4. Specialty Chemical market structure

Indian specialty chemical market is estimated to be about $32 bn, roughly 18% of its overall chemical industry. The market has grown with a 11.7% CAGR growth and is projected to register double digit growth till 2027. The market is fairly fragmented with with only a few scaled players within each sub-sector and also has a meaningful unorganised market that is for some products larger than the organised market like natural base chemicals for flavourings & fragrances

Roughly 45% of the production is exported, putting the size of the export market at $15 bn

Within Specialty chemicals, Agrochemicals, Dyes and pigments make over ~50% of the overall market, and constitute 65% of the export segment. A useful breakdown of the entire specialty chemical market is given below:

2. Highly polluting making it less attractive for developed hub manufacturers
3. Domestic end-user segment demand to increase farm productivity | 1. Highly genericized products or pseudo commodity hence low margins
4. Low R&D spend | | Dyes and Pigments | 7 | 7.3% | 10% | M | H | 1. Growth in end user segments like textiles both locally and globally. 35% production is exported
5. Highly polluting making it less attractive for developed chemical hub manufacturers | 1. Heavily dependent on imports for inorganic and fine additives
6. Low presence of scaled foreign players in the segment mostly dominated by domestic players | | Flavors and Fragrances | 2.4 | 16.1% | 17% | H | M | 1. Large presence of small players in base ingredients but very little presence in active ingredients
7. India is a market leader for many of the natural base ingredients such as spices, mint and raisins, and about 60% production is exported | 1. Top 5 players have a market share of 65%+ in active ingredients as is the case for this industry globally
8. Key players focus on vertically integrating throughout the value chain due to high margins at end-use products egments | | Personal Care | 1 | 15.5% | 15% | H | H | 1. Growing demand in domestic end user segments like beauty and personal care, especially in rural area
9. Shift towards naturally derived active agents which are easier to produce for smaller players | 1. Market mostly dominated by scaled organized players and global MNC that sell inputs to FMCG manufacturers
10. R&D and production of the high-margin active ingredients is heavily concentrated | | Surfactants | 2 | 6.4% | 11% | M | M | - | - | | Textile Chemicals | 1.8 | 10.4% | 11.5% | M | M | - | - | | Construction Chemicals | 1.4 | 13.5% | 15% | H | H | - | - | | Polymer Additives | 1.3 | 12.8% | 10% | L | L | - | - | | Water Chemicals | 0.8 | 14.9% | 15% | H | M | - | - |

Summary:

• The top 4 biggest segments in the Indian specialty chemical markets are Agrochemicals, Dyes & pigments, flavours & fragrances and personal care chemicals that make up 65% of the entire market and 80% of exports . The other categories have tiny contribution to exports and are likely to see main growth from domestic demand
• Dyes, pigments and Agrochemicals drive bulk of the exports at about $10 bn of the $15 bn exported in 2021. This market has presence of many small players manufacturing generic products that are high-quality but pseudo-commodity. Margins here can range from 0-12% in Agrochemicals and 5-20% in dyes and pigments
• For the other two major export oriented categories, the market is highly monopolised by large foreign MNCs and a handful of scaled players who enjoy bulk of the share of the high margin additives and active ingredient market. These players are focused on establishing themselves across the entire value chain
• Indian specialty market can be summarised as high-quality, low cost and low innovation market. Most manufacturer focus on products that have wide applicability across industries.
• Focus on higher R&D spend, production of niche molecules for specific applications and contract manufacturing have significant headroom for growth but require deep industry knowledge and capital access. Niche molecule manufacturers are largely going to be insulated from global players too as the overall market is too small for them

5. Understanding success factors and gaps in the market

In this section, we will focus on understanding the key success factors and gaps that exist between different kinds of buyer-supplier relationships in the chemical markets. We do this by looking at 4 different manufacturer and buyer relationships and how intermediaries function in each one

1. Domestic Manufacturers - Domestic Buyers
2. Domestic Manufacturers - Foreign Buyers