With opportunities in manufacturing, distribution and exports beckoning entrepreneurs, the textile chemicals business is witnessing buoyant growth. However, some entry barriers could spoil the party for new entrants
As a dealer in textile chemicals for several years, Sanjay Ponda was quick to recognize the opportunity that existed in this booming sector. With some customers already in his kitty, he started his own manufacturing unit in Ghatkopar, a suburb of Mumbai, in 2002. He now produces around 200 metric tons of chemicals and sells through his own dealer network. He also exports in small quantities. With several large Indian and multinational players operating in the textile chemicals space, it is no surprise that Ponda finds the market ‘competitive’. Many like him have recognized that selling chemicals is a volumes game—the more you sell, the more profit you make. The organized sector holds approximately 65% share in the domestic market, with the remaining 35% controlled by small players dotting the length and breadth of the country.
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Although Ponda is a small player himself, the sector he operates in is a big one. Textile chemicals form a significant chunk of the Indian chemicals industry that is believed to be the third largest in the Asian region and the 12th largest in the world. The demand for textile chemicals in India is projected to jump 6.3% annually, touching an enviable US$ 1.9 billion in 2012, according to the Freedonia Group, a US-based market research firm. In this story, DARE focuses on the growth drivers for this business and entry barriers for new entrants.
What are textile chemicals?
More than 100 chemicals are used in the manufacturing of textiles. Some provide the basic texture to the fabric, while others are meant for printing and dyeing. Broadly, textile chemicals are divided into three categories—colorants and auxiliaries, coating and sizing chemicals and finishing chemicals.
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Depending upon the fabric, these chemicals are used as leveling agents, solvents, detergents etc.
Take, for instance, cotton. It requires use of various forms of dyes, such as reactive dyes, sulfur dyes and direct dyes. Similarly, polyester processing requires disperse dyes. The synthetic fiber industry has led to the development of various new chemicals. With the demand for wrinkle-free and dirt-free clothing on the rise, a host of specialty chemicals have now entered the market too.
| Major Players |
| Pidilite |
| BASF India |
| CIBA Specialty Chemicals |
| Clariant |
| ICI India |
Growth drivers
The country’s textile sector has been witnessing sharp growth over the last decade. Textile manufacturing and trade plays a pivotal role in the economy, and brings in over 25% of the total foreign exchange through exports. According to government estimates, the textiles and clothing sector pitches in about 3% of the country’s gross domestic product (GDP). With the rise in income levels, the demand for high-quality textiles for apparel, furnishings, upholstery and floor coverings has gone up substantially. This, in turn, has led to the increase in demand for textile chemicals.
“India supports one of the world’s largest cotton processing sectors, which generates substantial demand for various dyes, including reactive dyes, sulfur dyes and direct dyes,” says the Freedonia Group. In addition to its traditional strength in cotton, India has been investing heavily in its synthetic fiber industry, particularly polyester. Moreover, this trend has greatly expanded the country’s demand for disperse dyes, which are widely used in polyester processing.
| Textile Chemical Demand (US$ million) | |||||
| Item | 1997 | 2002 | 2007 | 2012 | 2017 |
| Textile chemical demand | 800 | 970 | 1390 | 1890 | 2480 |
| Colorants and auxiliaries | 420 | 495 | 690 | 910 | 1160 |
| Coating and sizing chemicals | 105 | 130 | 190 | 260 | 340 |
| Finishing chemicals | 115 | 155 | 240 | 350 | 500 |
| Others | 160 | 190 | 270 | 370 | 480 |
The business
A host of business opportunities exists for entrepreneurs in this space. Manufacturing is one big area, given that India’s position as an excellent manufacturing hub is gaining more credence among multinational players. A number of foreign companies have entered the Indian market through mergers and acquisitions. They are using the country as a base to produce textile chemicals at costs much lower than in their parent country. Also, the huge domestic consumption of such chemicals in India is a big lure for these companies. On top of that, they have the wherewithal to invest in the research and development of new products.
| Entry Barriers |
| 1. Large Indian and multinational companies hold around 65% of the market. |
| 2. Low profit margins make selling a volumes game. |
| 3. The sector is raw material intensive; input costs are high. |
| 4. The demand for high-quality fabric increases the challenge of launching innovative products. |
Something that mars the industry is low utilization as several manufacturing units operate at around 40 to 50% capacity. The big players, however, manage to raise this to around 70%. As the sector is raw material intensive, profit margins take a hit. Any change in the cost of raw material impacts the cost of the product. Many of the small players sometimes find it difficult to raise costs for fear of being beaten by the bigger ones.
| Quick Facts |
| 1. The rise in demand for apparel, furnishings, upholstery and floor coverings is driving the growth of textile chemicals. |
| 2. Global demand for textile chemicals is likely to grow at 2.8% annually to touch a whopping US$ 19 billion in 2012. This translates into a big export market for Indian manufacturers. |
| 3. The demand for textile chemicals in India is projected to jump 6.3% annually to touch US$ 1.9 billion in 2012. |
| 4. India is fast becoming a big manufacturing base for textile chemicals, thanks to cheap manpower, a rich pool of scientists, and low cost of equipments. |
| 5. However, for small players the lack of access to world-class technology, shoddy infrastructure and a dismal power situation act as dampeners. |
The distribution business is another area to look at, as the sector is set to grow at a fast pace in the coming years. The current slowdown is only a blip for this sector. This is because recession in major textile export markets has lowered demand for now. Once these economies bounce back and the demand for Indian textiles gets a boost, the chemicals business will also grow accordingly. Experts believe that in the Asia Pacific region, China and India will continue to be the largest consumers of textile chemicals, and are also forecast to experience the fastest growth. Besides this, export opportunities exist for players in this segment, though this is where China proves to be a threat.
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