What heights can the Indian construction chemical market scale in the next five years?
india-construction-chemicals-market
September 13, 2023
This whitepaper delves into the dynamic landscape of the Indian construction chemicals market, analyzing its prospects, and examining the profound impact of government policies on the entire ecosystem. With India's rapid urbanization and infrastructure development, the construction sector has witnessed significant growth, creating a fertile ground for the expansion of construction chemicals.
However, the sector also faces numerous challenges ranging from regulatory complexities to environmental concerns. By exploring these challenges and evaluating the government's policies, this whitepaper aims to provide a comprehensive understanding of the Indian construction chemicals market. Furthermore, it seeks to shed light on the future outlook, opportunities, and potential disruptions that lie ahead, helping stakeholders and industry’s top level executives navigate this evolving industry.
1. India is one of the emerging Construction Chemicals Markets in Southeast Asia driven by the growing construction sector, M&A activities, and government aid
Waves of Change in India Construction Chemicals Market over the years
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I: Emerging Phase
<2000
- The inception of the chemical industry in India started with the establishment of Bengal Chemicals and Pharmaceutical Works company in 1892.1
- Initially, only a handful Construction Chemical companies existed hence majority of the market share was dominated by organized players only such as Pidilite, MBCC, Sika, Fosroc.
II: Growing Phase
2000 - 2030
- The India construction chemicals market is benefiting from investments in commercial and residential infrastructure sectors, as well as project collaborations with government organizations.
- The construction chemicals industry has always been a hotbed of M&A activity as a robust inorganic growth strategy is imperative for sustaining competitive advantage across segments.
III: Maturity Phase
>2030
- Many paint and cement companies are such as Nippon Paint, JSW Cement and more are expected to enter into the Indian Construction Chemicals Market.
- With manufacturers moving towards sustainable approaches, technical products would me more considerable against the traditional concrete and/or cementitious type chemicals to reduce carbon-footprint.
1.1. Some of the ambitious Government undertaking like NIP, makes the landscape of construction chemicals industry more prospective for growth
- Over 25+ Organized Market Players dominate the Construction Chemicals Market; whereas there are 150+ unorganized players present in the market.
- 15+ Players exceed the annual turnover of INR 100 Cr
- Organized Players are more concentrated in Western and Southern regions of India whereas Unorganized players are fairly distributed around the country.
- Unorganized players keep their product prices considerably lower than organized players, but they compromise with quality
- Higher influx of railways, roads and energy sector projects are driving the Infrastructural activities around the nation and other government initiatives are aiding to the growth of Infrastructure Industry.
The boost in market growth of Construction Chemicals in India has been supported by the rising urbanization and government measures to revitalize rural areas, as well as infrastructural development.
Key Takeaways
- Over 8,950 NIP projects are at different stages of implementation under the national infrastructure pipeline.
- The government, in recent years, provided an increased impetus for infrastructure development and investment through the enhancement of capital expenditure.
- The outlay for capital expenditure in 2022-23 was increased sharply by over 35% from the previous year (2021-22)
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2.1. The industry comes with its own set of challenges and growth opportunities…
Growth Drivers V/s Challenges Analysis of India Construction Chemicals Industry
2.2. … for which the government has reacted indirectly by enhancing investment for Real Estate to take maximum benefit of opportunities
Restructuring of Corporate Taxes
- The cumulative FDI equality inflow in the Construction (Infrastructure) Activities is INR 3928.4 Cr during the period April 2000 to December 2022.
- India has slashed corporate tax rates from 30% to 22% for existing companies and from 25% to 15% for new manufacturing companies in 2019. The government’s plan to extend this benefit of the concessional corporate tax rate of 15% till March 2024.
Reducing Dependency on Imports
- The Chemical Ministry of India has formed seven-member panel to reduce import dependence for chemicals since 2022.
- The task force will identify critical chemicals to be produced in India.
- The terms of reference of the committee include the identification of basic chemicals to be used by downstream industry, especially specialty chemicals.
Housing Development Program
- The total budgetary allocation for FY’23 towards the Ministry of Housing and Urban Affairs is INR ~76,500.4 Cr.
- For Urban Development, the government has sanctioned more than 1.2 Cr houses by year end 2022, and more than 64 lakhs completed under Pradhan Mantri Awas Yojana.
- 5,000+ Smart City projects worth over ₹92,000 Cr have been completed until 12 December 2022.
Improving Availability of Finance
- The National Bank for Financing Infrastructure Development (Nabfid), principal development financial institution (DFIs) for infrastructure financing, is planning to raise INR 5,000 Cr as part of its maiden bond issue in first quarter of Q1 Of FY’23-24.
- The Union Government will also provide guarantee at a concessional rate of up to 0.1% for Nabfid borrowing from multilateral institutions, sovereign wealth funds and other foreign funds.5
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2.3. Changing Regulatory Environment and Increasing Compliance are some future opportunities awaiting to make it a more lucrative sector
Opportunities
- Changing Regulatory Environment: Green building code, incentivizing energy efficiency will drive the usage of safe construction chemicals.
- Further, 100% Foreign Direct Investment (FDI) in real estate to boost construction activities particularly government-sponsored infrastructure projects, driving demand for construction chemicals in coming years.
Though major states are generating demand of construction chemicals, many govt. infrastructure projects such as bridges and tunnels have a high potential in Jammu & Kashmir, Ladakh and in north-east states. Hence generating demand for construction chemicals.
Waterproofing demand is highest in Western and Southern region due to higher rainfall. Whereas in Northern region, residential & commercial sector are driving the demand.
Developments in the Construction Chemicals Eco-System
- New Regulatory Norms and Compulsory Certifications such as Green Building Code, usage of Ready Mix Concrete in Metro Rail Projects in 20+ Cities and Certification for product quality from engineer under RERA has increased usage of construction chemicals.
- Growth in Urbanization and Development of Housing Projects, Increase in Smart Cities (~65% completed, Jan 2023) led to the growth for const. chemicals
- Global Companies increased their presence by opening new manufacturing plants.
- Sika, Fosroc, MBCC and Chryso are few of the pure construction chemicals companies having strong presence in market. Whereas Companies such as Pidilite, Asian Paints, that majorly offer other allied products dominate the current market.
- New Innovations such as Multipurpose & Hybrid Coating, eco-friendly products for instance Nano-Coating, Green Coating for fire protection and anti-corrosion fueled the sales.
3. The construction chemical sector is poised to reach double digit growth figures within the next 5 years due to its well timed policies and drive towards sustainability
Future Analysis of Indian Construction Chemicals Market
1
Sectors with slower than anticipated long term growth…
- Concrete Admixtures segment, while still showing promising growth, might get restricted in the long run, due to it’s carbon footprint challenge.
- As manufactures are oriented towards the development of sustainable products. Hence, other cementitious chemical products will also face lesser growth rate in next few years.
2
Sectors with the most promise…
- Waterproofing and Repair & Rehabilitation chemical products are expected to grow the fastest due to their inclusion in even low scale construction projects.
- Tile Adhesives industry is linked to the growth of Tiling Industry in India, and while flooring is gaining traction as well. It still is limited, on a larger scale, to upscale infra projects.
3
Uncertain Future of the Unorganised Market…
- Post Covid, the prices of raw materials have shot up, leading to many manufacturers buying them at unsustainable costs. Thus, if similar trend continues, it is projected that unorganised sector will have a higher growth due to their cheaper prices for construction chemical products (~14% CAGR from FY’22-FY’28F).
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