Tariffs can tear ~150 bps off specialty chemical makers’ margins

Persistent profitability pressures can weaken earnings, debt metrics and credit profiles

Trade-related uncertainties stemming from US tariff actions could upend the fragile recovery in profitability of India’s specialty chemicals sector. The operating margin, earlier estimated to improve to 15.5-16% in fiscal 2026, could decline ~150 basis points to 14-15%, same as in the two past fiscals.

The tariff threats and persisting pricing headwinds could mean fiscal 2026 could mark the third consecutive year of pressure on realisations. Even as volumes recover, aggressive dumping from China could erode the pricing power of domestic manufacturers and weigh heavily on profitability.

Already, Chinese imports into India and the global markets have surged over the past two fiscals, driven by their economic slowdown and excess capacity. This has triggered sharp price corrections, with domestic and export realisations for Indian specialty chemicals makers plunging 15-20% between fiscals 2024 and 2025.

While demand remains steady, further price erosion could undermine profitability and curtail recovery momentum.

The risk of a further decline in realisations has intensified with the US imposing an additional 20% tariff on Chinese chemical exports¹ since February 2025. This is expected to trigger a fresh wave of dumping by Chinese manufacturers, redirecting excess inventory to India and other markets.

Says Anuj Sethi, Senior Director, Crisil Ratings, “With realisations under pressure, the Indian specialty chemicals sector’s 7–8% revenue growth next fiscal will be largely volume-driven. Domestic revenues, forming 63% of the pie, are expected to grow 8–9%, while exports, may see just 4–5% growth. But with the rising threat of Chinese dumping, further fall in prices could deepen competitive pressure, push realisations to new lows, and impact profitability in an already fragile environment.”

Profitability pressures will continue but vary across companies, influenced by end-user exposure, revenue mix and demand-supply dynamics. Companies with balanced portfolios or catering to resilient end-user sectors are likely to better absorb shocks, while those reliant on exports or commoditised segments may face increased margin risk due to price volatility.

Says Poonam Upadhyay, Director, Crisil Ratings, “The anticipated drop of about 150 bps in profitability will directly impact the return on capital employed, which is already expected at a decadal low of ~13% this fiscal and the next, compared with 16-18% before the pandemic. While debt-to-EBITDA² is expected to sustain below 2 times for specialty chemical makers rated by us, persistent profitability pressures can weaken earnings and debt protection metrics, and affect credit profiles.”

An analysis of 121 companies rated by Crisil Ratings, representing about one-third of the highly fragmented sector valued at ~Rs 4 lakh crore, indicates as much.

Companies in the commoditised sub-segments such as polyvinyl chloride, or those manufacturing inputs for agrochemicals and pharmaceuticals could see higher impact on profitability because of intense Chinese competition. This would bear watching in the road ahead.