CHEMICALS. November 2010

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1 CHEMICALS November 2010

2 CHEMICALS November 2010 Contents Advantage India Market overview Industry infrastructure Investments Policy and regulatory framework Opportunities Industry associations 2

3 ADVANTAGE INDIA Advantage India India s per capita plastic consumption is projected to double from 6 kg in 2009 to 12 kg in 2011; rise in consumption will boost the demand for chemicals such as phenol, ethyl acetate and titanium oxide. Rising plastic consumption Advantage India Growing presence in export market India has a diversified manufacturing base with a capacity to produce quality chemicals for world consumers. Export of dyes from India is progressively rising and is expected to increase from US$ 1.5 billion in to US$ 2.6 billion in Favourable government policies Growing automobile sector FDI of 100 per cent is permitted under the automatic route; the manufacture of most chemical products is de-licensed. Strengthening infrastructure The Government of India (GoI) plans to invest US$ 33 billion in three approved Petroleum, Chemicals and Petrochemicals Investment Regions (PCPIRs); it also plans to establish port-based chemical parks in special economic zones (SEZs). India is considered as a favourable trade location due to a vast coastline which provides strategic freight advantage, proximity to the Middle East (oil suppliers) and future demand centre (South-east Asia). Indian automobile sector is projected to grow at a compound annual growth rate (CAGR) of of 19 per cent between and The growth in this sector will drive demand for soda ash in India which is projected to grow at an annual rate of 5 per cent between and Sources: Eleventh Five Year Plan , Planning Commission of India website, 2008, Plastic consumption to double by 2011, Business Standard website, accessed 20 November

4 CHEMICALS November 2010 Contents Advantage India Market overview Industry infrastructure Investments Policy and regulatory framework Opportunities Industry associations 4

5 MARKET OVERVIEW Market overview The Indian chemicals industry is the twelfth-largest industry in the world and the third largest in Asia in terms of volume. The industry contributes 3 per cent to the national GDP. The Indian chemicals industry is currently valued at around US$ 35 billion. Overview of the Indian chemicals industry The industry accounted for 9.3 per cent of total exports in Industry exports grew at a CAGR of 18 per cent between and The Indian chemicals industry has evolved from being a basic producer of chemicals to an innovative industry. Sources: Department of Chemicals & Petrochemicals annual report ; SIA newsletter, April 2010, Department of Industrial Policy & Promotion website, Ministry of Commerce & Industry, accessed 20 September

6 MARKET OVERVIEW Industry segments Specialty chemicals Basic chemicals Segment-wise share of chemical segments (per cent) Adhesive sealants Industrial gases Catalysts Plastic additives Inorganic chemicals Petrochemicals Fertilisers Other industrial chemicals Basic chemicals Specialty chemicals Knowledge chemicals Agrochemicals Pharmaceuticals Other biochemicals Knowledge chemicals Source: Department of Chemicals & Petrochemicals, GoI Source: Department of Chemicals & Petrochemicals, GoI 6

7 MARKET OVERVIEW Chemicals and petrochemicals segmentation Major chemicals Alkali chemicals Inorganic chemicals Organic chemicals Pesticides Dyes and dyestuffs Major petrochemicals Synthetic fibres Polymers Synthetic rubber Synthetic detergent intermediates Performance plastics Fibre intermediates Olefins Source: Department of Chemicals & Petrochemicals, GoI Aromatics 7

8 MARKET OVERVIEW Chemicals production 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Major chemicals and petrochemicals production ('000 MT) 14,103 14,757 15,143 15,758 16,406 15,519 11, (Apr-Dec) Chemicals and petrochemicals ('000 MT) 4 State-wise share in production of major chemicals ( ) (per cent) Source: Department of Chemicals & Petrochemicals, GoI 51 Gujarat Maharashtra Uttar Pradesh Tamil Nadu Punjab Other states Source: Department of Chemicals & Petrochemicals, GoI 8

9 INR billion MARKET OVERVIEW Chemicals exports and imports Share of chemicals sector in India s exports (per cent) Engineering goods Petroleum products Chemicals and related products Gems and jewellery 1,200 1, Exports and imports in the chemicals and petrochemicals sectors (INR billion) Year Exports Imports Source: Department of Commerce, GoI, Annual Report, Source: Department of Chemicals & Petrochemicals, GoI The chemicals and related products sector contributed 13.8 per cent to national exports in The chemicals and petrochemicals segments grew at a CAGR of per cent from till The majority of chemicals exported were dyes, dyestuffs and alkali chemicals. 9

10 MARKET OVERVIEW Key trends Industry trends The Indian chemicals industry is highly fragmented and is currently going through a major restructuring and consolidation phase. At present, most of the domestic capacity of chemicals caters to a strong domestic market. However, this with the GoI initiating PCPIRs and SEZs, the export capacity is also expected to increase significantly. With investments in R&D growing, the industry is registering significant growth in the knowledge chemicals sector. The industry is focusing on increasing innovations to produce environment-friendly technology and products. Investment trends Since 1991, the Indian chemicals sector has been consistently ranked third among all sectors in India, in terms of the amount of investment. Between August 1991 and August 2010, investment intentions worth US$ billion (INR 5,382.7 billion) have been received in the chemicals sector. This accounts for 7.17 per cent of total investment intentions in the country. Source: SIA Statistics-September 2010, Department of Industrial Policy & Promotion website, accessed 10 November

11 MARKET OVERVIEW Key growth drivers High domestic demand potential The per capita consumption of chemical products in India is about one-tenth of the world average. Consumption grew at a CAGR of 3.9 per cent between and Favourable factors such as strong economic growth have ensured that the domestic demand potential for chemicals is rising. Focus on R&D India has a strong base for innovation in its network of 200 national laboratories and 1,300 R&D units, which can be leveraged for the shift towards an innovation-based industry. Outsourcing An increasing number of multinational companies (MNCs) are viewing India as a base for manufacturing and supplying to their global markets. Consolidation The Indian chemicals industry is moving towards greater consolidation in order to achieve economies of scale. Sources: Department of Chemicals & Petrochemicals; Department of Chemicals & Petrochemicals annual report

12 MARKET OVERVIEW Key players Indian* Company Sales in US$ million (INR million) Products Tata Chemicals Limited (TCL) 2,122.0 (101,856) Soda ash, salt, marine chemicals, caustic soda, cement and bulk chemicals United Phosphorus Limited (UPL) 1,184.0 (56,832) Agrochemicals Nirma Ltd 1,071.0 (51,408) Alkyl benzene, alfa olefin sulphonate, sulfuric acid, soda ash, pure salt Gujarat Heavy Chemicals Ltd (GHCL) (15,384) Soda ash Gujarat Alkalies and Chemicals Ltd (GACL (14,016) Caustic soda Solaris Chemtech Industries Ltd 52.1 (2,500) # Bromine and bromine chemicals Sources: Relevant company websites and annual reports; Prowess This list is indicative ; # figures 12

13 MARKET OVERVIEW Key players International* Company Sales in 2009 US$ billion Products BASF 69.1 Chemicals, plastics, performance and nutrition products The Dow Chemicals 46.6 Specialty chemicals, agrochemicals and plastics Bayer 43.4 Agrochemicals, pharmaceuticals, polymers, technology services E. I. du Pont de Nemours and Company 27.3 Specialty and fine chemicals INEOS 25.1 PVC films and specialty resins Evonik Industries 19.3 Specialty chemicals AkzoNobel 18.9 Coatings, decorative paints and specialty chemicals Lanxess 7.3 Plastics, rubber, specialty chemicals and intermediates Wacker Chemie 5.7 Silicone, polymer, specialty and fine chemicals Sources: Relevant company websites and annual reports * This list is indicative 13

14 CHEMICALS November 2010 Contents Advantage India Market overview Industry infrastructure Investments Policy and regulatory framework Opportunities Industry associations 14

15 INDUSTRY INFRASTRUCTURE Industry infrastructure Baddi Derabassi Panipat NCR Vadodara Ahmedabad Jamnagar, Nagda Bharuch, Hazira, Vapi Haldia Thane, Pune, Chiplun Mangalore Bengaluru Cochin Chennai Hyderabad Visakhapatnam, Kakinada Cuddalore, Puducherry Industry clusters Sources: SEZ India SEZ India Invest website, accessed 20 November

16 INDUSTRY INFRASTRUCTURE Industry infrastructure SEZs Jubilant Chemicals SEZ is the major exclusive chemicals SEZ located in Bharuch, Gujarat, apart from the five major PCPIR regions in India. Jubilant Chemicals SEZ Vilayat, Bharuch Location Area Developer Contact Details Vilayat, Bharuch (Gujarat ) (20 km from Dahej) 160 hectares Jubilant Infrastructure Ltd I-A, Sector 16-A, Industrial Area, Noida , Uttar Pradesh, India Tel: Fax: Website: SEZ Sources: Department of Commerce annual report, GoI,; List of SEZ in India SEZ India Invest website, accessed 20 November

17 INDUSTRY INFRASTRUCTURE Petroleum, Chemicals and Petrochemicals Investment Regions (PCPIR) (1/2) A PCPIR is a specifically delineated investment region with an area of around 250 sq km. The region has planned infrastructure to establish manufacturing facilities for domestic and export-led production in petroleum, chemicals and petrochemicals. It is designed to house production units, public utilities, logistics infrastructure, environmentalprotection mechanisms, residential areas and administrative services. PCPIR includes SEZs, industrial parks, free trade and warehousing zones (FTWZs), exportoriented units (EOUs) or growth centres. Vagra- Bharuch Haldia Vizag and East Godavari Cuddalore & Nagapattinam PCPIRs are linked through external physical infrastructure such as rail, road (the National Highways), ports, airports and telecommunications. Source: Department of Chemicals & Petrochemicals annual report

18 INDUSTRY INFRASTRUCTURE Petroleum, Chemicals and Petrochemicals Investment Regions (PCPIR) (2/2) State Location Details/status Leading players Gujarat Dahej, Bharuch Approved Area 5,000 hectares Investment potential of US$ billion (INR billion) Indian Petrochemicals Corporation Limited (IPCL), Petronet LNG, Gujarat Chemical Port Terminal Company Limited (GCPTL) Andhra Pradesh Visakhapatnam to Kakinada Approved Area 60,358 hectares Investment potential of US$ 71 billion (INR 3,408 billion) Hindustan Petroleum Corporation, LG Polymers India Pvt Ltd, Nagarjuna Fertilizers & Chemicals Ltd West Bengal Haldia mainland to Nayachar Island Approved Area 25,000 hectares IOC Petronas, Tata Chemicals, Haldia Petrochemicals Orissa Paradip Area 28,414 hectares Tata-Sasol Source: Presentations, Petroleum, Chemicals and Petrochemicals Investment Region Policy website, accessed 24 November

19 CHEMICALS November 2010 Contents Advantage India Market overview Industry infrastructure Investments Policy and regulatory framework Opportunities Industry associations 19

20 INVESTMENTS Investments Mergers and acquisitions Indian deals Announcement date Acquirer Target Deal value (US$ million) November 2010 Songwon Industrial Co, Ltd High Polymer Labs Limited 20 September 2010 BASF India Ltd BASF Construction Chemicals (India) Pvt Ltd 33 September 2010 Jairam Phosphates-Facilities Khaitan Chem & Fertilizers Ltd - July 2010 Agri and Performance Polymer business of Jubilant Organosy Ltd Jubilant Organosys Ltd (Shareholders) - July 2010 Huntsman Corp Laffans Petrochemicals Limited - June 2010 Atul Ltd Polygrip Rubber Production Pvt Ltd 2.2 May 2010 Godrej Sara Lee Ltd Godrej Consumer Products Ltd March 2010 The Valspar (Singapore) Corporation Pte Ltd DIC Coatings India Ltd 9 The chemicals sector* attracted cumulative foreign direct investment (FDI) of US$ 362 million in Between August 1991 and September 2009, approvals for more than 900 foreign technology transfers (FTT) have been granted in the chemicals sector, accounting for per cent of the total approvals. *Excluding fertilisers Sources: Chemicals NewViews, July September 2010, M&A Transactions, ThomsonOne Banker, accessed 24 November

21 CHEMICALS November 2010 Contents Advantage India Market overview Industry infrastructure Investments Policy and regulatory framework Opportunities Industry associations 21

22 POLICY AND REGULATORY FRAMEWORK Policy and regulatory framework Licensing policy Licensing requirements have been removed, except for hazardous chemicals and a few special drugs. Entrepreneurs are allowed to set up chemicals industries following the Industrial Entrepreneurs Memorandum (IEM) route. Under the automatic route, 100 per cent FDI is allowed for all chemicals except hazardous ones. Customs duty The peak rate of customs duty on most chemicals is 7.5 per cent. Excise duty Excise duty of 16 per cent is applied on almost all chemicals. PCPIR policy The PCPIR Policy has been introduced to boost the development of chemicals and petrochemicals investment regions. Others Plans are underway to set up port-based chemicals parks in SEZs to encourage clustering, provide infrastructure and enable tax concessions. Downstream SEZs have been planned to use the output of chemicals parks. Source: Department of Chemicals & Petrochemicals annual report

23 CHEMICALS November 2010 Contents Advantage India Market overview Industry infrastructure Investments Policy and regulatory framework Opportunities Industry associations 23

24 POLICY AND REGULATORY FRAMEWORK Opportunities (1/5) Alkali chemicals Alkali chemicals constitute the largest segment in the Indian inorganic chemicals sector and presents high growth potential in domestic market. Net imports in the alkali chemicals sector grew at a CAGR of 24.3 per cent between and Water treatment chemicals Increasing usage of recycled water and stringent government legislations will create demand for water treatment chemicals such as chlorine. The utilisation of water treatment chemicals such as chlorine in India presents a significant opportunity for chemical companies to tap their potential market demand in India. Sources: Working group on Indian chemical industry, Planning Commission website, accessed November 19, 2010; On-Farm Land and Water Management, Central Soil Salinity Research Institute website, accessed 15 November

25 POLICY AND REGULATORY FRAMEWORK Opportunities (2/5) Research & Development The chemical industry in India is witnessing increased focus towards research and development, which in turn provides opportunities for growth of R&D hubs and industry specific institutes. The government is also providing support to industry specific research institutes to promote research. The Central government has planned to lend US$ 3.12 million (INR million) in to Central Institute of Plastic Engineering & Technology (CIPET) to promote R&D efforts. Eco-friendly technology and products There is a rising awareness in the industry about developing eco-friendly technology to reduce the wastes generated and to develop similar products. Investing in R&D to develop such technology/ products is a potential growth area for the chemicals industry. Logistics services Logistics services addressing the specific needs of the chemicals industry can serve as one of the significant support infrastructure to promote the development of the industry. This can be leveraged by setting up logistic parks and transport hubs to support exports to other parts of the world. Sources: Working group on Indian chemical industry, Planning Commission website, accessed November 19,

26 POLICY AND REGULATORY FRAMEWORK Opportunities (3/5) Dyestuff Textile sector is a major consumer of dyestuffs and accounts for 70 per cent of dyestuff consumption in India. The GoI's policy to promote export of cotton goods and promote blend of polyester fibres with cotton/viscose domestically is expected to result in continued high demand for disperse dyes. The market demand for dye and dye intermediates in India is expected to grow at a CAGR of 4.7 per cent from 652,000 tonnes in to 900,000 tonnes in Stringent environmental laws in the western countries have resulted in discontinuance of production of certain dyes for textiles and leather, giving an opportunity to Indian chemical companies to manufacture such products and export to these countries. India has emerged as an exporter of dyes, exporting dyes to Germany, U.K., U.S., Switzerland, Spain, Turkey, Singapore and Japan. The export of dyes is expected to increase from US$ 1.5 billion in to US$ 2.6 billion in Specialty chemicals A rebound in consumer demand (driven by economic recovery) and significant outsourcing opportunities are expected to drive growth in the Indian specialty chemicals market. The Indian specialty chemicals market is expected to grow from US$ 18 billion in 2006 to US$ 40 billion by Sources: Working group on Indian chemical industry, Planning Commission website, accessed November 19, 2010; Specialty Chemicals Market in India to Reach $40 Billion in Next Three Years, Chemical Week website, accessed 20 November

27 POLICY AND REGULATORY FRAMEWORK Opportunities (4/5) The long-term outlook for India s petrochemicals industry is robust. Petrochemicals The demand for plastics in the country is expected to record double-digit growth by 2015, driven by population growth and increased industrialisation. In addition, the domestic demand for polymers will double to11 MT by The robust demand forecast, along with GoI s plans to develop PCPIRs in India, holds immense opportunities companies to invest in petrochemicals sector in India. Agrochemicals The GoI is placing increased emphasis on the growth of agriculture in India. The GoI is taking initiatives to put the agriculture sector on the growth radar and achieve 4 per cent growth in the Eleventh Five Year Plan period ( ), up from the 2.5 per cent growth achieved in The government initiatives, amid rising food demand in India, is likely to give immense growth opportunities to companies dealing in agrochemical products in the country. In addition, growing focus on biofuels is expected to give additional opportunities to agrochemical companies in India. India plans to include 5 per cent biofuels in transportation by 2012 and 10 per cent by Sources: India s Petrochemical Sector Set for Higher Growth, Chem Guide website, accessed 15 November 2010; Working group on Indian chemical industry, Planning Commission website, accessed November 19,

28 POLICY AND REGULATORY FRAMEWORK Opportunities (5/5) Fertilisers Urea consumption in India is growing and is expected to increase at a CAGR of 3.5 per cent from 26.5 MT in to 31.4 MT in However, the domestic supply of urea is projected to support only 24.6 MT in , which gives opportunities to fertiliser companies to add capacities in India and tap growing demand. The rise in contract farming trend is also expected to benefit fertiliser companies in India. Under contract farming, the fertiliser companies produce products at economical labour and land costs in India to export to high demand regions of the world. Source: Chemicals NewViews, July September

29 CHEMICALS November 2010 Contents Advantage India Market overview Industry infrastructure Investments Policy and regulatory framework Opportunities Industry associations 29

30 INDUSTRY ASSOCIATIONS Industry associations Indian Chemical Council Sir Vithaldas Chambers, 16-Mumbai Samachar Marg, Mumbai Phone: / Fax: Website: Alkali Manufacturers Association of India 3rd Floor, Pankaj Chambers, Preet Vihar Commercial Complex, Vikas Marg, New Delhi Phone: , , Fax: Website: Indian Specialty Chemical Manufacturers' Association 1156, Bole Smruti, Suryavanshi Kshatriya Sabhagriha Marg, Off. Veer Savarkar Marg, Dadar (West) Mumbai Tel: Website: 30

31 NOTE Note Wherever applicable, numbers in the report have been rounded off to the nearest whole number. Conversion rate used: US$ 1= INR 48 31

32 CHEMICALS November 2010 DISCLAIMER India Brand Equity Foundation ( IBEF ) engaged Ernst & Young Pvt Ltd to prepare this presentation and the same has been prepared by Ernst & Young in consultation with IBEF. All rights reserved. All copyright in this presentation and related works is solely and exclusively owned by IBEF. The same may not be reproduced, wholly or in part in any material form (including photocopying or storing it in any medium by electronic means and whether or not transiently or incidentally to some other use of this presentation), modified or in any manner communicated to any third party except with the written approval of IBEF. This presentation is for information purposes only. While due care has been taken during the compilation of this presentation to ensure that the information is accurate to the best of Ernst & Young and IBEF s knowledge and belief, the content is not to be construed in any manner whatsoever as a substitute for professional advice. Ernst & Young and IBEF neither recommend nor endorse any specific products or services that may have been mentioned in this presentation and nor do they assume any liability or responsibility for the outcome of decisions taken as a result of any reliance placed on this presentation. Neither Ernst & Young nor IBEF shall be liable for any direct or indirect damages that may arise due to any act or omission on the part of the user due to any reliance placed or guidance taken from any portion of this presentation. 32

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