Speciality chemical makers are betting on pharma momentum. And it's paying off

The reason, according to experts, is that suppliers to pharma companies enjoy clearer growth visibility, far less competition, and stronger margins than industry-linked speciality and agro-chemical businesses that dominate the country's chemicals landscape.

Intermediates tied to new chemical entities require complex synthesis, rigorous regulatory oversight, and long qualification cycles. In such cases, speed matters far more than cost, and these inherent barriers deepen customer stickiness, said Vikash Agarwalla, managing director and partner at global consulting giant Boston Consulting Group.

Scaling a business that serves pharma CDMOs is inherently slow, as companies enter into contracts early in the drug's discovery phase and grow with the molecule, noted Deepak Jain, chief executive and managing director of Jubilant Ingrevia. “It’s a game of patience, but a high-margin, sticky business."

This gives CDMO suppliers stronger pricing power and better earnings visibility than commodity-style speciality chemicals businesses, Agarwalla added.

Mint’s September-quarter earnings analysis also shows the trend. A pack of 10 pharma-linked speciality chemical and CDMO-adjacent companies posted about 7% year-on-year growth in sales, outpacing the non-pharma cohort’s modest 4% uptick in Q2FY26.

“Pharma-linked chemical firms are growing off a low base, supported by some big CDMO tailwinds: geopolitical shifts, supply-chain diversification, near shoring and increasing pricing pressures on big pharma," said Agarwalla.

Ergo, pharma-linked speciality chemical sales have climbed for three straight quarters, while the wider chemicals pack has slowed, Mint’s analysis showed. As a result, net profit for pharma-linked firms jumped 46% on-year, albeit helped by higher non-core income, while the non-pharma group managed only a 9% rise.

Experts attributed this performance gap to the country’s rapidly expanding CDMO ecosystem, which is driving sales growth for its chemical suppliers.

Nuvama Institutional Equities noted that the CDMO segment grew the fastest in its pharma portfolio, at 23% on-year in the second quarter. This was driven by a doubling of Neuland Laboratories’ custom manufacturing services business, with Divi’s Laboratories and Jubilant Pharmova also posting 23-28% growth in contractual development and manufacturing services.

Moreover, with India holding just 2-3% of the $145-billion global CDMO market, according to a February Boston Consulting Group report, Agarwalla sees ample headroom for expansion. The domestic CDMO space has grown about 15% annually to $3.5 billion over six years, and he expects 15-20% yearly growth through 2035, supported by supply-chain diversification away from China, India’s improving cost competitiveness, and a rising late-stage clinical pipeline.

Key drivers

The US Biosecure Act, revived in October, could drive business from China to India if it is passed, noted experts. The bill prohibits the US government and contractors from working with certain Chinese companies.

Consequently, Swarnendu Bhushan, co-head of institutional research at stock broker PL Capital, expects pharma-linked speciality chemical suppliers to sustain growth, unlike the broader chemicals sector, which is still reeling under global pressures.

The Donald Trump-led US administration's 50% tariffs on organic chemicals, speciality organics, and agrochemical intermediates have eroded India’s price competitiveness, forcing exporters to either absorb the hit or lose orders to local suppliers. At the same time, Chinese agrochemical plants are running at just 60-65% utilization, flooding the market with oversupply and dragging down realizations despite a volume recovery, noted Bhushan.

In addition, soft European industrial and construction demand is worsening the slowdown in the chemicals sector. Falling global prices are keeping margins under pressure for commodity-style and industry-linked speciality chemicals, said experts.

However, Mint’s analysis showed that net profit margins for pharma-linked chemical companies remain broadly similar to those of their non-pharma peers, at about 11% compared to 10% in the September quarter.

This is because not all pharma intermediate suppliers participate in the CDMO space. Several players tied to generic intermediates clock mid-teen or lower margins and remain vulnerable to foreign dumping, noted Boston Consulting Group’s Agarwalla.

By contrast, CDMO-linked businesses enjoy structurally stronger margins, as innovator pharma supply chains are steadier and intermediates account for only a small share of final drug costs. That lowers price sensitivity and gives suppliers greater pricing power, translating into 25-30% Ebitda margins, Agarwalla said. Ebitda is short for earnings before interest, tax, depreciation, and amortization.

However, volumes coming from the CDMO sub-segment remain small, said PL Capital’s Bhushan. “If the quantity does not scale up, then the margin also gets impacted," he said.

Future pipeline

Still, overall volume pick-up in speciality pharma has outpaced most other segments, said Jain of Jubilant Ingrevia. Meanwhile, newer categories such as cosmetics and nutraceuticals are growing quickly, he added.

A number of speciality chemical players are sharpening their focus on the pharma segment, said PL Capital’s Bhushan.

Jubilant Ingrevia has built a pipeline of over 10 new molecules across speciality segments, like pharma, cosmetics, and agrochemicals, which is expected to add ₹1,200 crore of peak annual revenues in the coming years. It has plans to add 10 more to the pipeline in the next 6-9 months, Jain said.

Even Acutaas Chemicals is upbeat on its CDMO pipeline, which spans pharma intermediates and multi-step custom synthesis work, noted Kotak Institutional Equities in a 25 November report.

While individual CDMO projects may be small and margins hinge on volume ramp-up for pharma-linked chemical intermediates, the industry’s shift is unmistakable, said Agarwalla. “CDMO-linked intermediates offer a far more resilient path in a chemicals sector struggling with global price pressure and uneven demand."