Alexander Gerding, Managing Director of industrial chemicals manufacturer BASF India, struck an optimistic tone about the company’s long-term growth prospects in the country, despite the challenging global environment.
Speaking during the Q2 FY2023 earnings conference call, Gerding highlighted several positive factors that make him confident about BASF India’s future.
“I always say it’s not a matter of if, it’s really a matter of when – when is the right moment, the right time, the right investment and the right partner. I’m confident about that,” he asserted.
Reasons for Optimism
Gerding cited both domestic and global factors that lend confidence for future growth.
On the macroeconomic front, he called out resilience shown by Indian economy with 2023 GDP growth projected around 6% and inflation showing signs of peaking. “If you compare that to most of the large countries, I think India’s growth is very solid,” Gerding emphasized.
The purchasing managers’ index hovering around 50 indicates continued economic expansion per the BASF India MD. Higher consumer confidence levels, especially during the festive season, also bode well.
Sectoral Trends
Gerding highlighted healthy automotive demand during the festivals. Strong construction activity, recovery in rural demand for fast moving consumer goods after a sluggish phase also make him hopeful.
While noting continuing margin pressures in the global chemical industry, he said demand is starting to pick up in China. This could ease some pricing pressures in months ahead.
BASF Performance
The MD commended his India team for posting 16% volume growth in Q2 2023 over same quarter last year. He also said prudent cost and working capital management have helped navigate the tough environment.
BASF India’s agri solutions business has clocked over 100 crore profits in first half of FY23, a 50% increase year-on-year. The MD revealed how sharp focus on differentiated products and inventory planning helped drive these results.
Focus Areas
True to BASF’s image as an innovation powerhouse, Gerding stressed that investments in R&D and bringing new products will continue at full steam. Staying close to customers and developing solutions tailored for India is also a priority.
While large investments remain cautious due to global overcapacity currently, incremental expansions are continuing in India. The MD expressed intent to keep increasing localization levels progressively.
Partnerships and people development are other key areas, as per Gerding. BASF India has had success already on initiatives like unearthing new female talent for chemical industry in association with academic institutes.
Gerding summed up that he sees all macro and micro trends in India heading the right direction. Leveraging global expertise while staying locally focused will help drive sustainable results.
While acknowledging that current headwinds do slow down progress, the MD conveyed conviction on India’s robustness.
Investments
The company said it continues to make “selective investments” to expand production capacity in India despite a difficult global chemical industry environment. The company management emphasized its strategic long-term commitment to the country, while adopting a prudent approach in the current uncertain times.
The management pointed out that existing capacities are running at 80-85% utilization levels, which demand further investment and expansion. Meanwhile, it has expanded capacities across businesses like dispersions, polyamides and coatings over the past year.
However, Gerding cautioned about significant new investments in the prevailing climate of uncertainty. With soft demand and overcapacity pressuring the global chemical industry, BASF is tightening capital allocation across its global operations.
BASF India CFO Narendranath J Baliga explained how every new investment proposal faces detailed scrutiny on technical and financial viability. Only proposals with watertight business cases are getting approval.
The management declined to share specifics of new capital expenditure plans in India. They positioned past investments as part of an ongoing strategy to expand production levels progressively based on local demand.
Asset Utilization
Baliga highlighted the strong volume growth in Q2 FY2023 as validation of the company’s asset sweating efforts. With global capacity utilization levels below par, the India operations provide a growth outlet within the overall BASF ecosystem.
BASF India posted 16% volume growth in the Indian market during the latest quarter. Baliga indicated that staying close to customers and maximizing capacity usage have taken priority over chasing prices in a hyper-competitive market.
The agri solutions segment provided an example of how strategic investments matched by local execution excellence can bear results even in difficult conditions.
From setting up additional formulation units to boosting digital infrastructure for demand sensitization, BASF kept enhancing capabilities in agriculture. Combined with astute inventory management and customer connect, this segment grew profits by over 50% year-on-year.