Rising inflation and interest rates impact sales and revenue of construction chemicals firm in Q1 2023

 

The macroeconomic environment, including rising inflation, interest rates, and the ongoing war between Russia and Ukraine, is having an impact across different industry verticals, including the global construction market. Construction chemical firms are also experiencing the impact of these factors amid the cooldown in the building sector.

·         Swiss chemical maker Sika AG (Sika)  reported a 3% decline in Q1 2023. Notably, the sales declined to 2.35 billion Swiss francs during the period, compared to 2.39 billion Swiss francs. In local currencies, the sales increased by 1.2% during the first quarter, which is down from a 21.9% increase in local currency sales in Q1 2022, during which the firm benefited from a construction boom fueled by low interest rates and pent-up demand following the global pandemic outbreak.

While the first quarter has been a challenging period for the Swiss chemical maker, the firm has announced that it is expecting a strong growth recovery over the next three quarters in 2023. The firm is expecting to increase its sales in local currencies by 6% to 8%. Furthermore, the firm also announced that it is on track to sell parts of MBCC to private equity firm Cinven in H1 2023.

The Australian Competition and Consumer Commission (ACCC), in April 2023, announced that it would not oppose Sika’s US$6.12 billion takeover of MBCC Group. However, for this to happen, the Swiss construction chemical maker needs to divest the MBCC Group’s entire business in Australia and New Zealand.

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Failure to do so would result in Sika and MBCC becoming the two largest suppliers of chemical admixtures in Australia, with a combined market share of around 80%.  Before the Australian Competition and Consumer Commission, the proposed deal also received conditional approval from the European Commission. Furthermore, the competition watchdog in the United Kingdom also cleared the proposed acquisition of MBCC Group.

This deal, along with the expansion process that the firm had carried out throughout the last year, means that the firm is well-placed to capitalize on the projected growth in the global construction market worldwide over the next five years.

·         In June 2022, Sika announced the opening of a new manufacturing plant for concrete admixtures in the United States. The new facility was part of the firm's strategy to meet the growing demand in the Mid-Atlantic and Northeast regions. In May 2022, Sika AG also announced the acquisition of United Gilsonite Laboratories (UGL), a manufacturer of waterproofing products in the United States.

Many of the leading construction chemical firms have been seen entering into mergers and acquisition deals over the last few quarters. French multinational firm Saint-Gobain, for instance, announced the acquisition of Matchem in Brazil in January 2023. Additionally, the firm also acquired IDP Chemicals in Egypt. Saint-Gobain completed the acquisition through its Chryso business. These acquisition deals will enable Saint-Gobain to strengthen its position in the construction chemicals business worldwide.

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In India, as well, firms are entering into mergers and acquisition deals to capitalize on the high-growth construction chemicals segment. Indigo Paints, one of the leading paints manufacturers in India, announced that the firm had acquired a 51% stake in construction chemical firm Apple Chemie in April 2023. JK Cement, through its subsidiary JK Paints & Coatings Ltd., announced that the firm had acquired a 60% stake in Acro Paints.

According to ConsTrack360's, construction chemical industry in India is expected to grow by 1.3% to reach USD 5,191 million in 2023. The medium to long term growth story in India remains intact. The construction chemical industry in India is expected to grow steadily over the next four quarters. The growth momentum is expected to continue over the forecast period, recording a CAGR of 12.1% during 2023-2027. The construction chemical output in the country is expected to reach USD 8,188.9 million by 2027.

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As the construction chemical space continues to offer a lucrative growth opportunity to firms globally, ConsTrack360 expects more such mergers and acquisition deals to take place in Q2 2023.