India’s specialty chemicals industry faces potential challenges in its quest for profitability, largely due to rising trade uncertainties linked to tariff measures from the United States, according to a recent report by Crisil Ratings. Initially projected to see operating margins rise to 15.5-16% by fiscal 2026, the outlook has dimmed, with estimates now suggesting a drop of around 150 basis points, bringing margins down to 14-15%—a level consistent with the previous two fiscal years.

Trade Uncertainties Affecting Growth

The looming threat of tariffs and ongoing pricing pressures could mean that fiscal 2026 may be marked by a third consecutive year of challenges for the sector. Despite signs of volume recovery, Crisil warns that aggressive dumping from China could significantly undermine the pricing power of domestic manufacturers, putting added strain on profit margins.

• Chinese imports into India have surged over the last two fiscal years, fueled by an economic slowdown and surplus production capacity.
• This influx has led to sharp price corrections, with Indian specialty chemicals producers experiencing a 15-20% decline in domestic and export realizations between fiscal 2024 and 2025.

Market Dynamics and Profitability Risks

While demand for specialty chemicals remains stable, Crisil cautions that continued price erosion could jeopardize profitability and hinder recovery efforts. The situation has been exacerbated by the U.S. imposing an additional 20% tariff on Chinese chemical exports since February 2025, likely triggering another round of dumping by Chinese manufacturers, redirecting excess stock to markets like India.

Anuj Sethi, Senior Director at Crisil Ratings, noted, "With realizations under pressure, the Indian specialty chemicals sector’s expected 7-8% revenue growth in the next fiscal year will primarily rely on volume gains. Domestic revenues, which comprise 63% of the market, are projected to grow by 8-9%, whereas exports may see a more modest increase of 4-5%. However, the threat of Chinese dumping looms large, and any further price declines could intensify competitive pressures, pushing realizations to unprecedented lows."

Variability in Profitability Across Companies

Crisil’s analysis indicates that profitability challenges will differ among companies based on their end-user exposure, revenue composition, and supply-demand dynamics. Firms with diverse portfolios or those serving resilient sectors are likely to weather shocks more effectively, while those heavily reliant on exports or operating in commoditized segments may face heightened risks from price fluctuations.

Poonam Upadhyay, Director at Crisil Ratings, shared insights on the potential impacts: "The expected decline of approximately 150 basis points in profitability will directly affect the return on capital employed. This figure is already anticipated to hit a decadal low of around 13% this fiscal year and the next, down from the 16-18% range seen before the pandemic. Although the debt-to-EBITDA ratio is expected to remain below 2 times for rated specialty chemical companies, ongoing profitability pressures could weaken earnings, impair credit profiles, and diminish debt protection metrics."

Insights from the Analysis

Crisil’s evaluation encompassed 121 companies within the highly fragmented specialty chemicals sector, valued at approximately Rs 4 lakh crore. The findings indicate that companies in commoditized segments, such as polyvinyl chloride and those producing inputs for agrochemicals and pharmaceuticals, may experience significant profitability impacts due to fierce competition from China. As the market evolves, these dynamics will be critical to monitor moving forward.

In conclusion, the specialty chemicals sector in India stands at a crossroads, facing a complex web of challenges. Stakeholders must navigate these turbulent waters to preserve profitability and ensure sustainable growth in the coming years.