Last updated: 28th Mar 2012
The per capita use of plastics in India may still be quite low (compared to the developed world), however the Indian plastic industry is now one of the largest in the world at almost US$25bn in size, and promises a steady double digit growth rate for the next three years, projected to reach US$30bn by 2015.
• Indian Plastic Industry in the World Market
Asia has been world’s largest plastics consumer for several years, accounting for about 30% of the global consumption excluding Japan (6.5%), followed by North America with 26% and Western Europe with 23%. The two most significant fastest growing consumers are India and China. India, with 12.5m tonnes per annum (TPA), is expected to become the third largest consumer of polymers in the world after the USA (39m TPA) and China (37.5m TPA) by 2012.
India is already one of the fastest growing markets with a growth rate of around 14%, followed by CIS (9.1%), China (8.1%), Brazil (7%) and USA (3.6%). However, the per capita consumption of plastics is still low (at 5kg/per capita vs. the world average of 26 kg/per capita) which brings with it a large latent opportunity for this sector to grow.
• 2010 – 2011: Challenging Times
The Indian plastic industry followed the global trend, experiencing a slowdown over the last two years. Last year was marked by the unprecedented depreciation of the Indian rupee vs. the US dollar, and almost 13 consecutive interest rates hikes since the start of the financial year, which translated into a failed opportunity for the Indian plastic industry to transform the lower international commodity prices into lower prices in rupee terms.
However, since the start of 2012, the rupee-US dollar exchange rate has stabilised and the consumer sectors are witnessing heightened demand, which is expected to accelerate the growth of the plastic industry in India. Moreover, the Indian market players are convinced that India has robust long-term growth prospects. The consumption of petrochemicals is projected to hit 53.2m TPA by 2016-2017, up from 31.9m TPA in 2011-2012. It should be noted that crude oil and naptha prices have been a cause of concern for companies as imports tend to become more expensive, nonetheless India is set to become more self-reliant and grow enough to suffice its domestic demand for polymers.
• M&A in Indian Plastic Industry
The M&A deal flow in 2011 started with Rhodia (now part of Solvay Group) acquiring the engineering plastic compounding business of PI Industries of India, advised by Singhi Advisors. Other notable transaction included Indian Container Glass player HSIL acquiring the PET & PP rigid packaging business of Garden Polymers India. One of the most notable outbound transactions was Gita Holdings acquiring the assets of Vinyls Italia, a PVC producer, after it went into liquidation in May 2009.
• PlastIndia 2012
The eighth PlastIndia, which took place in February in New Delhi, welcomed around 1500 participants from over 40 countries. PlastIndia is India’s largest plastic exhibition in India and the third largest in the world. The week long exhibition gave the Indian players the perfect platform to attract interest from foreign players who have yet to penetrate the Indian market. Exhibition participants ranged from petrochemicals and resin manufacturers to finished products and plant & machinery. The exhibition did well to showcase the substantial growth potential of the Indian plastic industry.
• Future Outlook
The Indian plastic industry is expected to be worth US$30bn by 2015, employing over 7 million people. An estimated US$100bn of capital investment in new capacity is planned.
Below are new capital expansions currently taking place.
Lanxess set up a 20,000 TPA engineering compound facility of PA & PBT to be completed by 2012 at Jhagadia.
SPL Ltd commissioned two new expandable polystyrene (EPS) units at Nagothane.
Two large projects of CPVC production are planned, DCW, an existing PVC manufacturer is setting up a 10,000 Tonnes CPVC plant using Arkema technology, to be completed by 2013.
Meghmani Organics is setting up a 20,000 Tonnes CPVC project as a joint venture with Kaneka and Mitsui at Dahej in 2014.
The planned growth in the Indian economy is expected to be fueled by the development of the infrastructure, automotive and consumer goods sectors, all of which will be significant drivers for the plastics sector.
We expect M&A activity to increase significantly in 2012, with large Indian companies seeking foreign partners (in-bound), and certain large Indian packaging companies looking for cheap acquisitions in Europe, the Middle East and US.
During PlastIndia we spoke to a number of large players such as PolyOne, BASF, Lanxess, Solvay, A. Schulman, Kaneka, Hanwha. They all confirmed that they are keenly focused on establishing strong footholds in India. These companies are on the lookout for acquisitions and partnership opportunities in India.
We also expect a lot more M&A on the back of the consolidation of small and mid-sized players as they look to compete with the large global players entering India.
Singhi Advisors Pvt. Ltd.