Chemicals manufacturers brace for drop in revenues: CRISIL SME Tracker

Small and medium enterprises (SMEs) engaged in the manufacture of chemicals are expected be hit hard as the industry braces for a decline in volume and realisations in the next fiscal year (2020-21), following the outbreak of the Covid-19 pandemic.

SMEs account for 30-35 per cent of the industry (in value terms), and are clustered around Gujarat, Maharashtra and the Delhi-NCR region. Gujarat alone houses over 400 chemical units.
 

In calendar year 2020, the price of Brent crude oil is expected average $35-40 per barrel, compared with $64 in calendar year 2019, as multiple headwinds coalesce — a global slowdown, output war between major crude oil producers, and demand contraction following the Covid-19 pandemic, to name some.
 

In the domestic market, the demand for chemicals is expected to moderate owing to slowdown in demand from key end-use industries such as automobiles, consumer durables, textiles and construction.
 

Thus, along with a drop in volume, the SMEs are looking at a fall in realisations owing to lower prices of inputs such as crude oil, as the cost savings will have to be passed on to consumers.

Furthermore, with recession imminent in the United States and Europe, exports are expected to take a hit, too.

Therefore, the revenues of chemicals manufacturers are expected to decline in 2020-21. Any expansion in operating margins is expected to be offset by lower top line growth because of weak demand.