Media Coverage Of Omkar Speciality Chemicals Ltd.

The New R&D Tiger Speciality Chemicals Magazine (Feb 2013)

India plans to spend more on R&D in chemicals. Atith Mogar reports from Mumbai

The Indian chemicals industry currently has a miniscule investment in R&D - just 0.5% of overall sales of €75 billion/year. However, by 2017, R&D spending is set to increase both relatively, to 4% of turnover, and absolutely, to about €9 billion/year, according to Yogesh Kothari, chairman of Alkyl Amines Chemicals and president of the Indian Chemical Council.

Chemical units across India are stressing both R&D and technological upgrades of their present facilities, with most firms spending a larger share of their turnover in this area. The overall aim is to bring on new products that are competitive in the international market.

Alkyl Amines itself is in the process investing about €35 million to set up a methylamine manufacturing facility at Dahej in Gujarat state. Kothari says that the company has been adding capacity every year based on its own R&D technology. The global recession has not hit India, he adds, "due to our own large domestic market".

Expansion is on the cards at Mumbai-based Vinati Organics, which is the second biggest manufacturer of ATBS, a monomer used to secure crude oil from out of deep wells. Its belief in ATBS's potential is reflected in the past doubling of capacity to 10,000 tonnes/year in 2009. This was further expanded to 12,000 in 2011 through debottlenecking and to 26,000 in October 2012.

Thus, Vinati has been growing at over 30%/year in ATBS, outpacing even world demand growth of 8-10%/year. The company has also emerged as the world's biggest manufacturer of IBB, a speciality chemical used in the manufacture of anti-inflammatory drug ibuprofen. With a capacity of 14,000 tonnes/year, the company supplies IBB to all the major ibuprofen manufacturers worldwide.

The fragmented nature of the chemicals industry in India and the minuscule scale of operation for some players do not allow substantial R&D investments. To ensure that everyone is on the same page, the government has been putting in place plans and regulations to support the growth of the market and is keen to foster a positive R&D culture, quality standards and technological innovation.

Government cheque

The Indian speciality chemicals sector is currently valued at over €16 billion/year. It has been growing at 11-13%/year over the 11th Plan for the years 2007-2012, surpassing the government's own target of 7-8%, thanks to fast-growing key end-use markets such as automobiles, infrastructure, electronics, textiles, etc. It is set to grow at a rate of 13-14% over the next five years, potentially valuing it at over €30 billion in 2017.

"The Indian chemicals industry can deliver on an accelerated growth phase, provided that a clearly defined vision along with a strategic roadmap is developed to enable it. If this is not done, we may see the growing domestic market increasingly being served through manufacturing outside India,'" says R. Parthasarathy, managing director of Thirumalai Chemicals, a traditional supplier of phthalic anhydride to the paint industry with a plant near Chennai. In order to leverage the India opportunity effectively, he adds, the industry needs significant investments, to the tune of over €110 billion, in capacity creation, technology development and access to feedstock.

In Gujarat, chemical units have already taken the initiative and are increasing focus on R&D and technological upgrades of their existing facilities. The state's chemicals industry, which mainly comprises SMEs, has been reeling under high costs amidst dull market conditions. This has prompted units to spend more on R&D activity to make production more economic and cost-effective.

"The need of the hour is to improve productivity, not scale up production. It is increasingly difficult to pass on the cost burden to consumers. R&D will help in reducing costs and address the challenge of pollution concerns as well,'" says Jaimi Vasa of Vasa Pharmachem, who is also the president of the Gujarat Chemical Association.

Solvay, which has opened a new R&D centre in Savli, Gujarat, is a case in point. The centre will focus on high performance polymers, organic chemistry, nanocomposites and green chemistry. Solvay, which has seven production sites and 900 employees in India, plans to double its 2011 sales of €168 million in the next three years.

At the end of 2012, Solvay announced a 70% capacity increase in high performance polymers at Panoli, its largest global plant for these products. Nearly half of this has already been implemented and brought on-line, with the second phase due to be completed by mid-2013. Solvay has also just closed the acquisition of a controlling interest in Sunshield Chemicals, an Indian maker of surfactants, cross-linkers and antioxidants, with sales of €13 million in its last financial year.

Various domestic companies, meanwhile, are ensuring that their capacity expansion plans and R&D spends translate into actual innovation that benefits India. Mumbai headquartered-Omkar Speciality Chemicals, which supplies ten products in the veterinary segment and other APIs and pharmaceutical intermediaries, with 45% of its revenues coming from patented products, has outlined €14 million in investment.

Having already set up an R&D plant in Goa, Omkar is keen to step up its presence in South America and Africa, two high potential markets."Chemical companies are criticised for low investment in R&D. The company's R&D expenditure in 2011-12 was €500,000, about 3-4% of sales, and all of the research was developed in-house," says company director Omkar Herlekar.

Meanwhile, Gujarat-based Atul, a colorants and agrochemicals company, is planning to expand capacity for p-cresol, a speciality chemical used in the fragrance and personal care industry, within months of commissioning the world's biggest plant. Similarly, Thirumalai Chemicals has ventured into speciality chemicals by making food acids. It is the only producer of malic acid in Asia and claims to be one of the world's four largest, with capacity of over 6,000 tonnes/year.

Growth push

As an industry analyst points out, the growth in domestic demand is attributed to both, growth in the end user industries and the increased usage of speciality chemicals. For example, the textiles industry, one of the most significant consumers of speciality chemicals is expected to grow at 20%/year over the next five years. Additionally, evolving customer demand for dirt-repellent, wrinkle-free, impact-resistant textiles has resulted in demand for new applications-driven speciality chemicals, says Manish Panchal, chemical and energy practice head at the Tata Strategic Management Group. Similarly, in the construction sector, structural adhesives, cement admixtures and surface coatings have gained momentum.

"Substantially lower penetration, increasing globalisation and higher disposable income are fuelling the growth of end-user industries. This industry is expected to grow over 17% over the next five years,'' Panchal says. Global consulting firm McKinsey believes that India's speciality chemicals industry has the potential to grow to €80 billion by 2020.

Moreover, the industry has also been benefiting from macro-economic trends in addition to structural changes. "In the last few months, the depreciation of the rupee, the appreciation of the yuan and an increase in cost of production in China have helped Indian speciality chemicals companies garner more market share, both in the domestic and international markets,'" says Sunil Jain at Nirmal Bang Securities, a broking firm.

Domestic scene

The domestic front has also taken giant strides. With increasing GDP, the Indian middle class sector is expected to grow to 148 million households by 2030, with quadrupled consumption. Furthermore, India's urban population is expected to increase by 275 million people by then. This will result in consumption-led double digit growth in the Indian chemicals industry.

An increasingly urbanised India will double the requirement for clean municipal water by 2020, therefore significantly increase municipalities' usage of water treatment chemicals to treat or recycle waste water. Similarly, increased infrastructure spending - the government's 13th Plan recommends €750 billion of investment in development of roads, ports, power and telecoms - accompanied by growth in the real estate industry, could result in over 15%/year growth in construction chemicals and coatings.

As the economy develops, India will need to regulate products more stringently, and strengthen consumption standards, which in turn will promote increased usage of speciality chemicals. For instance, the US and Europe are very strict on the usage of solvents in paints and limit VOC content. India still uses enamel paints with high VOC content. Mandating the use of water-based paints containing 5-15% petrochemicals will increase the segment's value.

The construction industry in India is growing in excess of 16%/year and is likely to reach €80 billion by end of the 12th Five Year Plan period in 2017. The construction chemicals industry accounts for only 0.4% of the total construction spend and has the potential to reach 1%, which is the norm in developed economies.

Alkyl Amines itself is in the process investing about €35 million to set up a methylamine manufacturing facility at Dahej in Gujarat state. Kothari says that the company has been adding capacity every year based on its own R&D technology. The global recession has not hit India, he adds, "due to our own large domestic market".

Compared to the developed world and China, the current penetration of speciality chemicals within India's end markets is low. With an increased focus on improving products, usage intensity of speciality chemicals within these end markets is expected to rise in India over the next decade.