Mergers and Acquisitions Can Reverse the Situation in Indian Chemical MarketMay 30th, 2017
Indian chemical industry accounts for 2% of the country’s GDP. Moreover, national chemical companies are in the top ten of global producers which tells that India is a strong and competitive player in the chemical arena. A chemical sector is closely connected to such powerful economic sectors as processing industry and services, agriculture and commodities.
However, there are a number of factors thwarting the progress of Indian chemical industry. Among them are shrinking profit margins, hypercompetitive global market, fast dwindling of operating capacity, and a strong US dollar which impacts the demand for chemical products. Some producers, in particular, naphtha-based companies earned profits estimated at nearly 65 %. But they are the exception rather than a rule as most producers of petroleum-based products are lower income earners. Consequently, many firms that are experiencing inorganic growth tend to rely on mergers and acquisitions.
Mergers and acquisitions route is the way to increase profit margins, leverage the synergies and explore new business and research and development areas. For successful M&A activities, chemical players consider the outlook for low oil prices which prompts them to divest marginal assets and focus on chemicals that can generate revenue and attract high margins.
M&A activities are held with key global players such as AkzoNobel, BASF, Mitsubishi, Syngenta and others which are a strong foothold for the entire national chemical sector. Consequently, Indian chemical producers are able to have larger export gains, diversify product lines or create new production units, and upgrade chemical products via qualified foreign expertise. However, bright M&A prospects can be exacerbated by such disruptors as trade and tariffs, interest rates, Brexit, new U.S. presidential policy and global protectionism.
India is gradually but rapidly becoming a global economic centre, where a large part is given to the chemical industry, which needs active research and development solutions, the Internet business platforms and collaboration with foreign stakeholders to develop national products and increase competitiveness in the global market. In this situation, M&A will be the impetus for innovation, business know-how and activation of marketing infrastructure for Indian chemical products. M&A will also be provided with strong government support.