act as a deterrent.
 The dumping of low-cost Chinese chemicals in the Indian market act as a threat to India’s BASF
subsidiary.
Opportunity

 Dahej Chemical complex has the potential to add 55% to the current revenue. The Dahej facility is
developed to reduce imports of intermediate products as well widen the product portfolio in India.
 The increasing number of M&A activity has paved the way for further inorganic growth of BASF in the
fragmented chemical market of India.
Threats

 Threats from other key global chemical players like AkzoNobel India, Bayer Cropscience Ltd, Arkema,
Dow Chemicals as well as domestic players like Tata chemicals, GHCL possess a threat
 The attractiveness of Indian market and the ease in FDI regulations have increased the
competitiveness mainly for the base chemicals.

Plans and functionality of BASF India

 Dahej plant to spur revenue growth. In the next 3 years, based on product wise plant capacities, the
Dahej plant can add c.Rs28bn to total revenue. The Dahej plant is the biggest investment
(c.Rs10bn/US$180mn) made by BASF in India.
 Dahej plant replicates BASF’s successful Ludwigshafen model
 Non-Dahej operation is expect to deliver revenue CAGR of 7.3% over the next 3 years due to 13 new
product launches in Agrochemicals covering larger crops portfolio. Additionally, demand dynamics of
Automotive Coating & Construction segments are also looking favorable.
 The combination of a strong R&D support from the German parent & strategic India research hub to
catalyze innovative products in domestic market
 As part of their strategic portfolio management, they divested their Industrial Coatings business to
AkzoNobel and the Leather Chemicals business to the Stahl Group.
 In order to achieve the 2020 revenue target, BASF SE has announced investment of US$12bn, c.9,000
new jobs and annual savings of US$2bn. The key trigger for BASF India’s growth would be back-ended
capex of Rs16.0bn and sharper focus on R&D investments.

References

 https://www.basf.com/documents/in/en/investor-relations/annual-reports/Annual%20Report%202016-
2017.pdf
 https://www.chem.info/news/2017/01/trends-and-predictions-chemicals-industry-2017-part-1
 ficci.in/sector/7/Project_docs/Chemical-Petrochemical-sector.pdf
 www.cefic.org/Facts-and-Figures/Chemicals-Industry-Profile/
 https://www.strategyand.pwc.com/trend/2017-chemicals-industry-trends
 www.in.kpmg.com/pdf/kpmg_chemtech_report.pdf
 ficci.in/spdocument/20761/India-Chem-Knowledge-Paper.pdf

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