India's specialty chemical industry is expected to see revenue growth slow to around 6% in FY27 from nearly 8% in each of the previous two years, as reported by Crisil Ratings. According to the ratings agency, this moderation is primarily driven by weak exports and higher input costs weighing on the sector. Domestic demand will remain the primary growth driver, but export weakness caused by supply disruptions and cautious overseas procurement will limit overall growth.
The industry's operating margin is expected to decline to 14-14.5% this fiscal from around 16% last fiscal, as reported by Crisil. This compression is attributed to muted exports, which typically fetch better margins, coupled with limited ability to pass on higher crude-linked input costs. The assessment is based on analysis of 126 specialty chemical companies that account for around 40% of the industry's revenue. Domestic sales contribute nearly two-thirds of industry revenue, with agrochemicals accounting for around 30%, followed by dyes and pigments at 22% and flavours and fragrances at 14%.
According to Crisil, the impact on profitability will vary across companies depending on their exposure to different raw materials and their ability to pass on higher costs. Manufacturers dependent on ethylene and propylene are likely to face greater pressure due to their higher linkage to crude prices and limited pricing power. In contrast, producers using benzene, toluene and xylene (BTX)-based inputs are expected to perform relatively better due to higher value-added products, while fluorine-based chemical makers are likely to remain more resilient because of their niche positioning and stronger ability to pass on costs.
As reported by Crisil, companies are responding by moderating capital expenditure to around ₹16,500 crore this fiscal, with investments focused on backward integration, import substitution and niche chemical segments. Most companies are expected to fund these investments through internal accruals. However, debt-to-Ebitda is projected to increase to around 2.2 times this fiscal from 1.9 times last fiscal, while interest coverage is expected to decline to around six times from 7.5 times. The agency noted that any renewed escalation in West Asia or fresh rise in input prices would increase pressure on the sector.
