nd2

on Specialty, Fine Chemicals , Agrochemicals Dyes & Pigments and SME Sector in Gujarat State

2011Gujarat

Knowledge Paper

Theme:

Leveraging Gujarat State Advantage In The Global Chemical Industry

Executive summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

The Gujarat state advantage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Industry reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

1. Agrochemicals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

2. Fine chemicals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

3. Dyes and pigments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

4. Other specialty chemicals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Thought notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

1. Farming solutions - the next frontier for breakthrough growth of Indian

agrochemical companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

2. Contract research - driving strategic value from emerging markets . . . . . . . 69

3. GST: An opportunity to assess your supply chain . . . . . . . . . . . . . . . . . . . . . 75

About Tata Strategic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

CONTENTS

Executive summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

The Gujarat state advantage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Industry reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

1. Agrochemicals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

2. Fine chemicals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

3. Dyes and pigments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

4. Other specialty chemicals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Thought notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

1. Farming solutions - the next frontier for breakthrough growth of Indian

agrochemical companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

2. Contract research - driving strategic value from emerging markets . . . . . . . 69

3. GST: An opportunity to assess your supply chain . . . . . . . . . . . . . . . . . . . . . 75

About Tata Strategic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

CONTENTS

01

T

Agrochemicals

his FICCI report on the specialty chemical industry in India, prepared by Tata

Strategic Management Group, provides an analysis of key industry segments -

agrochemicals, fine chemicals, dyes, pigments and colourants and other specialty

chemicals. The report highlights the current market size, projects future market size and

growth, map demand-supply scenario and outline the demand drivers. It also provide

insights on key market, technology and regulatory trends and conclude with a brief

outlook on the levers for delivering growth - through capitalizing on opportunities and

addressing imminent challenges. The report provides a brief overview of the business

environment in the state of Gujarat, with special emphasis on agrochemicals, fine

chemicals, dyes, pigments and colourants and other specialty chemicals. It describes

salient features and key developments in the investing climate and industrial policy of the

state.

Over the past two decades, Gujarat has become one of the most preferred locations for

industrial investment in India. Gujarat has achieved an annual growth rate of over 10%

p.a. over the past five years and is one of the most industrialized states of India. It

accounts for 16% of the nation's industrial production and 22% of its exports. Gujarat

possesses several key factors which have enabled it to chart a path of rapid growth and

industrialization - sound infrastructure facilities, availability of skilled and semi-skilled

manpower, excellent domestic and international connectivity and rich natural resources.

But the key differentiating factor has been Gujarat's investor-friendly policy towards

industrial development. These have resulted in Gujarat evolving as the hub of India's

chemical and petrochemical industry - with the state accounting for more than half of

India's total chemical industry and ~63% of total national petrochemical production. The

chemical industry is today the largest and fastest growing component of Gujarat's

manufacturing sector.

The Indian chemical industry forms the backbone of the industrial and agricultural

development of India and provides building blocks for downstream industries. The

industry has registered a growth of ~10% p.a. over the last few years and is currently

estimated to be around $ 80-85 Bn. Specialty and knowledge chemicals together account

for $ 27 Bn and could grow at a higher rate of ~15-17% over the next few years, outpacing

the overall GDP growth rate.

As an allied industry of agriculture, which accounts for about one fifth of India's GDP, the

agrochemicals industry is a significant industry for the Indian economy. The Indian

agrochemicals market grew at around 10%-11% over the last five years to reach ~$ 3.4 Bn

in FY10. With 125 technical grade manufacturers and 800 formulators, India is the fourth

Executive Summary

01

T

Agrochemicals

his FICCI report on the specialty chemical industry in India, prepared by Tata

Strategic Management Group, provides an analysis of key industry segments -

agrochemicals, fine chemicals, dyes, pigments and colourants and other specialty

chemicals. The report highlights the current market size, projects future market size and

growth, map demand-supply scenario and outline the demand drivers. It also provide

insights on key market, technology and regulatory trends and conclude with a brief

outlook on the levers for delivering growth - through capitalizing on opportunities and

addressing imminent challenges. The report provides a brief overview of the business

environment in the state of Gujarat, with special emphasis on agrochemicals, fine

chemicals, dyes, pigments and colourants and other specialty chemicals. It describes

salient features and key developments in the investing climate and industrial policy of the

state.

Over the past two decades, Gujarat has become one of the most preferred locations for

industrial investment in India. Gujarat has achieved an annual growth rate of over 10%

p.a. over the past five years and is one of the most industrialized states of India. It

accounts for 16% of the nation's industrial production and 22% of its exports. Gujarat

possesses several key factors which have enabled it to chart a path of rapid growth and

industrialization - sound infrastructure facilities, availability of skilled and semi-skilled

manpower, excellent domestic and international connectivity and rich natural resources.

But the key differentiating factor has been Gujarat's investor-friendly policy towards

industrial development. These have resulted in Gujarat evolving as the hub of India's

chemical and petrochemical industry - with the state accounting for more than half of

India's total chemical industry and ~63% of total national petrochemical production. The

chemical industry is today the largest and fastest growing component of Gujarat's

manufacturing sector.

The Indian chemical industry forms the backbone of the industrial and agricultural

development of India and provides building blocks for downstream industries. The

industry has registered a growth of ~10% p.a. over the last few years and is currently

estimated to be around $ 80-85 Bn. Specialty and knowledge chemicals together account

for $ 27 Bn and could grow at a higher rate of ~15-17% over the next few years, outpacing

the overall GDP growth rate.

As an allied industry of agriculture, which accounts for about one fifth of India's GDP, the

agrochemicals industry is a significant industry for the Indian economy. The Indian

agrochemicals market grew at around 10%-11% over the last five years to reach ~$ 3.4 Bn

in FY10. With 125 technical grade manufacturers and 800 formulators, India is the fourth

Executive Summary

02 03

largest producer of agrochemicals in the world after USA, Japan and China. Indian

agrochemical exports have shown an impressive growth in the past few years driven by

excess capacity and availability of cheap labor. Exports account for almost 53% of the

industry revenues and manufacturing cost-competitiveness vis-à-vis developed economies

is expected to driver exports growth at around 15% annually in the next decade.

Government focus on achieving food grain self sufficiency coupled with limited farmland

availability is expected to provide a further impetus to the industry.

The Indian pharmaceutical industry size stood at nearly $ 21.4 Bn in 2010, 40% of which

was accounted for by fine chemicals. The fine chemicals market is poised for rapid growth

in the next decade driven by increased focus on contract manufacturing (CRAMS) by

global players to reduce costs and increasing exports to innovators (as opposed to

generics). The market size is expected to exceed $ 45 Bn in 2016.

The Indian colorants industry stood at nearly $ 3.5 Bn in 2010 with exports accounting for

68%. It is expected to grow between 11% and 15% to $ 10 Bn to $ 14 Bn by 2020. The

steep growth is expected to be driven by boom in infrastructure market and consumer

products and India and increasing scope for manufacturing for exports.

Other specialty chemicals primarily consist of paints & coatings chemicals, construction

chemicals, polymer additives, water treatment chemicals and aroma chemicals. Paints &

coatings is the largest segment, with a market size of ~$ 3.4 Bn in 2010. Other key

segments include water treatment chemicals valued at ~$ 540 Mn, construction chemicals

valued at $ 400 Mn, aroma chemicals valued at ~$ 300 Mn, and polymer additives valued

at ~ $ 300 Mn in 2010. All these segments are expected to grow at rates above the

chemical industry average, based on growth in their respective end use industries,

evolving applications and changing regulatory environment.

Additionally, a separate section containing recent Thought Notes published by Tata

Strategic Management Group has been included. This section provides key insights on

contemporary trends and issues related to Indian businesses, especially pertinent to the

chemical industry and small & medium scale industries (SMEs).

Fine chemicals

Dyes and pigments

Specialty chemicals

The Gujarat State Advantage

02 03

largest producer of agrochemicals in the world after USA, Japan and China. Indian

agrochemical exports have shown an impressive growth in the past few years driven by

excess capacity and availability of cheap labor. Exports account for almost 53% of the

industry revenues and manufacturing cost-competitiveness vis-à-vis developed economies

is expected to driver exports growth at around 15% annually in the next decade.

Government focus on achieving food grain self sufficiency coupled with limited farmland

availability is expected to provide a further impetus to the industry.

The Indian pharmaceutical industry size stood at nearly $ 21.4 Bn in 2010, 40% of which

was accounted for by fine chemicals. The fine chemicals market is poised for rapid growth

in the next decade driven by increased focus on contract manufacturing (CRAMS) by

global players to reduce costs and increasing exports to innovators (as opposed to

generics). The market size is expected to exceed $ 45 Bn in 2016.

The Indian colorants industry stood at nearly $ 3.5 Bn in 2010 with exports accounting for

68%. It is expected to grow between 11% and 15% to $ 10 Bn to $ 14 Bn by 2020. The

steep growth is expected to be driven by boom in infrastructure market and consumer

products and India and increasing scope for manufacturing for exports.

Other specialty chemicals primarily consist of paints & coatings chemicals, construction

chemicals, polymer additives, water treatment chemicals and aroma chemicals. Paints &

coatings is the largest segment, with a market size of ~$ 3.4 Bn in 2010. Other key

segments include water treatment chemicals valued at ~$ 540 Mn, construction chemicals

valued at $ 400 Mn, aroma chemicals valued at ~$ 300 Mn, and polymer additives valued

at ~ $ 300 Mn in 2010. All these segments are expected to grow at rates above the

chemical industry average, based on growth in their respective end use industries,

evolving applications and changing regulatory environment.

Additionally, a separate section containing recent Thought Notes published by Tata

Strategic Management Group has been included. This section provides key insights on

contemporary trends and issues related to Indian businesses, especially pertinent to the

chemical industry and small & medium scale industries (SMEs).

Fine chemicals

Dyes and pigments

Specialty chemicals

The Gujarat State Advantage

04 05

India is one of the fastest growing large economies of the world, having a track record of

sustained high growth over a prolonged period of time, and a positive growth outlook

driven by strong macroeconomic, demographic and consumption fundamentals. Two

decades of the post-reforms period have ushered in intense economic activity, driving

India's GDP growth rate to 7.7% over the previous decade.

India growth story and the chemicals industry

Real GDP Growth Rate (%)

3%

4%

5%

6%

7%

8%

9%

10%

'93 '95 '97 '99 '01 '03 '05 '07 '09 11

7.7%

Source: RBI Handbook of Statistics, Analysis by Tata Strategic

Availability of skilled manpower, access to local and international markets and strong

market fundamentals backed by rising per capita income have propelled India to become

a leading economy by 2010 (ninth-largest in nominal terms, fourth largest in Purchasing

Power Parity (PPP) terms). This growth story is driven by manufacturing and service

sectors, which cumulatively account for more than 85% of current GDP.

Composition of GDP (%)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

'90 '94 '98 '02 '06 '10

Services: 65.6%

Industry: 20.0%

Agriculture: 14.4%

Source: RBI Handbook of Statistics, Analysis by Tata Strategic

04 05

India is one of the fastest growing large economies of the world, having a track record of

sustained high growth over a prolonged period of time, and a positive growth outlook

driven by strong macroeconomic, demographic and consumption fundamentals. Two

decades of the post-reforms period have ushered in intense economic activity, driving

India's GDP growth rate to 7.7% over the previous decade.

India growth story and the chemicals industry

Real GDP Growth Rate (%)

3%

4%

5%

6%

7%

8%

9%

10%

'93 '95 '97 '99 '01 '03 '05 '07 '09 11

7.7%

Source: RBI Handbook of Statistics, Analysis by Tata Strategic

Availability of skilled manpower, access to local and international markets and strong

market fundamentals backed by rising per capita income have propelled India to become

a leading economy by 2010 (ninth-largest in nominal terms, fourth largest in Purchasing

Power Parity (PPP) terms). This growth story is driven by manufacturing and service

sectors, which cumulatively account for more than 85% of current GDP.

Composition of GDP (%)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

'90 '94 '98 '02 '06 '10

Services: 65.6%

Industry: 20.0%

Agriculture: 14.4%

Source: RBI Handbook of Statistics, Analysis by Tata Strategic

06 07

Chemical industry is a significant contributor to the Indian economy, accounting for 11%

of total industry output and 13% of Gross Value Added by the manufacturing sector in

FY10. The industry contributes to 10% of India's total exports and is a net earner of

foreign exchange. It is also a significant employment generator and participation field for

small and medium scale industries (SMEs). The size of India's chemical industry was

approximately $ 83 Bn in FY10, and could grow at 15% annually to $ 330 Bn in 2020 in the

most likely scenario, outpacing the GDP growth rate. The growth is expected to be driven

by rising demand in end-use segments and rising exports fuelled by increasing export

competitiveness.

Other basechemicals,27, 33%

Biotech, 3,3%

Agrochem,2, 2%

Specialtychemicals,15, 18%

Petrochem, 16, 20%

Pharma,20,24%

India’s chemical industry, FY10 (% of total)

Source: Tata Strategic estimates

Total: $ 83 Bn

Annual FDI inflows to India

exceeded $ 30 Bn for the first

time in 2007, and India became

the second largest FDI

destination globally. Though FDI

inflows have dipped to $ 23 Bn in

FY11 due to the combined effect

of aftershocks of global

recession and bunching effect of

FDI, it is expected to re-touch

pre-recession levels by 2012.

6 5 46

9

23

34 3533

23

35

0

5

10

15

20

25

30

35

40

Source: Economic Advisory Council to the Prime Minister, Department of Industrial Promotion and Policy

Foreign Direct Investments ($ Bn)

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11E

2011-12P

198

390

205 229

749

362398

FY05 FY06 FY07 FY08 FY09 FY10 FY11

FDI in chemicals industry ($ Mn)

Source: Department of Industrial and Policy & Promotion,Industry Reports

Major FDI deals in FY11

Source: Industry Reports, Analysis by Tata Strategic

Acquisition0.11Fumakilla India Private Ltd

Fumakilla Ltd

Strategic StakeN.A.

Cindu Chemicals (held by Corus, the British -Dutch

subsidiary of Tata Steel)

Koppers International

AcquisitionN.A.

Shreeji Pesticides Pvt LtdWillowood Chemicals

Majority Stake100RFCL Ltd.Avantor Performance

Materials Holdings

AcquisitionN.A.Laffans Petrochemicals

LtdHuntsman Corporation

Acquisition

Increasing stake to

100%

17.5PI Industries LtdRhodia SA

50.6Indo -Jordan Chemicals

(subsidiary of SPIC)

Jordan Phosphates Mines

Company

Acquisition price

($ Mn)

Koppers

Deal TypeTargetAcquirer

Source: Gujarat Socio-Economic Review,2009-10

17%

16%

12%

10%

6%

5%

22%Exports

Fixed capital investment

Value of output

Net mfg. value

No. of factories

Area

Population

Gujarat’ s share in India,FY10

22%22%

Gujarat: The chemical hub of India

Over the years, Gujarat has become one of the most preferred locations for industrial

investment in India. Apart from having sound infrastructure facilities, skilled manpower,

excellent domestic and international connectivity and rich raw materials, a key

differentiating factor for Gujarat is its focus on industrial development in the state. Gujarat

has achieved an annual growth rate of 10.5% p.a. over the past five years and contributes

~16% to the industrial production of the country.

The chemical and petrochemical industry in Gujarat is the fastest growing sector in the

state's economy. Gujarat has truly emerged as the hub of chemical manufacturing in

India, accounting for more than 62% of national petrochemicals and 51% of national

chemical sector output in 2007. It leads all states in MoU formation and committed

investments in the sector. 30% of total fixed capital investments in the state are allocated

to manufacturing of chemicals and chemical products, and the sector employs about 20%

of the workforce of the state.

06 07

Chemical industry is a significant contributor to the Indian economy, accounting for 11%

of total industry output and 13% of Gross Value Added by the manufacturing sector in

FY10. The industry contributes to 10% of India's total exports and is a net earner of

foreign exchange. It is also a significant employment generator and participation field for

small and medium scale industries (SMEs). The size of India's chemical industry was

approximately $ 83 Bn in FY10, and could grow at 15% annually to $ 330 Bn in 2020 in the

most likely scenario, outpacing the GDP growth rate. The growth is expected to be driven

by rising demand in end-use segments and rising exports fuelled by increasing export

competitiveness.

Other basechemicals,27, 33%

Biotech, 3,3%

Agrochem,2, 2%

Specialtychemicals,15, 18%

Petrochem, 16, 20%

Pharma,20,24%

India’s chemical industry, FY10 (% of total)

Source: Tata Strategic estimates

Total: $ 83 Bn

Annual FDI inflows to India

exceeded $ 30 Bn for the first

time in 2007, and India became

the second largest FDI

destination globally. Though FDI

inflows have dipped to $ 23 Bn in

FY11 due to the combined effect

of aftershocks of global

recession and bunching effect of

FDI, it is expected to re-touch

pre-recession levels by 2012.

6 5 46

9

23

34 3533

23

35

0

5

10

15

20

25

30

35

40

Source: Economic Advisory Council to the Prime Minister, Department of Industrial Promotion and Policy

Foreign Direct Investments ($ Bn)

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11E

2011-12P

198

390

205 229

749

362398

FY05 FY06 FY07 FY08 FY09 FY10 FY11

FDI in chemicals industry ($ Mn)

Source: Department of Industrial and Policy & Promotion,Industry Reports

Major FDI deals in FY11

Source: Industry Reports, Analysis by Tata Strategic

Acquisition0.11Fumakilla India Private Ltd

Fumakilla Ltd

Strategic StakeN.A.

Cindu Chemicals (held by Corus, the British -Dutch

subsidiary of Tata Steel)

Koppers International

AcquisitionN.A.

Shreeji Pesticides Pvt LtdWillowood Chemicals

Majority Stake100RFCL Ltd.Avantor Performance

Materials Holdings

AcquisitionN.A.Laffans Petrochemicals

LtdHuntsman Corporation

Acquisition

Increasing stake to

100%

17.5PI Industries LtdRhodia SA

50.6Indo -Jordan Chemicals

(subsidiary of SPIC)

Jordan Phosphates Mines

Company

Acquisition price

($ Mn)

Koppers

Deal TypeTargetAcquirer

Source: Gujarat Socio-Economic Review,2009-10

17%

16%

12%

10%

6%

5%

22%Exports

Fixed capital investment

Value of output

Net mfg. value

No. of factories

Area

Population

Gujarat’ s share in India,FY10

22%22%

Gujarat: The chemical hub of India

Over the years, Gujarat has become one of the most preferred locations for industrial

investment in India. Apart from having sound infrastructure facilities, skilled manpower,

excellent domestic and international connectivity and rich raw materials, a key

differentiating factor for Gujarat is its focus on industrial development in the state. Gujarat

has achieved an annual growth rate of 10.5% p.a. over the past five years and contributes

~16% to the industrial production of the country.

The chemical and petrochemical industry in Gujarat is the fastest growing sector in the

state's economy. Gujarat has truly emerged as the hub of chemical manufacturing in

India, accounting for more than 62% of national petrochemicals and 51% of national

chemical sector output in 2007. It leads all states in MoU formation and committed

investments in the sector. 30% of total fixed capital investments in the state are allocated

to manufacturing of chemicals and chemical products, and the sector employs about 20%

of the workforce of the state.

08 09

Gujarat houses production facilities for some of the largest global and Indian chemical and

petrochemicals manufacturers. Gujarat State Fertilizers & Chemicals Ltd. (GSFC), Gujarat

Alkalis & Chemicals Ltd. (GACL) and Gujarat Narmada Valley Fertilizers Company Ltd.

(GNFC) are the largest public sector units located in Gujarat. GSFC is the only producer of

melamine and largest producer of caprolactum in India. GACL is the market leader in

caustic soda whereas GNFC is one of the leading fertilizers company in the country. Apart

from these 3 PSUs, a large number of domestic and multinational companies across

various chemical segments have presence in the state. Leading Indian and multinational

private organizations which have a footprint in Gujarat are Reliance, ONGC, Dow

Chemicals, Cheminova, Lanxess, India Oil (IOCL), Indian Petrochemical Corporation

Limited, Nirma, Essar, BASF, Bayer, Rallis, Novartis, Cadila, Aarti Group and Deepak Nitrite.

Gujarat accounts for ~40% of India's pharmaceutical output with more than 3200

pharmaceutical companies located in the state

Investment climate in Gujarat

A key indicator of investor and industry confidence in Gujarat is the number and scale of

investments and business ventures committed to the state. More than 80 MoUs and

announcements were signed in the Vibrant Gujarat summit 2009 for projects to be

executed and established in the chemical and petrochemical sector. The cumulative

proposed investment in the sector stood at more than INR 56,000 crore. Most projects are

for establishing industrial parks and production plants for base chemicals, specialty

chemicals and dyes and intermediaries.

The sustained economic success and rapid industrial growth have been made possible by

an unambiguous pro-industry approach by the State. Several policy decisions, execution

of key projects and geographic and demographic factors have helped increase the ease of

doing business in Gujarat, specifically in the chemicals industry.

Infrastructure and strategic location

Gujarat is well connected by the Indian Railways network and has built one of the best

road networks in India. It's a power-sufficient state with a low cost of utilities and one of

the highest per capita power consumption levels. It has the highest number of airports

and second highest number of ports. It's the only state with an integrated state-wise gas

grid and has a very high tele-density. Also, the Sardar Sarovar Narmada project, once

completed, is expected to create continuous water supply throughout the state. Gujarat is

favourably located midway on the highly industrialized Delhi-Mumbai corridor, giving it

ease of access to high-growth states in North and West. The state has the longest

coastline in the country (1,600 kms) and is well-connected to major trade routes to

Europe, Middle-East, East Asia and Australia though a large number of ports. 38% of the

proposed Delhi Mumbai Industrial Corridor will pass through Gujarat, thereby providing

the opportunity for chemical companies to base their production in Gujarat and serve the

Indian market.

Raw material availability

Rich availability of natural resources and basic feedstock facilitate production of a large

number of downstream chemical products. Wide availability of limestone, salt, petroleum

Industry composition: Gujarat, FY09

Source: Gujarat Socio-Economic Review,2009-10

Textiles,6%

Energy,26%

Others,19%

Non-metallic

products, 5%

Chemicals, 42%

0

10

20

30

40

50

60

70

80

90

2003 2005 2007 2009 2011

0

10000

20000

30000

40000

50000

60000

Proposed investments1 in Gujarat (Rs Cr)

Source: Vibrant Gujarat, 2011Note: 1) In chemical & petrochemical sector

# of MoUs Investments

08 09

Gujarat houses production facilities for some of the largest global and Indian chemical and

petrochemicals manufacturers. Gujarat State Fertilizers & Chemicals Ltd. (GSFC), Gujarat

Alkalis & Chemicals Ltd. (GACL) and Gujarat Narmada Valley Fertilizers Company Ltd.

(GNFC) are the largest public sector units located in Gujarat. GSFC is the only producer of

melamine and largest producer of caprolactum in India. GACL is the market leader in

caustic soda whereas GNFC is one of the leading fertilizers company in the country. Apart

from these 3 PSUs, a large number of domestic and multinational companies across

various chemical segments have presence in the state. Leading Indian and multinational

private organizations which have a footprint in Gujarat are Reliance, ONGC, Dow

Chemicals, Cheminova, Lanxess, India Oil (IOCL), Indian Petrochemical Corporation

Limited, Nirma, Essar, BASF, Bayer, Rallis, Novartis, Cadila, Aarti Group and Deepak Nitrite.

Gujarat accounts for ~40% of India's pharmaceutical output with more than 3200

pharmaceutical companies located in the state

Investment climate in Gujarat

A key indicator of investor and industry confidence in Gujarat is the number and scale of

investments and business ventures committed to the state. More than 80 MoUs and

announcements were signed in the Vibrant Gujarat summit 2009 for projects to be

executed and established in the chemical and petrochemical sector. The cumulative

proposed investment in the sector stood at more than INR 56,000 crore. Most projects are

for establishing industrial parks and production plants for base chemicals, specialty

chemicals and dyes and intermediaries.

The sustained economic success and rapid industrial growth have been made possible by

an unambiguous pro-industry approach by the State. Several policy decisions, execution

of key projects and geographic and demographic factors have helped increase the ease of

doing business in Gujarat, specifically in the chemicals industry.

Infrastructure and strategic location

Gujarat is well connected by the Indian Railways network and has built one of the best

road networks in India. It's a power-sufficient state with a low cost of utilities and one of

the highest per capita power consumption levels. It has the highest number of airports

and second highest number of ports. It's the only state with an integrated state-wise gas

grid and has a very high tele-density. Also, the Sardar Sarovar Narmada project, once

completed, is expected to create continuous water supply throughout the state. Gujarat is

favourably located midway on the highly industrialized Delhi-Mumbai corridor, giving it

ease of access to high-growth states in North and West. The state has the longest

coastline in the country (1,600 kms) and is well-connected to major trade routes to

Europe, Middle-East, East Asia and Australia though a large number of ports. 38% of the

proposed Delhi Mumbai Industrial Corridor will pass through Gujarat, thereby providing

the opportunity for chemical companies to base their production in Gujarat and serve the

Indian market.

Raw material availability

Rich availability of natural resources and basic feedstock facilitate production of a large

number of downstream chemical products. Wide availability of limestone, salt, petroleum

Industry composition: Gujarat, FY09

Source: Gujarat Socio-Economic Review,2009-10

Textiles,6%

Energy,26%

Others,19%

Non-metallic

products, 5%

Chemicals, 42%

0

10

20

30

40

50

60

70

80

90

2003 2005 2007 2009 2011

0

10000

20000

30000

40000

50000

60000

Proposed investments1 in Gujarat (Rs Cr)

Source: Vibrant Gujarat, 2011Note: 1) In chemical & petrochemical sector

# of MoUs Investments

10 11

and natural gas make Gujarat a leading manufacturer of basic chemicals (e.g. caustic soda,

caustic potash), petrochemicals (e.g. polymers, PE/PP/PVC) and fertilizers (e.g. urea, bio-

fertilizers).

Availability of talent

Gujarat has always been well known for its entrepreneurial talent who have spread their

footprint nationally and across the globe. Additionally, over 45 government and private

management institutes provide a pool of business administration talent. Moreover, there

are ~40 engineering colleges teaching chemical engineering and ~50 polytechnic institutes

offering courses focussed towards the chemicals sector. Overall, Gujarat offers a world-

class pool for talent in entrepreneurship, business administration and engineering, which

could be easily tapped by the industry.

Impetus for growth: Integrated development and PCPIR

The presence of mega-estates in chemical manufacturing at several industrial clusters in

the state has helped growth and expansion of the industry by providing an appropriate

business ecosystem. Chemical clusters especially at Ankleshwar, Panola, Vapi, Vatva,

Jhagadia, Vilayat and Dahej facilitate rapid development and growth.

Chemical centres in GujaratChemical manufacturers in Gujarat

Jamnagar

Chemicals & petrochemicals Hazira

Chemicals & petrochemicals

Valsad

Chemicals

Baroda

Chemicals & petrochemicals

Ahmedabad

Chemicals

Bharuch

Chemicals

Dahej

PCPIR

Chemical centres in GujaratChemical manufacturers in Gujarat

Jamnagar

Chemicals & petrochemicals Hazira

Chemicals & petrochemicals

Valsad

Chemicals

Baroda

Chemicals & petrochemicals

Ahmedabad

Chemicals

Bharuch

Chemicals

Dahej

PCPIR

Source: Secondary research, Analysis by Tata Strategic

DAHEJ PCPIR:

The PCPIR at Dahej, southern Gujarat is spread across a notified area is 453 sq km and it

has received formal approval from DoC&PC in March 2009.

Existing infrastructure

The Dahej PCPIR enjoys proximity to Gujarat Chemical Port Terminal Company Limited

(GCPTCL) and LNG port and access to Delhi - Mumbai Broad Gauge railway line at

Bharuch. A 50-km of four-lane Dahej-Bharuch State Highway connects six lane Delhi-

Mumbai National Highway & Expressway.

Investments - Planned and realized

As of June 2011 ~80% of the planned investments in Dahej PCPIR have been realized and

accounting for $ 16 Bn out of a total committed investment of ~$ 20 Bn. Approximately

70% of the land development is complete and an infrastructure investment of $ 1.7 Bn is

proposed. Also, Dahej PCPIR is notified under the rules for special investment zones with

several tax-related advantages extended to incoming investors.

Major players at Dahej PCPIR

Greenfield

Existing

Major players at Dahej PCPIR

Greenfield

Existing

Upcoming external infrastructure

External infrastructure is being developed to ensure excellent connectivity (sea, road, rail

and air) to Dahej PCPIR:

Ports: 40 MnTPA Solid & Liquid Cargo and Container Port with investment of $300 Mn;

Container Feeder Terminal (10000 TEU) to Pipavav and Marine Shipbuilding Park by

GMB

Roads: Ahmedabad-Baroda National Expressway to be extended to Mumbai (PCPIR

loop planned); six-laning of Dahej-Bharuch road; upgradation of 8 km of port linkage

& four-laning of 42 km of State Highways within PCPIR; construction of 25 km of

coastal roads

Air: Greenfield airport for PCPIR ; airstrip at Ankleshwar

Rail: Broad gauge conversion of Bharuch-Dahej rail line (62 km); connection with

Delhi-Mumbai Dedicated Freight Corridor (DFC)

v

v

v

v

10 11

and natural gas make Gujarat a leading manufacturer of basic chemicals (e.g. caustic soda,

caustic potash), petrochemicals (e.g. polymers, PE/PP/PVC) and fertilizers (e.g. urea, bio-

fertilizers).

Availability of talent

Gujarat has always been well known for its entrepreneurial talent who have spread their

footprint nationally and across the globe. Additionally, over 45 government and private

management institutes provide a pool of business administration talent. Moreover, there

are ~40 engineering colleges teaching chemical engineering and ~50 polytechnic institutes

offering courses focussed towards the chemicals sector. Overall, Gujarat offers a world-

class pool for talent in entrepreneurship, business administration and engineering, which

could be easily tapped by the industry.

Impetus for growth: Integrated development and PCPIR

The presence of mega-estates in chemical manufacturing at several industrial clusters in

the state has helped growth and expansion of the industry by providing an appropriate

business ecosystem. Chemical clusters especially at Ankleshwar, Panola, Vapi, Vatva,

Jhagadia, Vilayat and Dahej facilitate rapid development and growth.

Chemical centres in GujaratChemical manufacturers in Gujarat

Jamnagar

Chemicals & petrochemicals Hazira

Chemicals & petrochemicals

Valsad

Chemicals

Baroda

Chemicals & petrochemicals

Ahmedabad

Chemicals

Bharuch

Chemicals

Dahej

PCPIR

Chemical centres in GujaratChemical manufacturers in Gujarat

Jamnagar

Chemicals & petrochemicals Hazira

Chemicals & petrochemicals

Valsad

Chemicals

Baroda

Chemicals & petrochemicals

Ahmedabad

Chemicals

Bharuch

Chemicals

Dahej

PCPIR

Source: Secondary research, Analysis by Tata Strategic

DAHEJ PCPIR:

The PCPIR at Dahej, southern Gujarat is spread across a notified area is 453 sq km and it

has received formal approval from DoC&PC in March 2009.

Existing infrastructure

The Dahej PCPIR enjoys proximity to Gujarat Chemical Port Terminal Company Limited

(GCPTCL) and LNG port and access to Delhi - Mumbai Broad Gauge railway line at

Bharuch. A 50-km of four-lane Dahej-Bharuch State Highway connects six lane Delhi-

Mumbai National Highway & Expressway.

Investments - Planned and realized

As of June 2011 ~80% of the planned investments in Dahej PCPIR have been realized and

accounting for $ 16 Bn out of a total committed investment of ~$ 20 Bn. Approximately

70% of the land development is complete and an infrastructure investment of $ 1.7 Bn is

proposed. Also, Dahej PCPIR is notified under the rules for special investment zones with

several tax-related advantages extended to incoming investors.

Major players at Dahej PCPIR

Greenfield

Existing

Major players at Dahej PCPIR

Greenfield

Existing

Upcoming external infrastructure

External infrastructure is being developed to ensure excellent connectivity (sea, road, rail

and air) to Dahej PCPIR:

Ports: 40 MnTPA Solid & Liquid Cargo and Container Port with investment of $300 Mn;

Container Feeder Terminal (10000 TEU) to Pipavav and Marine Shipbuilding Park by

GMB

Roads: Ahmedabad-Baroda National Expressway to be extended to Mumbai (PCPIR

loop planned); six-laning of Dahej-Bharuch road; upgradation of 8 km of port linkage

& four-laning of 42 km of State Highways within PCPIR; construction of 25 km of

coastal roads

Air: Greenfield airport for PCPIR ; airstrip at Ankleshwar

Rail: Broad gauge conversion of Bharuch-Dahej rail line (62 km); connection with

Delhi-Mumbai Dedicated Freight Corridor (DFC)

v

v

v

v

12 13

Support for micro, small and medium enterprises

Gujarat state government, since 2000, has adopted a policy of supporting SMEs. Some of

the features mentioned could be favorably capitalized by existing companies and new

entrants in the chemical industry:

5% interest subsidy on loans for modernization programmes

Interest subsidy on eligible parameters, e.g. sector, size, etc.

Venture capital and patent monetization assistance

Technology acquisition fund

Support for vendor development

Support for auxiliary industries for value-addition

Cluster development in PPP mode

Rehabilitation of sick units

With the existence of conducive business environment, presence of leading companies,

availability of a strong talent pool, entrepreneurial culture and strong policy support by

the State Government, Gujarat is poised to retain and further build on its leadership

position in India's chemical industry going forward.

v

v

v

v

v

v

v

v

INDUSTRY REPORTS

12 13

Support for micro, small and medium enterprises

Gujarat state government, since 2000, has adopted a policy of supporting SMEs. Some of

the features mentioned could be favorably capitalized by existing companies and new

entrants in the chemical industry:

5% interest subsidy on loans for modernization programmes

Interest subsidy on eligible parameters, e.g. sector, size, etc.

Venture capital and patent monetization assistance

Technology acquisition fund

Support for vendor development

Support for auxiliary industries for value-addition

Cluster development in PPP mode

Rehabilitation of sick units

With the existence of conducive business environment, presence of leading companies,

availability of a strong talent pool, entrepreneurial culture and strong policy support by

the State Government, Gujarat is poised to retain and further build on its leadership

position in India's chemical industry going forward.

v

v

v

v

v

v

v

v

INDUSTRY REPORTS

14 15

AgrochemicalsIntroduction

Agrochemicals or pesticides are chemical substances used to control or kill pests,

unwanted plants or animals that may harm or damage the crops. Agrochemicals can be

classified into the following key segments: 1. Insecticides2. Herbicides/ Weedicides3. Fungicides4. Bio-pesticides5. Others (Nematocides, Rodenticides etc.)

Global agrochemicals industry

The global agrochemicals industry grew at over 6% annually since 2005 to reach $ 43.7 Bn

in 2009. However, the growth in 2009-2010 tapered off at 1.1% and the market grow to $

44.2 Bn due to major adverse weather phenomenon globally, including flooding in Canada

and Central Europe, record drought in Vietnam and heat waves in Russia. The medium-

term demand outlook remains upbeat, with an expected growth of 4% annually till 2015.

Source: Industry report; Tata Strategic estimates

33.5

43.7 44.2

53

2005 2009 2010 2015E

Global agchem market (USD Bn)

4.0%

5.7%5.7%

4.0%

14 15

AgrochemicalsIntroduction

Agrochemicals or pesticides are chemical substances used to control or kill pests,

unwanted plants or animals that may harm or damage the crops. Agrochemicals can be

classified into the following key segments: 1. Insecticides2. Herbicides/ Weedicides3. Fungicides4. Bio-pesticides5. Others (Nematocides, Rodenticides etc.)

Global agrochemicals industry

The global agrochemicals industry grew at over 6% annually since 2005 to reach $ 43.7 Bn

in 2009. However, the growth in 2009-2010 tapered off at 1.1% and the market grow to $

44.2 Bn due to major adverse weather phenomenon globally, including flooding in Canada

and Central Europe, record drought in Vietnam and heat waves in Russia. The medium-

term demand outlook remains upbeat, with an expected growth of 4% annually till 2015.

Source: Industry report; Tata Strategic estimates

33.5

43.7 44.2

53

2005 2009 2010 2015E

Global agchem market (USD Bn)

4.0%

5.7%5.7%

4.0%

16 17

The crop protection chemicals market is mainly concentrated in the major developed

countries such as United States and Western European nations. Europe has the largest

share in the agrochemical market followed by Asia, Latin America and North America.

There is an increased usage of products in Europe due to high commodity prices and in

order to boost yield and quality. Increased demand for palm oil has led to increasing usage

of herbicides in Japan, Malaysia and Indonesia. Strong rice prices and other food grains

are driving the agrochemical consumption in India. In Latin America, increased production

of soybean and sugarcane for animal feed as well as for bio-fuels is the driving the growth

of agrochemical consumption. The top 6 crop protection companies cumulatively account

for approximately 70% of the market by revenues.

Indian agrochemicals industryOverview and outlook

India is the fourth largest producer of agrochemicals globally, after United States, Japan

and China. The agrochemicals industry is a significant industry for the Indian economy.

The total size of the agrochemicals industry stood at $ 3.4 Bn in FY10, of which 53% was

exports. Imports to India are minimal and mainly limited to next-generation pesticides

and patented molecules.

The current domestic consumption of $ 1.4 Bn is expected to grow at 8% annually, driven

by rising population, decreasing per capita availability of arable land and focus on

increasing agricultural yield. In the same period, exports are also expected to grow at a

rapid pace (15% annually), driving the total agrochemicals market size to almost $ 11 Bn

by 2020.

India's agrochemicals consumption is one of the lowest in the world with per hectare

consumption of just 0.58 Kg compared to US (4.5 Kg/ha) and Japan (11 Kg/ha). The key

reasons for low usage are low purchasing power of farmers, lack of awareness about crop

protection benefits and poor reach and accessibility of crop protection chemicals. Annual

crop losses due to pests are estimated at $ 17 Bn for FY09.

Europe,32%

Asia,23%

Lat Am,21%

NorthAmerica,

21%

Middle-East &Africa,

4%

Source: BCC Research, Tata Strategic analysis

Global demand share, 2008

1.83.5

1.6

7.3

2010 2020

Domestic Exports

Demand outlook (USD Bn)

8%

Source: PMFAI and government data, Meeting of the GOI Chemicals Task Force

15%

3.4

10.8

12%

Average crop protection consumption, 2009 (kg/ ha)

Source: Industry reports, Meeting of the GOI Chemicals Task Force - Crop protection sub sector discussions, Tata Strategic Analysis

0.58 1

5 5

7 7

12

14

17

India Pakistan UK France Korea USA Japan China Taiwan

16 17

The crop protection chemicals market is mainly concentrated in the major developed

countries such as United States and Western European nations. Europe has the largest

share in the agrochemical market followed by Asia, Latin America and North America.

There is an increased usage of products in Europe due to high commodity prices and in

order to boost yield and quality. Increased demand for palm oil has led to increasing usage

of herbicides in Japan, Malaysia and Indonesia. Strong rice prices and other food grains

are driving the agrochemical consumption in India. In Latin America, increased production

of soybean and sugarcane for animal feed as well as for bio-fuels is the driving the growth

of agrochemical consumption. The top 6 crop protection companies cumulatively account

for approximately 70% of the market by revenues.

Indian agrochemicals industryOverview and outlook

India is the fourth largest producer of agrochemicals globally, after United States, Japan

and China. The agrochemicals industry is a significant industry for the Indian economy.

The total size of the agrochemicals industry stood at $ 3.4 Bn in FY10, of which 53% was

exports. Imports to India are minimal and mainly limited to next-generation pesticides

and patented molecules.

The current domestic consumption of $ 1.4 Bn is expected to grow at 8% annually, driven

by rising population, decreasing per capita availability of arable land and focus on

increasing agricultural yield. In the same period, exports are also expected to grow at a

rapid pace (15% annually), driving the total agrochemicals market size to almost $ 11 Bn

by 2020.

India's agrochemicals consumption is one of the lowest in the world with per hectare

consumption of just 0.58 Kg compared to US (4.5 Kg/ha) and Japan (11 Kg/ha). The key

reasons for low usage are low purchasing power of farmers, lack of awareness about crop

protection benefits and poor reach and accessibility of crop protection chemicals. Annual

crop losses due to pests are estimated at $ 17 Bn for FY09.

Europe,32%

Asia,23%

Lat Am,21%

NorthAmerica,

21%

Middle-East &Africa,

4%

Source: BCC Research, Tata Strategic analysis

Global demand share, 2008

1.83.5

1.6

7.3

2010 2020

Domestic Exports

Demand outlook (USD Bn)

8%

Source: PMFAI and government data, Meeting of the GOI Chemicals Task Force

15%

3.4

10.8

12%

Average crop protection consumption, 2009 (kg/ ha)

Source: Industry reports, Meeting of the GOI Chemicals Task Force - Crop protection sub sector discussions, Tata Strategic Analysis

0.58 1

5 5

7 7

12

14

17

India Pakistan UK France Korea USA Japan China Taiwan

18 19

The top three states Andhra Pradesh, Maharashtra and Punjab account for ~50% of the

total pesticide consumption in India. Andhra Pradesh is the largest consumer of pesticides

with a market share of 24%.

Industry structure

The agrochemicals/ crop protection market in India is characterized by a high degree of

fragmentation. In India, there are about 125 technical grade manufacturers (10

multinationals), 800 formulators, over 145,000 distributors. 60 technical grade pesticides

are being manufactured indigenously. Technical grade manufacturers sell high purity

chemicals in bulk (generally in drums of 200-250 Kg) to formulators. Formulators, in turn,

prepare formulations by adding inert carriers, solvents, surface active agents, deodorants

etc.

The total installed capacity in FY09 was 146,000 tons and total production was 85,000

tons leading to an average capacity utilization of 58%. The industry suffers from high

inventory (owing to seasonal & irregular demand on account of monsoons) and long

credit periods to farmers, thus making operations 'working capital' intensive. India due to

its inherent strength of low-cost manufacturing and qualified low-cost manpower is a net

exporter of pesticides to countries such as USA and some European & African countries.

Exports formed ~50% of total industry turnover in FY08 with 29% CAGR from FY04 to

FY08.

Key Segments

Insecticides: Insecticides are used to ward off or kill insects. Consumption of insecticides

for cotton has come down to 50% from 63% of total volume after introduction of BT

cotton.

Fungicides: Fungicides are used to control disease attacks on crops. The growing

horticulture market in India owing to the government support has given a boost to

fungicide usage. The market share of fungicides has increased from 16% in 2004 to 20% in

2009.

Herbicides: Herbicides are the fastest growing segment of agrochemicals. Their main

competition is cheap labor which is employed to manually pull out weeds. Sales are

seasonal, owing to the fact that weeds flourish in damp, warm weather and die in cold

spells.

Bio-pesticides: Bio-pesticides are pesticides derived from natural substances like animals,

plants, bacteria and certain minerals. Currently a small segment, bio-pesticides market is

expected to grow in the future owing to government support and increasing awareness

about use of non-toxic, environment friendly pesticides.

Others: Plant growth regulators, Nematocides, Rodenticides, Fumigants etc. Rodenticides

and plant growth regulators are the stars of this segment.

Stored produceZinc Phosphide , AluminiumPhosphideOthers

Rice, Maize, Tobacco

Spinosyns , neem -based Bio-pesticides

Rice, Wheat Glyphosate , Isoproturon , 2,4-D Herbicides

Fruits, Vegetables, Rice

Mancozeb , Copper OxychlorideZiram

Fungicides

Cotton, Rice Acephate , MonocrotophosCypermethrin

Insecticides

Main ApplicationsMajor ProductsSegment

--

Maharashtra, 13%

Others, 23%

WestBengal, 5%

Punjab,11%

MP &Chattisgarh,

8% Gujarat,7%

Tamil Nadu,5%

Haryana,5%

Karnataka,7%

AP, 24%

State-wise pesticides consumption, FY09 (% of total value)

Source: Industry reports, Tata Strategic analysis

Technical grademanufacturers

Formulators Distributors End usecustomers

148 145 146 146

82 85 83 85

FY06 FY07 FY08 FY09

Capacity Production

Installed capacity & production (‘000 TPA)

Source: Ministry of Chemicals & Fertilizers

18 19

The top three states Andhra Pradesh, Maharashtra and Punjab account for ~50% of the

total pesticide consumption in India. Andhra Pradesh is the largest consumer of pesticides

with a market share of 24%.

Industry structure

The agrochemicals/ crop protection market in India is characterized by a high degree of

fragmentation. In India, there are about 125 technical grade manufacturers (10

multinationals), 800 formulators, over 145,000 distributors. 60 technical grade pesticides

are being manufactured indigenously. Technical grade manufacturers sell high purity

chemicals in bulk (generally in drums of 200-250 Kg) to formulators. Formulators, in turn,

prepare formulations by adding inert carriers, solvents, surface active agents, deodorants

etc.

The total installed capacity in FY09 was 146,000 tons and total production was 85,000

tons leading to an average capacity utilization of 58%. The industry suffers from high

inventory (owing to seasonal & irregular demand on account of monsoons) and long

credit periods to farmers, thus making operations 'working capital' intensive. India due to

its inherent strength of low-cost manufacturing and qualified low-cost manpower is a net

exporter of pesticides to countries such as USA and some European & African countries.

Exports formed ~50% of total industry turnover in FY08 with 29% CAGR from FY04 to

FY08.

Key Segments

Insecticides: Insecticides are used to ward off or kill insects. Consumption of insecticides

for cotton has come down to 50% from 63% of total volume after introduction of BT

cotton.

Fungicides: Fungicides are used to control disease attacks on crops. The growing

horticulture market in India owing to the government support has given a boost to

fungicide usage. The market share of fungicides has increased from 16% in 2004 to 20% in

2009.

Herbicides: Herbicides are the fastest growing segment of agrochemicals. Their main

competition is cheap labor which is employed to manually pull out weeds. Sales are

seasonal, owing to the fact that weeds flourish in damp, warm weather and die in cold

spells.

Bio-pesticides: Bio-pesticides are pesticides derived from natural substances like animals,

plants, bacteria and certain minerals. Currently a small segment, bio-pesticides market is

expected to grow in the future owing to government support and increasing awareness

about use of non-toxic, environment friendly pesticides.

Others: Plant growth regulators, Nematocides, Rodenticides, Fumigants etc. Rodenticides

and plant growth regulators are the stars of this segment.

Stored produceZinc Phosphide , AluminiumPhosphideOthers

Rice, Maize, Tobacco

Spinosyns , neem -based Bio-pesticides

Rice, Wheat Glyphosate , Isoproturon , 2,4-D Herbicides

Fruits, Vegetables, Rice

Mancozeb , Copper OxychlorideZiram

Fungicides

Cotton, Rice Acephate , MonocrotophosCypermethrin

Insecticides

Main ApplicationsMajor ProductsSegment

--

Maharashtra, 13%

Others, 23%

WestBengal, 5%

Punjab,11%

MP &Chattisgarh,

8% Gujarat,7%

Tamil Nadu,5%

Haryana,5%

Karnataka,7%

AP, 24%

State-wise pesticides consumption, FY09 (% of total value)

Source: Industry reports, Tata Strategic analysis

Technical grademanufacturers

Formulators Distributors End usecustomers

148 145 146 146

82 85 83 85

FY06 FY07 FY08 FY09

Capacity Production

Installed capacity & production (‘000 TPA)

Source: Ministry of Chemicals & Fertilizers

20 21

Competitive landscape

The Indian agrochemicals market is highly fragmented in nature with over 800

formulators. The competition is fierce with large number of organized sector players and

significant share of spurious pesticides. The market has been witnessing mergers and

acquisitions with large players buying out small manufacturers.

Key market participants include United Phosphorus Ltd, Bayer Cropscience Ltd, Rallis

India Ltd, Gharda Chemicals Ltd, Syngenta India Ltd, BASF India Ltd, etc. Top ten

companies account for 75%-80% of the market share. The market share of large players

depends primarily on product portfolio and introduction of new molecules. Strategic

alliances with competitors are common to reduce portfolio risks and get access to a wider

customer base.

Market trends

Focus on developing environmentally safe pesticides by the industry as well as the

Government. The Department of Chemicals has initiated a nationwide programme

for "Development and production of neem products as Environment Friendly

Pesticides" with financial assistance from United Nations Development Programme

(UNDP).

Focus by larger companies on brand building by conducting awareness camps for

farmers and providing complete solutions.

Increase in strategic alliances among large players for greater market reach and

acquisitions of smaller companies globally to diversify product portfolio. For

example: Rallis has a marketing alliance for key products with FMC, Dupont,

Syngenta, Bayer and Nihon Nohayaku. In addition, UPL has had a series of small

acquisitions globally to enter new geographies and gain product expertise.

Increasing scope for contract manufacturing in India, consistent with the trend of

international companies looking eastwards for contract manufacturing partners.

v

v

v

v

Technology trends

Increased R&D expected for development of new molecules and low dosage, high

potency molecules

Focus on R&D in bio-pesticides segment with increasing preference for

environmentally safe products in the market

Growth drivers

Growth in demand for food-grains: India has 16% of the world's population and less

than 2% of the total landmass. Increasing population and high emphasis on achieving

food grain self-sufficiency as highlighted in the FY10 budget, is expected to drive

growth.

Limited farmland availability and growing exports: India has ~190 Mn hectares of

gross cultivated area and the scope for bringing new areas under cultivation is

severely limited. Available arable land per capita has been reducing globally and is

expected to reduce further. The pressure is therefore to increase yield per hectare

which can be achieved through increased usage of agrochemicals. Indian

agrochemical exports accounted for ~50% of total industry size in 2009.

v

v

v

v

v

v

Growth of horticulture & floriculture: Buoyed by 50% growth experienced by Indian

floriculture industry in last 3 years, Government of India has launched a national

horticulture mission to double production by 2012. Growing horticulture and

floriculture industries will result in increasing demand for agrochemicals, especially

fungicides.

Increasing awareness: As per Government of India estimates, total value of crops lost

due to non-use of pesticides is around $ 17 Bn every year. Companies are increasingly

training farmers regarding the right use of agrochemicals in terms of quantity to be

used, the right application methodology and appropriate chemicals to be used for

identified pest problems. With increasing awareness, the use of agrochemicals is

expected to increase.

Source: Industry reports; Analysis by Tata Strategic

FOODGRAINS DEMAND & SUPPLY, INDIA (MT)

80

FY10Production

Gap FY20 Demand

220300

Yield for select major crops (Tons/ Hectare)

World India Yield gap

Rice 4.2 2.3 1.9

Wheat 3.0 2.8 0.2

Corn 5.0 2.2 2.8

Sugarcane 74.0 67.0 7.0

Soybean 2.2 0.9 1.3

Rapeseed 1.9 1.1 0.8

Product share, FY09 (% of total)

Source: Ministry of Chemicals & Fertilizers, Industry reports, Tata Strategic analysis

Herbicides 20%

Fungicides20%

Biopesticides &Others, 5%

Insecticide55%

s,

20 21

Competitive landscape

The Indian agrochemicals market is highly fragmented in nature with over 800

formulators. The competition is fierce with large number of organized sector players and

significant share of spurious pesticides. The market has been witnessing mergers and

acquisitions with large players buying out small manufacturers.

Key market participants include United Phosphorus Ltd, Bayer Cropscience Ltd, Rallis

India Ltd, Gharda Chemicals Ltd, Syngenta India Ltd, BASF India Ltd, etc. Top ten

companies account for 75%-80% of the market share. The market share of large players

depends primarily on product portfolio and introduction of new molecules. Strategic

alliances with competitors are common to reduce portfolio risks and get access to a wider

customer base.

Market trends

Focus on developing environmentally safe pesticides by the industry as well as the

Government. The Department of Chemicals has initiated a nationwide programme

for "Development and production of neem products as Environment Friendly

Pesticides" with financial assistance from United Nations Development Programme

(UNDP).

Focus by larger companies on brand building by conducting awareness camps for

farmers and providing complete solutions.

Increase in strategic alliances among large players for greater market reach and

acquisitions of smaller companies globally to diversify product portfolio. For

example: Rallis has a marketing alliance for key products with FMC, Dupont,

Syngenta, Bayer and Nihon Nohayaku. In addition, UPL has had a series of small

acquisitions globally to enter new geographies and gain product expertise.

Increasing scope for contract manufacturing in India, consistent with the trend of

international companies looking eastwards for contract manufacturing partners.

v

v

v

v

Technology trends

Increased R&D expected for development of new molecules and low dosage, high

potency molecules

Focus on R&D in bio-pesticides segment with increasing preference for

environmentally safe products in the market

Growth drivers

Growth in demand for food-grains: India has 16% of the world's population and less

than 2% of the total landmass. Increasing population and high emphasis on achieving

food grain self-sufficiency as highlighted in the FY10 budget, is expected to drive

growth.

Limited farmland availability and growing exports: India has ~190 Mn hectares of

gross cultivated area and the scope for bringing new areas under cultivation is

severely limited. Available arable land per capita has been reducing globally and is

expected to reduce further. The pressure is therefore to increase yield per hectare

which can be achieved through increased usage of agrochemicals. Indian

agrochemical exports accounted for ~50% of total industry size in 2009.

v

v

v

v

v

v

Growth of horticulture & floriculture: Buoyed by 50% growth experienced by Indian

floriculture industry in last 3 years, Government of India has launched a national

horticulture mission to double production by 2012. Growing horticulture and

floriculture industries will result in increasing demand for agrochemicals, especially

fungicides.

Increasing awareness: As per Government of India estimates, total value of crops lost

due to non-use of pesticides is around $ 17 Bn every year. Companies are increasingly

training farmers regarding the right use of agrochemicals in terms of quantity to be

used, the right application methodology and appropriate chemicals to be used for

identified pest problems. With increasing awareness, the use of agrochemicals is

expected to increase.

Source: Industry reports; Analysis by Tata Strategic

FOODGRAINS DEMAND & SUPPLY, INDIA (MT)

80

FY10Production

Gap FY20 Demand

220300

Yield for select major crops (Tons/ Hectare)

World India Yield gap

Rice 4.2 2.3 1.9

Wheat 3.0 2.8 0.2

Corn 5.0 2.2 2.8

Sugarcane 74.0 67.0 7.0

Soybean 2.2 0.9 1.3

Rapeseed 1.9 1.1 0.8

Product share, FY09 (% of total)

Source: Ministry of Chemicals & Fertilizers, Industry reports, Tata Strategic analysis

Herbicides 20%

Fungicides20%

Biopesticides &Others, 5%

Insecticide55%

s,

22 23

Potential opportunities

Scope for increase in usage: With only 35-40% of the total farmland under crop

protection, there is a significant unserved market to tap into. By educating farmers

and conducting special training programmes regarding the need to use

agrochemicals, Indian companies can hope to increase pesticide consumption.

v

v

v

v

v

v

v

Huge export potential: The excess production capacity is a perfect opportunity to

increase exports by utilizing India's low cost producer status.

Patent expiry: Between 2009 and 2014 many molecules are likely to go off patent,

throwing the market open for generic players. The total viable opportunity through

patent expiry is estimated at over $ 3 Bn.

Product portfolio expansion: New developments including genetically modified

seeds, Integrated Pest Management and organic farming can be turned into

opportunities if the industry re-orients itself to better address the needs of its

consumers and broadens its product offering to include a range of agro-inputs

instead of only agrochemicals.

Key challenges

High R&D costs: R&D to develop agrochemical molecule takes an average of 9 years

and ~ $ 180 Mn Indian companies typically have not focused on developing newer

molecules and will face challenges in building these capabilities, while continuing to

remain cost competitive.

Threat from Genetically Modified (GM) seeds: Genetically modified seeds possess

self-immunity towards natural adversaries which have the potential to negatively

impact the business of agrochemicals.

Support for Integrated Pest Management (IPM) & rising demand for organic

farming: Promotion of IPM, zero budget farming and usage of bio-pesticides by

Indian Government and NGOs is gaining momentum. With increasing demand for

organic food, farmers in certain states like Karnataka have reduced chemical usage

and have adopted organic farming. Agrochemical companies will have to tackle the

rising environmental awareness and address concerns on negative impact of

pesticide usage.

Counterfeit Products: The spurious pesticides market size in India is estimated to be

$ 233 Mn in 2009. This negatively impacts the revenues of the organized sector.

Need for efficient distribution systems: Since, the number of end users is large and

widespread, effective distribution via retailers is essential to ensure product

availability. Lately, companies have been directly dealing with retailers by cutting the

distributor from the value chain thereby reducing distribution costs, educating

retailers on product usage and offering competitive prices to farmers.

v

v

Bayer CropScience India

www.bayergroupindia.com

Company overview · Bayer CropScien ce is one of the world’s leading crop science

companies in the world with presence in 122 countries

Sales Revenue in

FY2011 · Rs. 2,127 Cr (includes revenue from other product

segments), 88% of revenue through domestic sales

Key brands

· Insecticides: Confid or, Calypso

· Fungicides: Antracol, Baycor

· Herbicides: Atlantis, Basta

· Seed treatment: Gaucho, Raxil

Manufacturing

locations

· Three manufacturing locations at Thane , Himmatnagar &

Ankleshwar

· Total production capacity of 5770 MT of active ingredients

and form ulation capacity of 10,025 KL & 3650 Mt for liquids &

solids respectively

Key Mergers/

Acquisitions

· Merger with Aventis Cropscience Limited worldwide, 2002

· Acquisition of Biotech company Athenix Corp., 2009

Profile of select playersBrief profile: Bayer CropScience

30%

58%

100%

130%

Yield withoutprotection

Actual yieldwith cropprotection

Attainableyield without

pests

Additionalpotentialwithout

abiotic stress

28% prevented losses

Due to pests, weeds & diseases

42% actual losses

Due to pests, weeds & diseases

30% further losses

Due to drought, heat, cold, salinity

Yield improvement potential (%)

22 23

Potential opportunities

Scope for increase in usage: With only 35-40% of the total farmland under crop

protection, there is a significant unserved market to tap into. By educating farmers

and conducting special training programmes regarding the need to use

agrochemicals, Indian companies can hope to increase pesticide consumption.

v

v

v

v

v

v

v

Huge export potential: The excess production capacity is a perfect opportunity to

increase exports by utilizing India's low cost producer status.

Patent expiry: Between 2009 and 2014 many molecules are likely to go off patent,

throwing the market open for generic players. The total viable opportunity through

patent expiry is estimated at over $ 3 Bn.

Product portfolio expansion: New developments including genetically modified

seeds, Integrated Pest Management and organic farming can be turned into

opportunities if the industry re-orients itself to better address the needs of its

consumers and broadens its product offering to include a range of agro-inputs

instead of only agrochemicals.

Key challenges

High R&D costs: R&D to develop agrochemical molecule takes an average of 9 years

and ~ $ 180 Mn Indian companies typically have not focused on developing newer

molecules and will face challenges in building these capabilities, while continuing to

remain cost competitive.

Threat from Genetically Modified (GM) seeds: Genetically modified seeds possess

self-immunity towards natural adversaries which have the potential to negatively

impact the business of agrochemicals.

Support for Integrated Pest Management (IPM) & rising demand for organic

farming: Promotion of IPM, zero budget farming and usage of bio-pesticides by

Indian Government and NGOs is gaining momentum. With increasing demand for

organic food, farmers in certain states like Karnataka have reduced chemical usage

and have adopted organic farming. Agrochemical companies will have to tackle the

rising environmental awareness and address concerns on negative impact of

pesticide usage.

Counterfeit Products: The spurious pesticides market size in India is estimated to be

$ 233 Mn in 2009. This negatively impacts the revenues of the organized sector.

Need for efficient distribution systems: Since, the number of end users is large and

widespread, effective distribution via retailers is essential to ensure product

availability. Lately, companies have been directly dealing with retailers by cutting the

distributor from the value chain thereby reducing distribution costs, educating

retailers on product usage and offering competitive prices to farmers.

v

v

Bayer CropScience India

www.bayergroupindia.com

Company overview · Bayer CropScien ce is one of the world’s leading crop science

companies in the world with presence in 122 countries

Sales Revenue in

FY2011 · Rs. 2,127 Cr (includes revenue from other product

segments), 88% of revenue through domestic sales

Key brands

· Insecticides: Confid or, Calypso

· Fungicides: Antracol, Baycor

· Herbicides: Atlantis, Basta

· Seed treatment: Gaucho, Raxil

Manufacturing

locations

· Three manufacturing locations at Thane , Himmatnagar &

Ankleshwar

· Total production capacity of 5770 MT of active ingredients

and form ulation capacity of 10,025 KL & 3650 Mt for liquids &

solids respectively

Key Mergers/

Acquisitions

· Merger with Aventis Cropscience Limited worldwide, 2002

· Acquisition of Biotech company Athenix Corp., 2009

Profile of select playersBrief profile: Bayer CropScience

30%

58%

100%

130%

Yield withoutprotection

Actual yieldwith cropprotection

Attainableyield without

pests

Additionalpotentialwithout

abiotic stress

28% prevented losses

Due to pests, weeds & diseases

42% actual losses

Due to pests, weeds & diseases

30% further losses

Due to drought, heat, cold, salinity

Yield improvement potential (%)

24 25

Brief profile: Rallis India

Company overview · Rallis is one of the leading Indian agrochemical companies

Sales Revenue in

FY2011 · Rs. 1,127 Cr (includes revenue from other product segments)

with 22% from outside India

Key brands

· Insecticides: Asataf, Koranda

· Herbicides: Dhar, Fateh

· Fungicides: Blitof, Contaf

Manufacturing

locations

· Five manufacturing plants at Turbhe, Akola, Ankleshwar, Lote

& Patancheru

· Total installed capacity of pesticides is 16,720 MT for solids

&12,500 MT for liquids

Key Mergers/

Acquisitions

· Acquired majority stake in Metahelix Life, 2010

· Co-marketing alliances with several companies such as

DuPont, Syngenta, Bayer, FMC, Makhteshim Chemical works,

Ghrada Chemicals, etc

Rallis India

www.rallis.co.in

Brief profile: United Phosphorus Limited

Company overview

· Established in 1969 and has its presence in all value -added

agricultural inputs ranging from seeds to crop protection & post

harvest activity

· Has its own subsidiary offices wor ldwide

· Global player with customer base in 86 countries

Sales Revenue in

FY2011 · Rs. 3,133 Cr (includes revenue from other product segments)

Key brands · Chlroban, Copter, Flora, Magnaphos, Oorja, Tiktok, Zoom

Manufacturing

locations

· 21 manufacturing locat ion across the globe with 9 in India

· Production capacity of 98,264 MT of pesticides & 42,631 MT of

pesticides intermediates

Key Mergers/

Acquisitions

· Product acquisitions from DuPont and Bayer

· Company acquisitions of Metahelix Life, Evofarms, AG,

Cequisa and ICONA

United Phosphorus Limited

www.uplonline.com

Brief profile: Syngenta India Limited

Company overview · 84% subsidiary of Syngenta Global

· Formed by merging agri -businesses of Novartis & Astra

Sales Revenue in

FY2011 · Rs. 2,147 Cr. (includes revenue from other product segments)

Key brands

· Fungicides: Amistar, Ridonil, Kavach

· Herbicides: Rifit, Gramoxone, Topik

· Insecticides: Actara, Proclaim,Pegasus

Manufacturing

locations · Manufacturing plant at Santa Monica, Goa

Key Mergers/

Acquisitions

· Co-marketing alliance with Rallis India

· Crop protection technology exchange with DuPont, partnership

on improving crop quality with Embrapa – the Brazilian

Agricultural Research Corporation, R&D agreement with Dow

AgroScience

· Product license from Sumitomo

Syngenta India Limited

www.syngenta.co.in

24 25

Brief profile: Rallis India

Company overview · Rallis is one of the leading Indian agrochemical companies

Sales Revenue in

FY2011 · Rs. 1,127 Cr (includes revenue from other product segments)

with 22% from outside India

Key brands

· Insecticides: Asataf, Koranda

· Herbicides: Dhar, Fateh

· Fungicides: Blitof, Contaf

Manufacturing

locations

· Five manufacturing plants at Turbhe, Akola, Ankleshwar, Lote

& Patancheru

· Total installed capacity of pesticides is 16,720 MT for solids

&12,500 MT for liquids

Key Mergers/

Acquisitions

· Acquired majority stake in Metahelix Life, 2010

· Co-marketing alliances with several companies such as

DuPont, Syngenta, Bayer, FMC, Makhteshim Chemical works,

Ghrada Chemicals, etc

Rallis India

www.rallis.co.in

Brief profile: United Phosphorus Limited

Company overview

· Established in 1969 and has its presence in all value -added

agricultural inputs ranging from seeds to crop protection & post

harvest activity

· Has its own subsidiary offices wor ldwide

· Global player with customer base in 86 countries

Sales Revenue in

FY2011 · Rs. 3,133 Cr (includes revenue from other product segments)

Key brands · Chlroban, Copter, Flora, Magnaphos, Oorja, Tiktok, Zoom

Manufacturing

locations

· 21 manufacturing locat ion across the globe with 9 in India

· Production capacity of 98,264 MT of pesticides & 42,631 MT of

pesticides intermediates

Key Mergers/

Acquisitions

· Product acquisitions from DuPont and Bayer

· Company acquisitions of Metahelix Life, Evofarms, AG,

Cequisa and ICONA

United Phosphorus Limited

www.uplonline.com

Brief profile: Syngenta India Limited

Company overview · 84% subsidiary of Syngenta Global

· Formed by merging agri -businesses of Novartis & Astra

Sales Revenue in

FY2011 · Rs. 2,147 Cr. (includes revenue from other product segments)

Key brands

· Fungicides: Amistar, Ridonil, Kavach

· Herbicides: Rifit, Gramoxone, Topik

· Insecticides: Actara, Proclaim,Pegasus

Manufacturing

locations · Manufacturing plant at Santa Monica, Goa

Key Mergers/

Acquisitions

· Co-marketing alliance with Rallis India

· Crop protection technology exchange with DuPont, partnership

on improving crop quality with Embrapa – the Brazilian

Agricultural Research Corporation, R&D agreement with Dow

AgroScience

· Product license from Sumitomo

Syngenta India Limited

www.syngenta.co.in

26 27

Fine ChemicalsFine chemicals refer to chemicals prepared to a very high degree of purity for specific

applications, and generally cover agrochemicals and active pharmaceutical ingredients.

Since agrochemicals are being discussed separately in this report, this section shall only

refer to APIs.The global pharmaceutical market was estimated at ~ $ 880 Bn in 2011 with

7% annual growth since 2004. The developed markets, which have been the traditional

stronghold of innovator companies, are expected to witness lower than historical growth

going forward. Higher R&D costs, relatively dry pipeline for new drugs, increasing

penetration of generics and pressure from governments for reduced healthcare costs are

putting a lot of pressure on global pharmaceutical companies, Future growth is expected

to be primarily driven by generics and emerging markets. The global pharmaceutical

market is expected to grow at 6% CAGR to reach $ 1,100 Bn in 2014.

Source: Industry reports, CRISIL, GoI Task Force, Tata Strategic estimates

Global pharmaceuticals market ($ Bn)

605649

712773

837 856 880

2005 2006 2007 2008 2009 2010 2011E

The top 10 players account for over 42% of total global sales. Pfizer is the market leader,

followed by GSK and Novartis AG. Lipitor is the largest selling drug followed by Plavix and

Nexium. Oncology continues to be the leading therapy class globally followed by lipid

regulators.

Domestic Market Overview

The Indian pharmaceutical industry is ranked 3rd in the world in terms of production

volume and 14th in terms of domestic consumption value. The Indian pharmaceutical

industry is estimated at $ 21.4 Bn in FY11. Formulations account for ~65% and bulk drugs

for the balance 35% in value terms. The industry is expected to reach $ 46 Bn in FY15.

Bulk drug exports are expected to grow the fastest at ~35% followed by formulation

exports at ~25%. The domestic formulation market is expected to grow at ~11% with key

growth drivers being increased per capita spend on pharmaceuticals, improved medical

infrastructure, greater health insurance penetration and increasing prevalence of lifestyle

diseases. Today the Indian pharmaceutical sector meets 95% of the country's medical

needs. The Indian pharmaceutical industry consists of both domestic companies and

subsidiaries of multinational corporations. Indian companies manufacture a wide range of

generic drugs (branded and non-branded), intermediates and bulk drugs/Active

Pharmaceutical Ingredients (API).

Among the product segments, anti-infectives is the largest segment, accounting for 17%

of the domestic formulations market. The other large segments are cardio-vascular and

gastro-intestinal.

Leading segments- domestic formulations, India, FY10

Dermatology

Central Nervous System

Anti-diabetic

Gynaecological

Vitamins/ Nutrients

Pain/ Analgesics

Respiratory

Gastrointestinal

Cardio Vascular

Anti-infectives 1,602

1,053

1,000

838

804

711

533

516

516

509

% share

17%

11%

11%

9%

9%

8%

6%

6%

6%

5%

Source: IMS Health, Crisil Research, Analysis by Tata Strategic

26 27

Fine ChemicalsFine chemicals refer to chemicals prepared to a very high degree of purity for specific

applications, and generally cover agrochemicals and active pharmaceutical ingredients.

Since agrochemicals are being discussed separately in this report, this section shall only

refer to APIs.The global pharmaceutical market was estimated at ~ $ 880 Bn in 2011 with

7% annual growth since 2004. The developed markets, which have been the traditional

stronghold of innovator companies, are expected to witness lower than historical growth

going forward. Higher R&D costs, relatively dry pipeline for new drugs, increasing

penetration of generics and pressure from governments for reduced healthcare costs are

putting a lot of pressure on global pharmaceutical companies, Future growth is expected

to be primarily driven by generics and emerging markets. The global pharmaceutical

market is expected to grow at 6% CAGR to reach $ 1,100 Bn in 2014.

Source: Industry reports, CRISIL, GoI Task Force, Tata Strategic estimates

Global pharmaceuticals market ($ Bn)

605649

712773

837 856 880

2005 2006 2007 2008 2009 2010 2011E

The top 10 players account for over 42% of total global sales. Pfizer is the market leader,

followed by GSK and Novartis AG. Lipitor is the largest selling drug followed by Plavix and

Nexium. Oncology continues to be the leading therapy class globally followed by lipid

regulators.

Domestic Market Overview

The Indian pharmaceutical industry is ranked 3rd in the world in terms of production

volume and 14th in terms of domestic consumption value. The Indian pharmaceutical

industry is estimated at $ 21.4 Bn in FY11. Formulations account for ~65% and bulk drugs

for the balance 35% in value terms. The industry is expected to reach $ 46 Bn in FY15.

Bulk drug exports are expected to grow the fastest at ~35% followed by formulation

exports at ~25%. The domestic formulation market is expected to grow at ~11% with key

growth drivers being increased per capita spend on pharmaceuticals, improved medical

infrastructure, greater health insurance penetration and increasing prevalence of lifestyle

diseases. Today the Indian pharmaceutical sector meets 95% of the country's medical

needs. The Indian pharmaceutical industry consists of both domestic companies and

subsidiaries of multinational corporations. Indian companies manufacture a wide range of

generic drugs (branded and non-branded), intermediates and bulk drugs/Active

Pharmaceutical Ingredients (API).

Among the product segments, anti-infectives is the largest segment, accounting for 17%

of the domestic formulations market. The other large segments are cardio-vascular and

gastro-intestinal.

Leading segments- domestic formulations, India, FY10

Dermatology

Central Nervous System

Anti-diabetic

Gynaecological

Vitamins/ Nutrients

Pain/ Analgesics

Respiratory

Gastrointestinal

Cardio Vascular

Anti-infectives 1,602

1,053

1,000

838

804

711

533

516

516

509

% share

17%

11%

11%

9%

9%

8%

6%

6%

6%

5%

Source: IMS Health, Crisil Research, Analysis by Tata Strategic

28 29

Formulation Exports

Pharmaceuticals market, India ($ Bn)

Domestic Formulation Consumption API Exports

Source: IMS Health, Crisil Research, Analysis by Tata Strategic

4.5 7.51.6

5.2

8.7

FY04 FY10E FY15P

7.6

21.4

46.0

23%

17%

4.5 7.51.6

5.21.5

8.7

18.0

11.5

16.5

18.0

11.5

16.517%

Fine chemicals manufacturing companies can be categorized into 2 broad segments:

Generic drug companies with predominant focus on export of APIs and bulk drugs

CRAMS specialized companies

Both the segments have established players but contract manufacturers enjoy better

margins than generic API exporters. Major players in the contract manufacturing segment

include Dishman, Divis, Jubilant, NPIL and Shasun. Lupin, Aurbindo Pharma, Ranbaxy, Dr.

Reddy's and Matrix Laboratories are the major generic API exporters. Indian players have

used acquisitions to build capabilities in the high value segments. Nicholas Piramal's

acquisition of UK based Avecia, Dishman's acquisition of Switzerland based Carbogen

Amcis and Jubilant's acquisition of US based Hollister Stier are some of the noteworthy

acquisitions made by domestic companies in the recent past.

The demand growth drivers are as follows:

Margin pressures of global players leading to increased outsourcing and focus on

contract manufacturing

Supply base of APIs shifting from Europe to emerging countries like India and China

due to low cost advantage

Export to generic players constitute the biggest segment but export to Innovators is

expected to grow at a faster rate

Market, technology and regulatory trends

The market is characterized by high buyer power and limited supply power due to buyer's

focus on lowest possible costs and presence of more than 1000 Indian companies

competing in manufacturing. This is further augmented by intense competition from

Chinese manufacturers. Barriers to entry in generics are insufficient whereas barriers to

entry are tough in innovator drugs. The underlying reasons are adherence to strict and

costly international certification norms, strong chemistry & process knowledge and

v

v

v

v

v

presence of numerous IPR norms. However increasing number of Indian companies are

focusing on IP creation and protection and setting up world class manufacturing facilities

to meet innovators demand. Divestment by European companies has resulted in

significant number of acquisitions by Indian companies in the recent past. Lower market

valuations together with exchange rate fluctuations pose considerable threat to Indian API

manufacturers.

Profile of select players

Brief profile: Dr. Reddy’s Laboratories

Dr. Reddy’s Laboratories Ltd.

www.drreddys.com

Company overview ·Integrated global phamra company, established 1984

·Three businesses: Pharmaceutical Services & Active

Ingredients, Global Generis and Propreitory Products

Sales Revenue

in

FY2011 ·Rs. 1,965 crore (Pharma Services & APIs SBU)

Key API lines ·Cardiovascular, oncology, Anti -diabetic, gastro -intestinal,

ophthalmic, expectorant, steroids, anti -allergic, etc.

Manufacturing

locations

·India: Six plants

·USA: One plant

·Mexico: One

plant

Brief profile: Lupin

Company overview

· “innovation led transnational pharmaceutical company

producing a wide range of quality, affordable generic and

branded formulations and APIs ”

Sales Revenue in

FY2011 · Rs. 777 crore (API business)

Key API lines · Antibiotics, cardiovascular, central nervous system, anti -TB

Manufacturing

locations

· Aknlweshwar, Baroda (Gujarat)

· Mandideep (Madhya Pradesh)

· Tarapur (Maharashtra)

Lupin

www.lupinworld.com

28 29

Formulation Exports

Pharmaceuticals market, India ($ Bn)

Domestic Formulation Consumption API Exports

Source: IMS Health, Crisil Research, Analysis by Tata Strategic

4.5 7.51.6

5.2

8.7

FY04 FY10E FY15P

7.6

21.4

46.0

23%

17%

4.5 7.51.6

5.21.5

8.7

18.0

11.5

16.5

18.0

11.5

16.517%

Fine chemicals manufacturing companies can be categorized into 2 broad segments:

Generic drug companies with predominant focus on export of APIs and bulk drugs

CRAMS specialized companies

Both the segments have established players but contract manufacturers enjoy better

margins than generic API exporters. Major players in the contract manufacturing segment

include Dishman, Divis, Jubilant, NPIL and Shasun. Lupin, Aurbindo Pharma, Ranbaxy, Dr.

Reddy's and Matrix Laboratories are the major generic API exporters. Indian players have

used acquisitions to build capabilities in the high value segments. Nicholas Piramal's

acquisition of UK based Avecia, Dishman's acquisition of Switzerland based Carbogen

Amcis and Jubilant's acquisition of US based Hollister Stier are some of the noteworthy

acquisitions made by domestic companies in the recent past.

The demand growth drivers are as follows:

Margin pressures of global players leading to increased outsourcing and focus on

contract manufacturing

Supply base of APIs shifting from Europe to emerging countries like India and China

due to low cost advantage

Export to generic players constitute the biggest segment but export to Innovators is

expected to grow at a faster rate

Market, technology and regulatory trends

The market is characterized by high buyer power and limited supply power due to buyer's

focus on lowest possible costs and presence of more than 1000 Indian companies

competing in manufacturing. This is further augmented by intense competition from

Chinese manufacturers. Barriers to entry in generics are insufficient whereas barriers to

entry are tough in innovator drugs. The underlying reasons are adherence to strict and

costly international certification norms, strong chemistry & process knowledge and

v

v

v

v

v

presence of numerous IPR norms. However increasing number of Indian companies are

focusing on IP creation and protection and setting up world class manufacturing facilities

to meet innovators demand. Divestment by European companies has resulted in

significant number of acquisitions by Indian companies in the recent past. Lower market

valuations together with exchange rate fluctuations pose considerable threat to Indian API

manufacturers.

Profile of select players

Brief profile: Dr. Reddy’s Laboratories

Dr. Reddy’s Laboratories Ltd.

www.drreddys.com

Company overview ·Integrated global phamra company, established 1984

·Three businesses: Pharmaceutical Services & Active

Ingredients, Global Generis and Propreitory Products

Sales Revenue

in

FY2011 ·Rs. 1,965 crore (Pharma Services & APIs SBU)

Key API lines ·Cardiovascular, oncology, Anti -diabetic, gastro -intestinal,

ophthalmic, expectorant, steroids, anti -allergic, etc.

Manufacturing

locations

·India: Six plants

·USA: One plant

·Mexico: One

plant

Brief profile: Lupin

Company overview

· “innovation led transnational pharmaceutical company

producing a wide range of quality, affordable generic and

branded formulations and APIs ”

Sales Revenue in

FY2011 · Rs. 777 crore (API business)

Key API lines · Antibiotics, cardiovascular, central nervous system, anti -TB

Manufacturing

locations

· Aknlweshwar, Baroda (Gujarat)

· Mandideep (Madhya Pradesh)

· Tarapur (Maharashtra)

Lupin

www.lupinworld.com

30 31

Dyes & PigmentsIntroduction

There are two types of colorants - dyes and pigments. Dyes are soluble substances used to

pass color to the substrate and find applications primarily in textiles and leather. There are

several types of dyes, however in India disperse, reactive and direct dyes are most

commonly used. Pigments are insoluble substances and could either be in powdered or

granular form. They impart colour by reflecting only certain light rays. Their major end use

industries are paints and inks. Pigments can be broadly classified as organic and inorganic.

Global industry

The global colorant industry is valued at US$ 27 Bn and has been growing at 2-3% p.a. The

dyestuff industry has seen turbulent times in the past decade. The decline of the

traditional producers in the developed world, particularly in Europe, and the simultaneous

ascent of new ones in Asia, particularly India and China, is arguably one of the most

significant changes ever seen in this industry. The shift has been quite swift and followed

the migration of end-user industries - notably textiles and leather - to low cost economies

of Asia.

Indian industryOverview and outlook

India accounts for 12% of the global colorant industry, out of which nearly 2/3rd is

exported. In 2010, India produced ~200,000 tonnes of dyes. Of this, 50% were reactive

dyes due to the availability of important raw materials like vinyl sulphone, etc. Nearly 70%

of the dyestuff was supplied to the textile industry while leather and paper industries

accounted for the remaining.

The sector is dominated by unorganized players and has ~1000 players in the small scale

category. There are only 50 large organized units. These units are mainly present in

Gujarat and Maharashtra, with the former accounting for almost 80% of capacity. Per

capita consumption of dyestuff is ~50 gms compared to the world average of 300 gms

demonstrating a largely untapped domestic market. India has largely been an exporting

country and has emerged as a global supplier of reactive, acid, vat and direct dyes

accounting for ~10% of world trade. Also, these dyestuffs are exported to Europe, South

East Asia and Taiwan to cater to the textile industries in these countries. However, almost

80% of these are commodities and face intense pricing pressures reducing the margins of

the industry.

Indian Dyes : Capacity (tpa)

Sulphur, 10,000

Disperse, 10,000

Acid, 30,000

Others, 20,000

Basic, 10,000

Direct, 20,000

Reactive, 100,000

The pigment market is estimated at ~7 lakh tons p.a. with a market size of ~$ 970 Mn.

Carbon black and Titanium dioxide (TiO2) account for 90% of the total pigment production.

Pigments(678,000)

Carbon Black &TiO2

(615,000)

Colour & SpecialEffect

(63,000)

Organics(19,500)

Inorganics(44,000)

Chromeoxide Others

Special Effect Others

SyntheticIron Oxide

Source: Industry reports, Tata Strategic analysis

Pigments demand, India: FY10(tons per annum)

30 31

Dyes & PigmentsIntroduction

There are two types of colorants - dyes and pigments. Dyes are soluble substances used to

pass color to the substrate and find applications primarily in textiles and leather. There are

several types of dyes, however in India disperse, reactive and direct dyes are most

commonly used. Pigments are insoluble substances and could either be in powdered or

granular form. They impart colour by reflecting only certain light rays. Their major end use

industries are paints and inks. Pigments can be broadly classified as organic and inorganic.

Global industry

The global colorant industry is valued at US$ 27 Bn and has been growing at 2-3% p.a. The

dyestuff industry has seen turbulent times in the past decade. The decline of the

traditional producers in the developed world, particularly in Europe, and the simultaneous

ascent of new ones in Asia, particularly India and China, is arguably one of the most

significant changes ever seen in this industry. The shift has been quite swift and followed

the migration of end-user industries - notably textiles and leather - to low cost economies

of Asia.

Indian industryOverview and outlook

India accounts for 12% of the global colorant industry, out of which nearly 2/3rd is

exported. In 2010, India produced ~200,000 tonnes of dyes. Of this, 50% were reactive

dyes due to the availability of important raw materials like vinyl sulphone, etc. Nearly 70%

of the dyestuff was supplied to the textile industry while leather and paper industries

accounted for the remaining.

The sector is dominated by unorganized players and has ~1000 players in the small scale

category. There are only 50 large organized units. These units are mainly present in

Gujarat and Maharashtra, with the former accounting for almost 80% of capacity. Per

capita consumption of dyestuff is ~50 gms compared to the world average of 300 gms

demonstrating a largely untapped domestic market. India has largely been an exporting

country and has emerged as a global supplier of reactive, acid, vat and direct dyes

accounting for ~10% of world trade. Also, these dyestuffs are exported to Europe, South

East Asia and Taiwan to cater to the textile industries in these countries. However, almost

80% of these are commodities and face intense pricing pressures reducing the margins of

the industry.

Indian Dyes : Capacity (tpa)

Sulphur, 10,000

Disperse, 10,000

Acid, 30,000

Others, 20,000

Basic, 10,000

Direct, 20,000

Reactive, 100,000

The pigment market is estimated at ~7 lakh tons p.a. with a market size of ~$ 970 Mn.

Carbon black and Titanium dioxide (TiO2) account for 90% of the total pigment production.

Pigments(678,000)

Carbon Black &TiO2

(615,000)

Colour & SpecialEffect

(63,000)

Organics(19,500)

Inorganics(44,000)

Chromeoxide Others

Special Effect Others

SyntheticIron Oxide

Source: Industry reports, Tata Strategic analysis

Pigments demand, India: FY10(tons per annum)

32 33

Printing inks and coatings account for over 70% of consumption of pigments in India.

Titanium dioxide is a major raw material used in the manufacture of paints. The paints

industry is growing at 13.5% p.a. which has been a major demand driver for pigments.

There are also niche markets in India for special effect pigments such as metallic and

pearlescent. These pigments are usually imported into the Indian market, with Sudarshan

chemicals being the only domestic manufacturer. Though the volume for these pigments

would be very small as compared to other pigment segments, they usually command a

premium for the design appeal that they provide to the final product such as automotive

coatings and packaging goods.

India has grown significantly as a producer and exporter of organic pigments, particularly

phthalocyanine blue, green and some high performance pigments. India is amongst the

largest sources of coloured organic pigments, competing with China for a dominant share

of the export market.

Source: Industry reports

Pigments by end use (% volume)

Plastics,10%

Others, 9%

Textiles,10%

Coatings,24%

Inks, 47%

Demand-Supply Scenario

Major players in the pigments industry are Sudarshan Chemicals and Clariant India while

in the dyestuff industry companies such as Atul, Clariant India, Kiri Dyes and IDI are large

players in the organized sector. The organized sector, with a better product range,

technology and marketing reach, has been able to increase market share. Further bans on

certain dyestuffs due to regulatory norms from the European markets and stricter local

pollution norms have forced many in the unorganized sector to exit resulting in increase in

the share of the organized players. Total installed capacity for organic pigment is 80,000

tons p.a., which is way higher than the demand from the Indian market. Large proportion

of the organic pigments produced is exported. Major producers of organic pigments

include Meghmani Organics, Clariant India, Sudarshan Chemicals, Pidilite Industries and

Heubach Colours.

Growth Forecast & Drivers

There has been a strong growth in the dyestuff industry during the last decade. Export

opportunities created by the closure of several units in countries like USA and Europe due

to enforcement of strict pollution control norms, has resulted in a spurt of capacity

building in India. However, the financial crisis in 2008 has resulted in a demand slump,

worldwide over-capacity and has resulted in further margin pressures on the dyestuff

industry.

10.0

3.5

2010 2020

14.5

Base case

Aspirational

11.1%

15.3%

Colorant Industry size ($ Bn)

CAGR

Source : Industry reports, Analysis by Tata Strategic

As per industry reports, demand for dyes and organic pigments is expected to grow at

11% p.a. till 2020 to reach US$ 10 Bn. However, the industry can aim to grow faster at 15%

to reach US$ 14.5 Bn. To achieve its aspirations, the industry needs to focus on the

following:

Innovative products

Increase emphasis on R&D

Optimize the product portfolio

Build better quality and high performance colorants

Green chemistry practices

Improve environment friendliness of products and services

Ensure compliance to international regulations to continue access to the exports

markets

Due to greater use of polyester and cotton-based fabrics, there has been a shift towards

reactive dyes, used in cotton-based fabrics, and disperse dyes, used in polyester. The

demand for reactive and disperse dyes is expected to grow fastest due to this trend. The

textile industry will remain the largest consumer of dyestuffs; however growth will be

driven by markets such as printing inks, paints and plastics. These segments will also

increase the consumption of high performance pigments helping improve profitability.

However, the gains will be restrained due to the commodity nature of the products and

intense competition.

v

v

v

v

v

32 33

Printing inks and coatings account for over 70% of consumption of pigments in India.

Titanium dioxide is a major raw material used in the manufacture of paints. The paints

industry is growing at 13.5% p.a. which has been a major demand driver for pigments.

There are also niche markets in India for special effect pigments such as metallic and

pearlescent. These pigments are usually imported into the Indian market, with Sudarshan

chemicals being the only domestic manufacturer. Though the volume for these pigments

would be very small as compared to other pigment segments, they usually command a

premium for the design appeal that they provide to the final product such as automotive

coatings and packaging goods.

India has grown significantly as a producer and exporter of organic pigments, particularly

phthalocyanine blue, green and some high performance pigments. India is amongst the

largest sources of coloured organic pigments, competing with China for a dominant share

of the export market.

Source: Industry reports

Pigments by end use (% volume)

Plastics,10%

Others, 9%

Textiles,10%

Coatings,24%

Inks, 47%

Demand-Supply Scenario

Major players in the pigments industry are Sudarshan Chemicals and Clariant India while

in the dyestuff industry companies such as Atul, Clariant India, Kiri Dyes and IDI are large

players in the organized sector. The organized sector, with a better product range,

technology and marketing reach, has been able to increase market share. Further bans on

certain dyestuffs due to regulatory norms from the European markets and stricter local

pollution norms have forced many in the unorganized sector to exit resulting in increase in

the share of the organized players. Total installed capacity for organic pigment is 80,000

tons p.a., which is way higher than the demand from the Indian market. Large proportion

of the organic pigments produced is exported. Major producers of organic pigments

include Meghmani Organics, Clariant India, Sudarshan Chemicals, Pidilite Industries and

Heubach Colours.

Growth Forecast & Drivers

There has been a strong growth in the dyestuff industry during the last decade. Export

opportunities created by the closure of several units in countries like USA and Europe due

to enforcement of strict pollution control norms, has resulted in a spurt of capacity

building in India. However, the financial crisis in 2008 has resulted in a demand slump,

worldwide over-capacity and has resulted in further margin pressures on the dyestuff

industry.

10.0

3.5

2010 2020

14.5

Base case

Aspirational

11.1%

15.3%

Colorant Industry size ($ Bn)

CAGR

Source : Industry reports, Analysis by Tata Strategic

As per industry reports, demand for dyes and organic pigments is expected to grow at

11% p.a. till 2020 to reach US$ 10 Bn. However, the industry can aim to grow faster at 15%

to reach US$ 14.5 Bn. To achieve its aspirations, the industry needs to focus on the

following:

Innovative products

Increase emphasis on R&D

Optimize the product portfolio

Build better quality and high performance colorants

Green chemistry practices

Improve environment friendliness of products and services

Ensure compliance to international regulations to continue access to the exports

markets

Due to greater use of polyester and cotton-based fabrics, there has been a shift towards

reactive dyes, used in cotton-based fabrics, and disperse dyes, used in polyester. The

demand for reactive and disperse dyes is expected to grow fastest due to this trend. The

textile industry will remain the largest consumer of dyestuffs; however growth will be

driven by markets such as printing inks, paints and plastics. These segments will also

increase the consumption of high performance pigments helping improve profitability.

However, the gains will be restrained due to the commodity nature of the products and

intense competition.

v

v

v

v

v

34 35

Market

• Global overcapacity• Demand for green & high-

performance products

Technology

Trends in colorants industry

Regulatory

• Colour solution approach to counter commoditization

• Stricter domestic environmental laws

• REACH compliance

Market

•• -

Technology

Trends in colorants industry

Regulatory

• •s

•

Industry Trends

Market Trends

The global capacity of dyestuffs has exceeded demand resulting in an oversupply scenario.

Due to the lack of export demand, the prices of the colorants had dropped by roughly

20%. It is expected that consumer preference for environmentally friendly products and

high performance dyes and organic pigments will help improve overall value of the

market.

Regulatory Trends

Fiscal policies and excise concessions led to a high level of fragmentation in the Indian

dyestuffs market. However, a gradual reduction in the excise duties has resulted in a more

balanced pricing differential between the organized and unorganized sectors. Regulations

such as REACH (Registration, Evaluation, Authorization and Restriction of Chemical

substances), which have been designed with the objective of protecting human health

and environment from the hazards of chemicals, require that apparel and apparel

chemical exporters to EU provide their buyers with information regarding the substance

used in manufacturing. Exporters who are not able to comply will lose their market share,

resulting in closure of small establishments.

Technological Trends

Since majority of dyestuffs are commodities there is not much product differentiation and

duplication of products is easy. To counter the same, global manufacturers are investing in

Research and Development to improve the specialty end of their portfolio. The industry

could leverage technology to come up with newer products to meet the bottom of

pyramid needs with innovative solutions. New technologies such as reduction with

hydrogen & sulphonation with liquid sulphur trioxide could be adopted as they are clean

technologies and give better yields, thereby reducing effluents. There is also a trend

towards providing colour solutions rather than just a colourant. Collaborations with

equipment manufacturers are being undertaken to provide integrated solutions to

customers.

Future Outlook

The financial crisis in 2008 has resulted in a demand slump, worldwide over-capacity and

further margin pressures on the dyestuff industry. The Indian dyestuff industry is facing

challenges due to reduced export demand growth and decreasing profitability. Companies

with greater focus on innovation and R&D will benefit in the long run. Adopting green

chemistry practices and compliance to more stringent export market regulations would

help ensure greater access to export markets. Such a holistic approach could ensure that

the Indian dyes and pigments industry is able to overcome the challenges and convert

them to opportunities, resulting in profitable growth.

Company overview Largest pigment and sole effect pigment manufacturer

Present in business for over 50 years

Sales Revenue in

FY2011 Rs. 747 crore

Key brands Colours: Sudaperm, Sudafast, Sudacolor

Effects: Sumica, Sumicos

Manufacturing

locations Roha and Mahad (Mahasrashtra)

Sudarshan India

www.sudarshan.com

Profile of select playersBrief profile: Sudarshan India

Atul Industries

www.atul.co.in

Company overview Diversified company with presence in colours, aromatics,

agrochemicals, polymers and pharma intermediaries

Sales Revenue in

FY2011 Rs. 1,600 crore

Key brands

Vat dyes: Novatic Acid dyes: Tulacid Direct dyes: Tuladir

Manufacturing

locations Atul and Ankleshwar (Gujarat)

Brief profile: Atul Industries

34 35

Market

• Global overcapacity• Demand for green & high-

performance products

Technology

Trends in colorants industry

Regulatory

• Colour solution approach to counter commoditization

• Stricter domestic environmental laws

• REACH compliance

Market

•• -

Technology

Trends in colorants industry

Regulatory

• •s

•

Industry Trends

Market Trends

The global capacity of dyestuffs has exceeded demand resulting in an oversupply scenario.

Due to the lack of export demand, the prices of the colorants had dropped by roughly

20%. It is expected that consumer preference for environmentally friendly products and

high performance dyes and organic pigments will help improve overall value of the

market.

Regulatory Trends

Fiscal policies and excise concessions led to a high level of fragmentation in the Indian

dyestuffs market. However, a gradual reduction in the excise duties has resulted in a more

balanced pricing differential between the organized and unorganized sectors. Regulations

such as REACH (Registration, Evaluation, Authorization and Restriction of Chemical

substances), which have been designed with the objective of protecting human health

and environment from the hazards of chemicals, require that apparel and apparel

chemical exporters to EU provide their buyers with information regarding the substance

used in manufacturing. Exporters who are not able to comply will lose their market share,

resulting in closure of small establishments.

Technological Trends

Since majority of dyestuffs are commodities there is not much product differentiation and

duplication of products is easy. To counter the same, global manufacturers are investing in

Research and Development to improve the specialty end of their portfolio. The industry

could leverage technology to come up with newer products to meet the bottom of

pyramid needs with innovative solutions. New technologies such as reduction with

hydrogen & sulphonation with liquid sulphur trioxide could be adopted as they are clean

technologies and give better yields, thereby reducing effluents. There is also a trend

towards providing colour solutions rather than just a colourant. Collaborations with

equipment manufacturers are being undertaken to provide integrated solutions to

customers.

Future Outlook

The financial crisis in 2008 has resulted in a demand slump, worldwide over-capacity and

further margin pressures on the dyestuff industry. The Indian dyestuff industry is facing

challenges due to reduced export demand growth and decreasing profitability. Companies

with greater focus on innovation and R&D will benefit in the long run. Adopting green

chemistry practices and compliance to more stringent export market regulations would

help ensure greater access to export markets. Such a holistic approach could ensure that

the Indian dyes and pigments industry is able to overcome the challenges and convert

them to opportunities, resulting in profitable growth.

Company overview Largest pigment and sole effect pigment manufacturer

Present in business for over 50 years

Sales Revenue in

FY2011 Rs. 747 crore

Key brands Colours: Sudaperm, Sudafast, Sudacolor

Effects: Sumica, Sumicos

Manufacturing

locations Roha and Mahad (Mahasrashtra)

Sudarshan India

www.sudarshan.com

Profile of select playersBrief profile: Sudarshan India

Atul Industries

www.atul.co.in

Company overview Diversified company with presence in colours, aromatics,

agrochemicals, polymers and pharma intermediaries

Sales Revenue in

FY2011 Rs. 1,600 crore

Key brands

Vat dyes: Novatic Acid dyes: Tulacid Direct dyes: Tuladir

Manufacturing

locations Atul and Ankleshwar (Gujarat)

Brief profile: Atul Industries

36 37

Other Specialty ChemicalsIntroduction

Specialty chemicals are defined as a "group of relatively high value, low volume chemicals

known for their end use applications and/ or performance enhancing properties." In

contrast to base or commodity chemicals, specialty chemicals are recognized for 'what

they do' and not 'what they are'. Specialty chemicals provide the required 'solution' to

meet the customer application needs. It is a highly knowledge driven industry with raw

materials cost (measured as percentage of net sales) much lower than for commodity

chemicals. The critical success factors for the industry include understanding of customer

needs and product/ application development to meet the same at a favorable price-

performance ratio.

Overview of Indian market

The specialty chemicals segment (including the knowledge chemicals) is, currently

estimated at ~$ 27 Bn, The specialty chemicals segment caters to a large number of end

use industries including construction, automotive, polymers, personal care products,

water treatment, textile, paints and coatings, etc. The knowledge chemicals segment

caters to the key end use industries of pharmaceuticals, agrochemicals and bio-

technology.

The specialty and knowledge chemicals industry combined has been growing at rates

higher than the overall chemical industry and is expected to continue to grow at 15%-17%

p.a. to reach $ 80-100 Bn by 2020. Changing income distribution and evolving end use

market are the key growth drivers for specialty chemicals. Rapid rise of the mid income

households is expected to create a larger consumer base for products using specialty

chemicals.

Additionally, high growth in end use markets and evolving customer needs are expected

to drive the growth of specialty chemicals. Major end use industries - textiles (esp.

performance textiles), automotive, glass, construction and paints- are all expected to

register double digit growth rates in the next five years. Also emerging needs in several of

these end use industries is creating demand for high performance specialty chemicals

driving penetration growth.

Generally low to medium volume products with higher price realization

Generally medium to

high volume products with lower price realizations

CSFs: Price/performance ratio for specific application,

technical assistance, channels to market

Seller provides required "solution" to meet customer application needs

Sold by "performance/impact", not composition

CSFs: Access to secure and competitive supply of raw materials, efficient operations and

supply chain

Selection of chemical done by customer

Sold by "specification",defined purity

BASE CHEMICALS SPECIALTY CHEMICALS

18

27

FY06 FY10 FY20

Indiamarket (USD Bn)

’s specialty & knowledge chemicals

11%

15-17%

80-100

Source: Tata Strategic estimates

36 37

Other Specialty ChemicalsIntroduction

Specialty chemicals are defined as a "group of relatively high value, low volume chemicals

known for their end use applications and/ or performance enhancing properties." In

contrast to base or commodity chemicals, specialty chemicals are recognized for 'what

they do' and not 'what they are'. Specialty chemicals provide the required 'solution' to

meet the customer application needs. It is a highly knowledge driven industry with raw

materials cost (measured as percentage of net sales) much lower than for commodity

chemicals. The critical success factors for the industry include understanding of customer

needs and product/ application development to meet the same at a favorable price-

performance ratio.

Overview of Indian market

The specialty chemicals segment (including the knowledge chemicals) is, currently

estimated at ~$ 27 Bn, The specialty chemicals segment caters to a large number of end

use industries including construction, automotive, polymers, personal care products,

water treatment, textile, paints and coatings, etc. The knowledge chemicals segment

caters to the key end use industries of pharmaceuticals, agrochemicals and bio-

technology.

The specialty and knowledge chemicals industry combined has been growing at rates

higher than the overall chemical industry and is expected to continue to grow at 15%-17%

p.a. to reach $ 80-100 Bn by 2020. Changing income distribution and evolving end use

market are the key growth drivers for specialty chemicals. Rapid rise of the mid income

households is expected to create a larger consumer base for products using specialty

chemicals.

Additionally, high growth in end use markets and evolving customer needs are expected

to drive the growth of specialty chemicals. Major end use industries - textiles (esp.

performance textiles), automotive, glass, construction and paints- are all expected to

register double digit growth rates in the next five years. Also emerging needs in several of

these end use industries is creating demand for high performance specialty chemicals

driving penetration growth.

Generally low to medium volume products with higher price realization

Generally medium to

high volume products with lower price realizations

CSFs: Price/performance ratio for specific application,

technical assistance, channels to market

Seller provides required "solution" to meet customer application needs

Sold by "performance/impact", not composition

CSFs: Access to secure and competitive supply of raw materials, efficient operations and

supply chain

Selection of chemical done by customer

Sold by "specification",defined purity

BASE CHEMICALS SPECIALTY CHEMICALS

18

27

FY06 FY10 FY20

Indiamarket (USD Bn)

’s specialty & knowledge chemicals

11%

15-17%

80-100

Source: Tata Strategic estimates

38 39

• EU has “E numbers” for food additives that have been assessed for use (positive list)

• Majority of the developed world (US, UK, EU) follow IFRA guidelines

• Moving from a negative list (of banned chemicals) to a positive list of (acceptable chemicals) in flavors

• Mandating the usage norms by IFRA (International Fragrance Association)

Flavours and fragrances

• Germany’s EnEV is one of the most stringent energy conservation codes

• China has banned site mixing of concrete in 240 major states

• Mandating energy conservation and building code (2007) guidelines

• Banning mixing and production of concrete at sites in urban areas

Construction

• US has set 250 g/ litre as the limit for VOC in paints

• US has a norm of maximum 90 ppm of lead in paints

• Industries are incentivised to use Singapore’s NEWater (recycled water)

• US EPA sets effluent emission guidelines for each industry

• Entire EU has specific targets for CO2 emissions for cars (120 g/ km by 2012)

• US CAFÉ standards specify minimum fuel efficiency at 36 MPG by 2016

Comparable standards in other countries

• Nationwide implementation of stricter emission norms (Bharat IV/ V)

• Fuel efficiency standards to improve average fuel economy of vehicles

Automotive

• Tighter emission norms for VOCs in line with the developed world

• Mandatory use of lead-free pigments and coatings in all applications

Paints and coatings

• Re-usability norms for all types of waste water

• Shifting to pollution load-based norms from concentration-based norms

Water treatment

Potential customer standards in IndiaINDUSTRY

• EU has “E numbers” for food additives that have been assessed for use (positive list)

• Majority of the developed world (US, UK, EU) follow IFRA guidelines

• Moving from a negative list (of banned chemicals) to a positive list of (acceptable chemicals) in flavors

• Mandating the usage norms by IFRA (International Fragrance Association)

Flavours and fragrances

• Germany’s EnEV is one of the most stringent energy conservation codes

• China has banned site mixing of concrete in 240 major states

• Mandating energy conservation and building code (2007) guidelines

• Banning mixing and production of concrete at sites in urban areas

Construction

• US has set 250 g/ litre as the limit for VOC in paints

• US has a norm of maximum 90 ppm of lead in paints

• Industries are incentivised to use Singapore’s NEWater (recycled water)

• US EPA sets effluent emission guidelines for each industry

• Entire EU has specific targets for CO2 emissions for cars (120 g/ km by 2012)

• US CAFÉ standards specify minimum fuel efficiency at 36 MPG by 2016

Comparable standards in other countries

• Nationwide implementation of stricter emission norms (Bharat IV/ V)

• Fuel efficiency standards to improve average fuel economy of vehicles

Automotive

• Tighter emission norms for VOCs in line with the developed world

• Mandatory use of lead-free pigments and coatings in all applications

Paints and coatings

• Re-usability norms for all types of waste water

• Shifting to pollution load-based norms from concentration-based norms

Water treatment

Potential customer standards in IndiaINDUSTRY

• EU has “E numbers” for food additives that have been assessed for use (positive list)

• Majority of the developed world (US, UK, EU) follow IFRA guidelines

• Moving from a negative list (of banned chemicals) to a positive list of (acceptable chemicals) in flavors

• Mandating the usage norms by IFRA (International Fragrance Association)

Flavours and fragrances

• Germany’s EnEV is one of the most stringent energy conservation codes

• China has banned site mixing of concrete in 240 major states

• Mandating energy conservation and building code (2007) guidelines

• Banning mixing and production of concrete at sites in urban areas

Construction

• US has set 250 g/ litre as the limit for VOC in paints

• US has a norm of maximum 90 ppm of lead in paints

• Industries are incentivised to use Singapore’s NEWater (recycled water)

• US EPA sets effluent emission guidelines for each industry

• Entire EU has specific targets for CO2 emissions for cars (120 g/ km by 2012)

• US CAFÉ standards specify minimum fuel efficiency at 36 MPG by 2016

Comparable standards in other countries

• Nationwide implementation of stricter emission norms (Bharat IV/ V)

• Fuel efficiency standards to improve average fuel economy of vehicles

Automotive

• Tighter emission norms for VOCs in line with the developed world

• Mandatory use of lead-free pigments and coatings in all applications

Paints and coatings

• Re-usability norms for all types of waste water

• Shifting to pollution load-based norms from concentration-based norms

Water treatment

Potential customer standards in IndiaINDUSTRY

• EU has “E numbers” for food additives that have been assessed for use (positive list)

• Majority of the developed world (US, UK, EU) follow IFRA guidelines

• Moving from a negative list (of banned chemicals) to a positive list of (acceptable chemicals) in flavors

• Mandating the usage norms by IFRA (International Fragrance Association)

Flavours and fragrances

• Germany’s EnEV is one of the most stringent energy conservation codes

• China has banned site mixing of concrete in 240 major states

• Mandating energy conservation and building code (2007) guidelines

• Banning mixing and production of concrete at sites in urban areas

Construction

• US has set 250 g/ litre as the limit for VOC in paints

• US has a norm of maximum 90 ppm of lead in paints

• Industries are incentivised to use Singapore’s NEWater (recycled water)

• US EPA sets effluent emission guidelines for each industry

• Entire EU has specific targets for CO2 emissions for cars (120 g/ km by 2012)

• US CAFÉ standards specify minimum fuel efficiency at 36 MPG by 2016

Comparable standards in other countries

• Nationwide implementation of stricter emission norms (Bharat IV/ V)

• Fuel efficiency standards to improve average fuel economy of vehicles

Automotive

• Tighter emission norms for VOCs in line with the developed world

• Mandatory use of lead-free pigments and coatings in all applications

Paints and coatings

• Re-usability norms for all types of waste water

• Shifting to pollution load-based norms from concentration-based norms

Water treatment

Potential customer standards in IndiaINDUSTRY

Source: CII, McKinsey report in Specialty chemicals

Current & potential regulatory changes in end-use industries

A brief overview of some of the key segments of specialty chemicals is covered in this report, focusing on the demand and supply scenario, projected growth & drivers and key trends & future outlook in each segment.

1. Construction Chemicals

Other Specialty Chemicals

Introduction

The Indian construction chemicals market, valued at ~$ 400 Mn in 2010, consists of a

variety of products ranging from admixtures to sealants to flooring chemicals. However,

the market is still very small when compared to other global markets like the United

States which is estimated at ~$ 7.7 Bn. Admixtures form the biggest segment with 35%

share followed by flooring chemicals and water proofing chemicals.

Demand-supply scenario

The demand for construction chemicals, boosted by investment in the construction sector,

has been growing at 16% p.a. from $ 180 Mn in 2005 to reach $ 400 Mn in 2010. With the

economic crisis, the growth slowed down in 2009, but has gained momentum thereafter.

Flooring,15

Misc., 31

Waterproofing,

10

Repair &rehabilitati

on, 9

Admixtures35

Product share FY10

(% of total value)

Source: Industry reports, Tata Strategic analysis

180

400

2005 2010

Construction chemicals market, India ($ Mn)

16%

Source: Industry reports; Tata Strategic estimates

38 39

• EU has “E numbers” for food additives that have been assessed for use (positive list)

• Majority of the developed world (US, UK, EU) follow IFRA guidelines

• Moving from a negative list (of banned chemicals) to a positive list of (acceptable chemicals) in flavors

• Mandating the usage norms by IFRA (International Fragrance Association)

Flavours and fragrances

• Germany’s EnEV is one of the most stringent energy conservation codes

• China has banned site mixing of concrete in 240 major states

• Mandating energy conservation and building code (2007) guidelines

• Banning mixing and production of concrete at sites in urban areas

Construction

• US has set 250 g/ litre as the limit for VOC in paints

• US has a norm of maximum 90 ppm of lead in paints

• Industries are incentivised to use Singapore’s NEWater (recycled water)

• US EPA sets effluent emission guidelines for each industry

• Entire EU has specific targets for CO2 emissions for cars (120 g/ km by 2012)

• US CAFÉ standards specify minimum fuel efficiency at 36 MPG by 2016

Comparable standards in other countries

• Nationwide implementation of stricter emission norms (Bharat IV/ V)

• Fuel efficiency standards to improve average fuel economy of vehicles

Automotive

• Tighter emission norms for VOCs in line with the developed world

• Mandatory use of lead-free pigments and coatings in all applications

Paints and coatings

• Re-usability norms for all types of waste water

• Shifting to pollution load-based norms from concentration-based norms

Water treatment

Potential customer standards in IndiaINDUSTRY

• EU has “E numbers” for food additives that have been assessed for use (positive list)

• Majority of the developed world (US, UK, EU) follow IFRA guidelines

• Moving from a negative list (of banned chemicals) to a positive list of (acceptable chemicals) in flavors

• Mandating the usage norms by IFRA (International Fragrance Association)

Flavours and fragrances

• Germany’s EnEV is one of the most stringent energy conservation codes

• China has banned site mixing of concrete in 240 major states

• Mandating energy conservation and building code (2007) guidelines

• Banning mixing and production of concrete at sites in urban areas

Construction

• US has set 250 g/ litre as the limit for VOC in paints

• US has a norm of maximum 90 ppm of lead in paints

• Industries are incentivised to use Singapore’s NEWater (recycled water)

• US EPA sets effluent emission guidelines for each industry

• Entire EU has specific targets for CO2 emissions for cars (120 g/ km by 2012)

• US CAFÉ standards specify minimum fuel efficiency at 36 MPG by 2016

Comparable standards in other countries

• Nationwide implementation of stricter emission norms (Bharat IV/ V)

• Fuel efficiency standards to improve average fuel economy of vehicles

Automotive

• Tighter emission norms for VOCs in line with the developed world

• Mandatory use of lead-free pigments and coatings in all applications

Paints and coatings

• Re-usability norms for all types of waste water

• Shifting to pollution load-based norms from concentration-based norms

Water treatment

Potential customer standards in IndiaINDUSTRY

• EU has “E numbers” for food additives that have been assessed for use (positive list)

• Majority of the developed world (US, UK, EU) follow IFRA guidelines

• Moving from a negative list (of banned chemicals) to a positive list of (acceptable chemicals) in flavors

• Mandating the usage norms by IFRA (International Fragrance Association)

Flavours and fragrances

• Germany’s EnEV is one of the most stringent energy conservation codes

• China has banned site mixing of concrete in 240 major states

• Mandating energy conservation and building code (2007) guidelines

• Banning mixing and production of concrete at sites in urban areas

Construction

• US has set 250 g/ litre as the limit for VOC in paints

• US has a norm of maximum 90 ppm of lead in paints

• Industries are incentivised to use Singapore’s NEWater (recycled water)

• US EPA sets effluent emission guidelines for each industry

• Entire EU has specific targets for CO2 emissions for cars (120 g/ km by 2012)

• US CAFÉ standards specify minimum fuel efficiency at 36 MPG by 2016

Comparable standards in other countries

• Nationwide implementation of stricter emission norms (Bharat IV/ V)

• Fuel efficiency standards to improve average fuel economy of vehicles

Automotive

• Tighter emission norms for VOCs in line with the developed world

• Mandatory use of lead-free pigments and coatings in all applications

Paints and coatings

• Re-usability norms for all types of waste water

• Shifting to pollution load-based norms from concentration-based norms

Water treatment

Potential customer standards in IndiaINDUSTRY

• EU has “E numbers” for food additives that have been assessed for use (positive list)

• Majority of the developed world (US, UK, EU) follow IFRA guidelines

• Moving from a negative list (of banned chemicals) to a positive list of (acceptable chemicals) in flavors

• Mandating the usage norms by IFRA (International Fragrance Association)

Flavours and fragrances

• Germany’s EnEV is one of the most stringent energy conservation codes

• China has banned site mixing of concrete in 240 major states

• Mandating energy conservation and building code (2007) guidelines

• Banning mixing and production of concrete at sites in urban areas

Construction

• US has set 250 g/ litre as the limit for VOC in paints

• US has a norm of maximum 90 ppm of lead in paints

• Industries are incentivised to use Singapore’s NEWater (recycled water)

• US EPA sets effluent emission guidelines for each industry

• Entire EU has specific targets for CO2 emissions for cars (120 g/ km by 2012)

• US CAFÉ standards specify minimum fuel efficiency at 36 MPG by 2016

Comparable standards in other countries

• Nationwide implementation of stricter emission norms (Bharat IV/ V)

• Fuel efficiency standards to improve average fuel economy of vehicles

Automotive

• Tighter emission norms for VOCs in line with the developed world

• Mandatory use of lead-free pigments and coatings in all applications

Paints and coatings

• Re-usability norms for all types of waste water

• Shifting to pollution load-based norms from concentration-based norms

Water treatment

Potential customer standards in IndiaINDUSTRY

Source: CII, McKinsey report in Specialty chemicals

Current & potential regulatory changes in end-use industries

A brief overview of some of the key segments of specialty chemicals is covered in this report, focusing on the demand and supply scenario, projected growth & drivers and key trends & future outlook in each segment.

1. Construction Chemicals

Other Specialty Chemicals

Introduction

The Indian construction chemicals market, valued at ~$ 400 Mn in 2010, consists of a

variety of products ranging from admixtures to sealants to flooring chemicals. However,

the market is still very small when compared to other global markets like the United

States which is estimated at ~$ 7.7 Bn. Admixtures form the biggest segment with 35%

share followed by flooring chemicals and water proofing chemicals.

Demand-supply scenario

The demand for construction chemicals, boosted by investment in the construction sector,

has been growing at 16% p.a. from $ 180 Mn in 2005 to reach $ 400 Mn in 2010. With the

economic crisis, the growth slowed down in 2009, but has gained momentum thereafter.

Flooring,15

Misc., 31

Waterproofing,

10

Repair &rehabilitati

on, 9

Admixtures35

Product share FY10

(% of total value)

Source: Industry reports, Tata Strategic analysis

180

400

2005 2010

Construction chemicals market, India ($ Mn)

16%

Source: Industry reports; Tata Strategic estimates

40 41

The overall market is fairly consolidated but there is considerable fragmentation of

individual products and application areas. The top 5 players account for ~50% of the

market; the rest being accounted by small and unorganized players. Fosroc, SIKA India &

BASF SE are the leading players in the Indian construction chemicals market.

Projected growth and demand drivers

The market for construction chemicals is expected to grow at a CAGR of 14% to reach ~$

800 Mn in 2015 and $ 1.6 Bn in 2020. Key growth drivers include:

Growth in end-use market: Indian construction industry is expected to growth at 11%

annually over the next decade

o Rising disposable incomes and changing demographics driving demand for

residential real estate

o Growth in construction activities due to increased investments in

infrastructure, backed by Government of India's commitment to increase

spend in infrastructure to 10% of GDP in the 12th Five-Year Plan

o 100% Foreign Direct Investment (FDI) in real estate to boost construction

activities

Increasing penetration of construction chemical products

o Better awareness about performance-enhancing products among

consumers and builders, leading to increasing usage of newer products like

ready-mix concrete, etc.

o Increased construction activities triggered by urbanization and

development of rural areas

Changing regulatory environment

o Current and prospective regulatory guidelines incentivizing/ driving

v

v

v

energy-efficient and green buildings to drive demand for suitable,

innovative protective coatings and safe chemicals

Future outlook and levers for growth

Construction chemicals market has a huge growth potential due to the construction and

manufacturing boom in India. However, competition is high and several low value

products are being sold in the market. Margins are lower because most contractors prefer

low cost chemicals to reduce the construction cost. High value products have limited

demand from premium construction houses. Product innovation and diversification,

producing low cost-high value products and creating product awareness among end users

are the key success factors.

Construction chemical manufacturers could address these challenges primarily by

focussing on development and marketing of high-end products (e.g. silicone-based

sealants) which are expected to outgrow traditional products. They could also consider

investing in programmes to educate construction benefits of using superior construction

chemicals in terms of lower project completion time and ease of use could accelerate

adoption of new-age products.

Profiles of key playersBrief profile: Fosroc India

Company overview · Wholly owned subsidiary of Fosroc International

Key products ·Admixtures, joint sealants, surface treatments

Manufacturing

locations

· Bangalore

·

Ankleshwar

·

Rudrapur

Fosroc India

www.fosroc.com

Brief profile: SIKA India

Company overview · Convened India operations in 1987

· Subsidiary of Switzerland -based parent company

Key products

· Waterproofing: Sikacim

· Tiling: Sika Tilofix

· Sealing: SikaBoom

Manufacturing

locations

· Kalyani, West Bengal

· Goa

· Jaipur

· Blending units in Mumbai and Chennai

SIKA India

www.sika.in

BASF,12%

Others,50%

SIKA India, 13%

SWC, 5%Pidilite,

6%

FOSROC,14%

Market share by revenue: 2009

Source: Industry reports, Tata Strategic analysis

40 41

The overall market is fairly consolidated but there is considerable fragmentation of

individual products and application areas. The top 5 players account for ~50% of the

market; the rest being accounted by small and unorganized players. Fosroc, SIKA India &

BASF SE are the leading players in the Indian construction chemicals market.

Projected growth and demand drivers

The market for construction chemicals is expected to grow at a CAGR of 14% to reach ~$

800 Mn in 2015 and $ 1.6 Bn in 2020. Key growth drivers include:

Growth in end-use market: Indian construction industry is expected to growth at 11%

annually over the next decade

o Rising disposable incomes and changing demographics driving demand for

residential real estate

o Growth in construction activities due to increased investments in

infrastructure, backed by Government of India's commitment to increase

spend in infrastructure to 10% of GDP in the 12th Five-Year Plan

o 100% Foreign Direct Investment (FDI) in real estate to boost construction

activities

Increasing penetration of construction chemical products

o Better awareness about performance-enhancing products among

consumers and builders, leading to increasing usage of newer products like

ready-mix concrete, etc.

o Increased construction activities triggered by urbanization and

development of rural areas

Changing regulatory environment

o Current and prospective regulatory guidelines incentivizing/ driving

v

v

v

energy-efficient and green buildings to drive demand for suitable,

innovative protective coatings and safe chemicals

Future outlook and levers for growth

Construction chemicals market has a huge growth potential due to the construction and

manufacturing boom in India. However, competition is high and several low value

products are being sold in the market. Margins are lower because most contractors prefer

low cost chemicals to reduce the construction cost. High value products have limited

demand from premium construction houses. Product innovation and diversification,

producing low cost-high value products and creating product awareness among end users

are the key success factors.

Construction chemical manufacturers could address these challenges primarily by

focussing on development and marketing of high-end products (e.g. silicone-based

sealants) which are expected to outgrow traditional products. They could also consider

investing in programmes to educate construction benefits of using superior construction

chemicals in terms of lower project completion time and ease of use could accelerate

adoption of new-age products.

Profiles of key playersBrief profile: Fosroc India

Company overview · Wholly owned subsidiary of Fosroc International

Key products ·Admixtures, joint sealants, surface treatments

Manufacturing

locations

· Bangalore

·

Ankleshwar

·

Rudrapur

Fosroc India

www.fosroc.com

Brief profile: SIKA India

Company overview · Convened India operations in 1987

· Subsidiary of Switzerland -based parent company

Key products

· Waterproofing: Sikacim

· Tiling: Sika Tilofix

· Sealing: SikaBoom

Manufacturing

locations

· Kalyani, West Bengal

· Goa

· Jaipur

· Blending units in Mumbai and Chennai

SIKA India

www.sika.in

BASF,12%

Others,50%

SIKA India, 13%

SWC, 5%Pidilite,

6%

FOSROC,14%

Market share by revenue: 2009

Source: Industry reports, Tata Strategic analysis

42 43

2. Water Treatment Chemicals

Introduction

Water treatment chemicals are used for a wide range of industrial and in-process

applications such as reducing effluent toxicity, controlling Biological Oxygen Demand

(BOD) & Chemical Oxygen Demand (COD) and disinfecting water for potable purpose. The

Indian water treatment chemicals market is estimated at ~$ 560 Mn in 2010. Coagulants

and flocculants form the largest segment with ~40% market share followed by biocides

and disinfectants with ~17% market share. Apart from use in potable water, the customer

base is widespread across diverse industries ranging from large power plants, refineries

and fertilizer factories to pharmaceuticals, food and beverages, electronic and automobile

companies.

Demand-supply scenario

The Indian water treatment chemicals market experienced an 8% CAGR in the period from

2005-10 to reach ~$ 560 Mn in 2010. Certain segments like the industrial and drinking

water segments have witnessed higher growth rates.

The market is highly competitive, and participants include private companies, MNCs, as

well as joint ventures. Around 60% of the market is dominated by the organized sector,

largely multinationals and large-scale domestic companies like Nalco Chemicals India Ltd.,

Thermax Ltd. and Ion Exchange (India) Ltd. These companies have a diverse product

portfolio and a strong distribution network to cater to the Indian market.

Projected growth and demand drivers

The market for water treatment chemicals is expected to grow at a CAGR of 10% to

exceed ~$ 870 Mn in 2015. Key market drivers include:

Growth in end-use market

o Rise in population and increasing urbanization leading to increased per capita

and overall water consumption

o Rapid industrialization leading to increasing water demand for running

manufacturing plants and their corresponding effluent treatment facilities

Changing demographics and lifestyle

o Higher awareness about impact of quality of drinking water on health to drive

household consumption of water treatment chemicals

o Rising income levels and better living standards to increase demand for

cleaner, safer potable water

Changes in regulatory environment

o Stricter effluent norms to create significant scope for demand from industries

as they adopt effluent treatment practices

v

v

v

Product share (% of total) Fy09

Source: Industry reports, Tata Strategic analysis

Biocides & disinfectan

ts, 18%

Others,30%

Defoaminggents, 7%

a

Coagulants &

flocculants,40%

pH adjusters,

5%

Water treatment chemicals market ($ Mn)

Source: Industry reports, Tata Strategic analysis

380

560

2005 2010

8%

42 43

2. Water Treatment Chemicals

Introduction

Water treatment chemicals are used for a wide range of industrial and in-process

applications such as reducing effluent toxicity, controlling Biological Oxygen Demand

(BOD) & Chemical Oxygen Demand (COD) and disinfecting water for potable purpose. The

Indian water treatment chemicals market is estimated at ~$ 560 Mn in 2010. Coagulants

and flocculants form the largest segment with ~40% market share followed by biocides

and disinfectants with ~17% market share. Apart from use in potable water, the customer

base is widespread across diverse industries ranging from large power plants, refineries

and fertilizer factories to pharmaceuticals, food and beverages, electronic and automobile

companies.

Demand-supply scenario

The Indian water treatment chemicals market experienced an 8% CAGR in the period from

2005-10 to reach ~$ 560 Mn in 2010. Certain segments like the industrial and drinking

water segments have witnessed higher growth rates.

The market is highly competitive, and participants include private companies, MNCs, as

well as joint ventures. Around 60% of the market is dominated by the organized sector,

largely multinationals and large-scale domestic companies like Nalco Chemicals India Ltd.,

Thermax Ltd. and Ion Exchange (India) Ltd. These companies have a diverse product

portfolio and a strong distribution network to cater to the Indian market.

Projected growth and demand drivers

The market for water treatment chemicals is expected to grow at a CAGR of 10% to

exceed ~$ 870 Mn in 2015. Key market drivers include:

Growth in end-use market

o Rise in population and increasing urbanization leading to increased per capita

and overall water consumption

o Rapid industrialization leading to increasing water demand for running

manufacturing plants and their corresponding effluent treatment facilities

Changing demographics and lifestyle

o Higher awareness about impact of quality of drinking water on health to drive

household consumption of water treatment chemicals

o Rising income levels and better living standards to increase demand for

cleaner, safer potable water

Changes in regulatory environment

o Stricter effluent norms to create significant scope for demand from industries

as they adopt effluent treatment practices

v

v

v

Product share (% of total) Fy09

Source: Industry reports, Tata Strategic analysis

Biocides & disinfectan

ts, 18%

Others,30%

Defoaminggents, 7%

a

Coagulants &

flocculants,40%

pH adjusters,

5%

Water treatment chemicals market ($ Mn)

Source: Industry reports, Tata Strategic analysis

380

560

2005 2010

8%

44 45

Water treatment chemicals market growth($ Mn)

Source: Industry reports, Tata Strategic estimates

560

872

2010 2015

10%

Future outlook and levers for growth

The market for water treatment chemicals has seen a shift from the traditional products

to technically more advanced products. For example, traditional products like alum are

being replaced by coagulants and flocculants. In the corrosion and scale inhibitor market,

there is an ongoing shift from the traditionally used heavy metal based products to the

ones which have better environmental profiles. Manufacturers are increasingly producing

patented formulations with exclusive rights that offer customized solutions in a particular

market. The market is expected to grow in light of stricter Government regulations in

industrial and institutional domains. Innovative products catering to niche applications are

likely to help market participants build/ sustain their competitive edge.

Water treatment chemicals companies could look at transforming from pure-play

chemical manufacturers to end-to-end service providers. They could capitalize on the

opportunity offered by urban bodies in India who are moving to the "Build-Own-Operate-

Transfer" model for water treatment management, either through building capabilities or

through partnerships. Another critical success factor could be working closely with

regulatory bodies like pollution control boards to understand and implement evolving

environmental norms governing water safety.

Company overview· Formed in 1964 as a subsidiary of Permutit, UK

· Became independent in 1985

Sales Revenue in

FY2011 · Rs. 590 crore

Key product lines

· Industrial: Arsenic removal units, cooling water chemicals,

dealkalisers, filters, nitrate removal units

· Home: Zero -B range of water purifiers

Manufacturing

locations

· Ankleshwar, Gujarat

· Hosur, Tamil Nadu

· Patancheru, Andhra Pradesh

· Rabale, Maharashtra

· Goa

Ion Exchange (India) Ltd.

www.ionindia.com

Profiles of key playersBrief profile: Ion Exchange (India) Ltd.

Brief profile: Nalco Chemicals

Company overview· Formed in 1964 as a subsidiary of Permutit, UK

· Became independent in 1985

Sales Revenue

in FY2009

·

Rs. 195 crore

Key product lines·

Treatment solutions for boiler water, cooling water,

wastewater, pollutant con trol

Manufacturing

locations·Konnagar, West Bengal

Nalco

www.nalco.com

44 45

Water treatment chemicals market growth($ Mn)

Source: Industry reports, Tata Strategic estimates

560

872

2010 2015

10%

Future outlook and levers for growth

The market for water treatment chemicals has seen a shift from the traditional products

to technically more advanced products. For example, traditional products like alum are

being replaced by coagulants and flocculants. In the corrosion and scale inhibitor market,

there is an ongoing shift from the traditionally used heavy metal based products to the

ones which have better environmental profiles. Manufacturers are increasingly producing

patented formulations with exclusive rights that offer customized solutions in a particular

market. The market is expected to grow in light of stricter Government regulations in

industrial and institutional domains. Innovative products catering to niche applications are

likely to help market participants build/ sustain their competitive edge.

Water treatment chemicals companies could look at transforming from pure-play

chemical manufacturers to end-to-end service providers. They could capitalize on the

opportunity offered by urban bodies in India who are moving to the "Build-Own-Operate-

Transfer" model for water treatment management, either through building capabilities or

through partnerships. Another critical success factor could be working closely with

regulatory bodies like pollution control boards to understand and implement evolving

environmental norms governing water safety.

Company overview· Formed in 1964 as a subsidiary of Permutit, UK

· Became independent in 1985

Sales Revenue in

FY2011 · Rs. 590 crore

Key product lines

· Industrial: Arsenic removal units, cooling water chemicals,

dealkalisers, filters, nitrate removal units

· Home: Zero -B range of water purifiers

Manufacturing

locations

· Ankleshwar, Gujarat

· Hosur, Tamil Nadu

· Patancheru, Andhra Pradesh

· Rabale, Maharashtra

· Goa

Ion Exchange (India) Ltd.

www.ionindia.com

Profiles of key playersBrief profile: Ion Exchange (India) Ltd.

Brief profile: Nalco Chemicals

Company overview· Formed in 1964 as a subsidiary of Permutit, UK

· Became independent in 1985

Sales Revenue

in FY2009

·

Rs. 195 crore

Key product lines·

Treatment solutions for boiler water, cooling water,

wastewater, pollutant con trol

Manufacturing

locations·Konnagar, West Bengal

Nalco

www.nalco.com

46 47

Introduction

The Indian paints and coatings market was estimated to be ~$ 3.4 Bn in 2010. The industry

can be broadly classified into two product segments: decorative paints and industrial

paints.

Decorative Paints: This segment primarily caters to the residential and commercial

buildings and accounts for 70% of the total paint industry. Enamels are the most widely

used followed by distempers and emulsions. Interior and exterior paints account for 75%

and 25% of the decorative paints respectively. On the basis of product composition,

decorative paints are of two kinds - water based and solvent based.

3. Paints and coatings chemicals

Decorative paints segments(% of total volume)

Source: Industry reports, Tata Strategic analysis

Distemper19%

Emulsions17%

Woodfinishes

2%

Ext.coatings

12%

Enamels50%

Industrial paints: This segment includes paints used in automobiles, auto ancillaries,

consumer durables, containers, etc. This segment requires technological expertise and

therefore it is largely served by the organized sector. It accounts for 30% of the overall

market.

Paints and coatings chemicals market size in India is estimated at ~ $ 1.5 Bn in 2010. The

segments comprise three main types of additives:

Binders like epoxy and polyurethane (for durability, adhesion and finish)

Pigments (add desired colours to paints)

Other additives, including emulsifiers, mould releasing agents and stabilizers

Demand-supply scenario

The Indian paint industry, valued at ~$ 3.4 Bn in 2010, has been outpacing the GDP

growth rate by about 1.5 times, having experienced a CAGR of 13.5% over the last five

years. The key growth driver has been rapid growth in end-use segments like

automobiles and textiles. Owing to the economic downturn, the growth slowed down in

the last 2 years. However the growth is reported to have picked up with the resurgence

of the construction industry.

v

v

v

Paints & coatings market, India ($ Bn)

Source: Industry reports, Tata Strategic analysis

1.8

3.4

2005 2010

13.5%

In s(% of total volume)

dustrial paints segment

Source: Industry reports, Tata Strategic analysis

Powder,13%

Protective,24%

Marine,10%

Others, 5%

Refinish,12%

Auto OEM,36%

46 47

Introduction

The Indian paints and coatings market was estimated to be ~$ 3.4 Bn in 2010. The industry

can be broadly classified into two product segments: decorative paints and industrial

paints.

Decorative Paints: This segment primarily caters to the residential and commercial

buildings and accounts for 70% of the total paint industry. Enamels are the most widely

used followed by distempers and emulsions. Interior and exterior paints account for 75%

and 25% of the decorative paints respectively. On the basis of product composition,

decorative paints are of two kinds - water based and solvent based.

3. Paints and coatings chemicals

Decorative paints segments(% of total volume)

Source: Industry reports, Tata Strategic analysis

Distemper19%

Emulsions17%

Woodfinishes

2%

Ext.coatings

12%

Enamels50%

Industrial paints: This segment includes paints used in automobiles, auto ancillaries,

consumer durables, containers, etc. This segment requires technological expertise and

therefore it is largely served by the organized sector. It accounts for 30% of the overall

market.

Paints and coatings chemicals market size in India is estimated at ~ $ 1.5 Bn in 2010. The

segments comprise three main types of additives:

Binders like epoxy and polyurethane (for durability, adhesion and finish)

Pigments (add desired colours to paints)

Other additives, including emulsifiers, mould releasing agents and stabilizers

Demand-supply scenario

The Indian paint industry, valued at ~$ 3.4 Bn in 2010, has been outpacing the GDP

growth rate by about 1.5 times, having experienced a CAGR of 13.5% over the last five

years. The key growth driver has been rapid growth in end-use segments like

automobiles and textiles. Owing to the economic downturn, the growth slowed down in

the last 2 years. However the growth is reported to have picked up with the resurgence

of the construction industry.

v

v

v

Paints & coatings market, India ($ Bn)

Source: Industry reports, Tata Strategic analysis

1.8

3.4

2005 2010

13.5%

In s(% of total volume)

dustrial paints segment

Source: Industry reports, Tata Strategic analysis

Powder,13%

Protective,24%

Marine,10%

Others, 5%

Refinish,12%

Auto OEM,36%

48 49

The paint industry is highly consolidated with the organized sector accounting for ~80%of

the market. The major players in the paint industry are Asian Paints, Kansai Nerolac,

Berger Paints and ICI. In the decorative segment, Asian Paints is the market leader

followed by Berger and Kansai Nerolac. Kansai Nerolac is the market leader in industrial

paints followed by Berger and Asian Paints.

Source: Industry Reports, Tata strategic analysis

Berger,12%

AsianPPG, 12%

Others,36%

Shalimar,4%

BASF, 7%

KansaiNerolac,

29%

Industrial paints market share, Fy09

On the other hand, the paints and coatings chemicals industry is comparatively more

fragmented with significant participation from unorganized players, in addition to major

manufacturers like Rhodia Chemicals India, BASF Coatings India and DuPont India.

Projected growth and demand drivers

With the market recovering from the economic downturn, the paint & coatings chemicals

industry is expected to grow at a CAGR of 14-15% in the next five years. In the decorative

paints segment, water based paints are expected to drive growth with a CAGR of 15%. The

key growth drivers are going to be the growth in paints demand, which in turn are

expected to be influenced by:

Growth in end-use industries

o Growth in industrial paints to be primarily driven by demand from automotive

manufacturing, expected to grow at 15% annually

o Growth in decorative paints to increase due to rapid growth in residential and

commercial real estate, in turn driven by rising disposable incomes and

regulations permitting 100% FDI inflow in real estate

Increasing penetration

o Increase in current low per capita paints consumption to move closer to global

levels (The per capita consumption of paints in India is very low at 1.25 Kg against

38 Kg in Singapore, 25.8 Kg in the U.S or 2.5 Kg in China)

o Marked shift in rural demand- moving from cement paints to higher quality paints

Changes in regulatory environment

o Framing of tighter emission and effluent norms to increase demand for water-

soluble paints

v

v

v

Source: Industry reports, Tata Strategic analysis

3.4

6.5

2010 2015

14%

Growth outlook, India ($ Bn)

Future outlook and levers for growth

There is a shift in market share in favour of organized companies at the expense of

unorganized segment due to entry of organized players into low cost distempers

and enamels. While solvent-based enamels are still popular in India, a shift is

being seen from solvent to water based paints. Keeping the environment concerns

in mind, companies are coming up with new lead free and low Volatile Organic

Compound (VOC) products. There is also a perceptible shift towards usage of

Decorative paints segments(% of total volume)

Source: Industry reports, Tata Strategic analysis

Distemper19%

Emulsions17%

Woodfinishes

2%

Ext.coatings

12%

Enamels50%

48 49

The paint industry is highly consolidated with the organized sector accounting for ~80%of

the market. The major players in the paint industry are Asian Paints, Kansai Nerolac,

Berger Paints and ICI. In the decorative segment, Asian Paints is the market leader

followed by Berger and Kansai Nerolac. Kansai Nerolac is the market leader in industrial

paints followed by Berger and Asian Paints.

Source: Industry Reports, Tata strategic analysis

Berger,12%

AsianPPG, 12%

Others,36%

Shalimar,4%

BASF, 7%

KansaiNerolac,

29%

Industrial paints market share, Fy09

On the other hand, the paints and coatings chemicals industry is comparatively more

fragmented with significant participation from unorganized players, in addition to major

manufacturers like Rhodia Chemicals India, BASF Coatings India and DuPont India.

Projected growth and demand drivers

With the market recovering from the economic downturn, the paint & coatings chemicals

industry is expected to grow at a CAGR of 14-15% in the next five years. In the decorative

paints segment, water based paints are expected to drive growth with a CAGR of 15%. The

key growth drivers are going to be the growth in paints demand, which in turn are

expected to be influenced by:

Growth in end-use industries

o Growth in industrial paints to be primarily driven by demand from automotive

manufacturing, expected to grow at 15% annually

o Growth in decorative paints to increase due to rapid growth in residential and

commercial real estate, in turn driven by rising disposable incomes and

regulations permitting 100% FDI inflow in real estate

Increasing penetration

o Increase in current low per capita paints consumption to move closer to global

levels (The per capita consumption of paints in India is very low at 1.25 Kg against

38 Kg in Singapore, 25.8 Kg in the U.S or 2.5 Kg in China)

o Marked shift in rural demand- moving from cement paints to higher quality paints

Changes in regulatory environment

o Framing of tighter emission and effluent norms to increase demand for water-

soluble paints

v

v

v

Source: Industry reports, Tata Strategic analysis

3.4

6.5

2010 2015

14%

Growth outlook, India ($ Bn)

Future outlook and levers for growth

There is a shift in market share in favour of organized companies at the expense of

unorganized segment due to entry of organized players into low cost distempers

and enamels. While solvent-based enamels are still popular in India, a shift is

being seen from solvent to water based paints. Keeping the environment concerns

in mind, companies are coming up with new lead free and low Volatile Organic

Compound (VOC) products. There is also a perceptible shift towards usage of

Decorative paints segments(% of total volume)

Source: Industry reports, Tata Strategic analysis

Distemper19%

Emulsions17%

Woodfinishes

2%

Ext.coatings

12%

Enamels50%

5150

organic pigments in premium paints with heavy metal pigments being phased out.

Companies which adapt to these trends could grow successfully in the paints

market.

Players could capitalize on the opportunities presented by changing trends in the

paints and coatings market. One effective lever could be marketing high-margin,

high-end decorative paint products which offer end customers longer replacement

cycles. Besides, customizing paint products to meet changing regulations

(environment-friendly, green, water-soluble paints) could help sustain profitable

growth.

Company overview · Formerly Albright & Wilson Chemicals India Ltd. (acquired in

2000 by Rhodia)

Sales Revenue in

CY2010· Rs. 174 crore

Key products · Alkamuls OR 36, Igepal BC/4, Rhodafac

Manufacturing

locations·Roha, Maharashtra

Rhodia Specialty Chemicals India Ltd.

www.rhodia.com

Profiles of key playersBrief profile: Rhodia India

Brief profile: BASF Coatings India Ltd.

Company overview· Independent division of BASF India

· Prominent in automotive c oatings

Sales Revenue in

FY2011 · Rs. 3,229 crore (BASF India)

Key product lines· Electrodeposition coatings, primer surfacer, top coats, base

coats, paint system for plastic components

Manufacturing

locations · Dadra & Nagar Haveli

BASF Coatings India

www.basf -india.com

4. Polymer additives

Introduction

Polymer additives are specialty chemicals added to the base polymer to enhance certain

properties or improve processing. The Indian polymer additives market is estimated at ~ $

300 Mn in 2010. Plasticizers form the largest segment with 43% market share followed by

heat stabilizers with 21% market share. From the applications perspective, PVC consumes

the maximum amount of additives accounting for 40% of the total market followed by

poly-olefins with 20%. However, this does not include the master batches segment, which

separately accounted for a market of approximately $ 400 Mn in 2010.

Others, 19%

Heatstablizers,

21%

Lightstablizers,

4%

Antioxidant8%

s,

Flameretardents,

5%

Plasticizer43%

s,

Source: Industry reports, Tata Strategic analysis

Product share: 2008 (%)

Demand-supply scenario

Indian polymer additives market has been growing at a CAGR of 10.5% in the last five

years and is estimated to be ~$ 300 Mn in 2010. The organized segment has ~35 players

and is dominated by multinational companies like Clariant Chemicals India Ltd., BASF,

Lanxess India Pvt. Ltd., Baerlocher India Ltd., Akzo Nobel Chemicals (India) Limited and

Dow Chemical International Pvt. Ltd. Major domestic players include KLJ Group, Fine

Organics and Vision Organics Limited. KLJ Group and Baerlocher India are the market

leaders in plasticizers and heat stabilizers, respectively. BASF, after its acquisition of Ciba,

is the market leader in flame retardants, light stabilizers, and antioxidants.

5150

organic pigments in premium paints with heavy metal pigments being phased out.

Companies which adapt to these trends could grow successfully in the paints

market.

Players could capitalize on the opportunities presented by changing trends in the

paints and coatings market. One effective lever could be marketing high-margin,

high-end decorative paint products which offer end customers longer replacement

cycles. Besides, customizing paint products to meet changing regulations

(environment-friendly, green, water-soluble paints) could help sustain profitable

growth.

Company overview · Formerly Albright & Wilson Chemicals India Ltd. (acquired in

2000 by Rhodia)

Sales Revenue in

CY2010· Rs. 174 crore

Key products · Alkamuls OR 36, Igepal BC/4, Rhodafac

Manufacturing

locations·Roha, Maharashtra

Rhodia Specialty Chemicals India Ltd.

www.rhodia.com

Profiles of key playersBrief profile: Rhodia India

Brief profile: BASF Coatings India Ltd.

Company overview· Independent division of BASF India

· Prominent in automotive c oatings

Sales Revenue in

FY2011 · Rs. 3,229 crore (BASF India)

Key product lines· Electrodeposition coatings, primer surfacer, top coats, base

coats, paint system for plastic components

Manufacturing

locations · Dadra & Nagar Haveli

BASF Coatings India

www.basf -india.com

4. Polymer additives

Introduction

Polymer additives are specialty chemicals added to the base polymer to enhance certain

properties or improve processing. The Indian polymer additives market is estimated at ~ $

300 Mn in 2010. Plasticizers form the largest segment with 43% market share followed by

heat stabilizers with 21% market share. From the applications perspective, PVC consumes

the maximum amount of additives accounting for 40% of the total market followed by

poly-olefins with 20%. However, this does not include the master batches segment, which

separately accounted for a market of approximately $ 400 Mn in 2010.

Others, 19%

Heatstablizers,

21%

Lightstablizers,

4%

Antioxidant8%

s,

Flameretardents,

5%

Plasticizer43%

s,

Source: Industry reports, Tata Strategic analysis

Product share: 2008 (%)

Demand-supply scenario

Indian polymer additives market has been growing at a CAGR of 10.5% in the last five

years and is estimated to be ~$ 300 Mn in 2010. The organized segment has ~35 players

and is dominated by multinational companies like Clariant Chemicals India Ltd., BASF,

Lanxess India Pvt. Ltd., Baerlocher India Ltd., Akzo Nobel Chemicals (India) Limited and

Dow Chemical International Pvt. Ltd. Major domestic players include KLJ Group, Fine

Organics and Vision Organics Limited. KLJ Group and Baerlocher India are the market

leaders in plasticizers and heat stabilizers, respectively. BASF, after its acquisition of Ciba,

is the market leader in flame retardants, light stabilizers, and antioxidants.

52 53

165

300

2005 2010

Polymer additives market ($ Mn)

10.5%

Source: Industry reports, Tata Strategic estimates

Projected growth and demand drivers

The market for polymer additives is expected to grow at a CAGR of 10% to reach ~$ 500

Mn in 2015. Key demand drivers include:

Growth in end-use industries:

o Increasing growth in plastic demand due to higher usage in packaging,

construction and automotive sectors

New applications:

o Increasing environmental concerns and cost considerations leading to

replacement of wood, metals and glass by plastic in various applications

v

v

300

500

2010 2015

Market outlook ($ Mn)

10%

Source: Industry reports, Tata Strategic estimates

Future outlook and levers for growth

Development of environment friendly additives is a major challenge being faced by the

industry. Increasing demand for environment friendly additives by domestic market

together with regulations such as REACH is forcing companies to adopt environment

friendly products. With rising consumer awareness, players switching to oleo-chemical

route could have a competitive advantage over others. Strict regulation on additive use in

plastics is expected to drive demand and increase sales.

The market has recently witnessed falling prices and low profit margins due to

overcapacity of major manufacturers and reduction in import tariffs. The problem of

overcapacity could be addressed by consolidation in the industry resulting in entities with

better economies of scale. Also, manufacturers able to rapidly develop and customize

products in line with customer requirements are more likely to succeed. Additionally, a

focus on developing products that can be used after recycling of plastics (many current

plastic additives lose their usability post-recycle) could help attain competitive advantage.

Company overview

· India subsidiary of Lanxess GmbH

· 13 Business Units in the fields of Performance Polymers,

Advanced Intermediates and Performance Chemicals

Sales Revenue in

CY2010 · Rs. 816 crore

Key products lines · Antioxidants for polymers, blowing agents, polymer

auxiliaries, plasticizers for polymers

Manufacturing

locations

· Jhagadia, Gujarat

· Nagda, Madhya Pradesh

Lanxess India

www.lanxess.in

Profiles of key playersBrief profile: Lanxess India

Brief profile: Baerlocher India

Company overview· Entered India through acquiring Dewas polymer additive unit

of National Peroxide Ltd.

Key products lines· PVC plasticizers: Baeropan, Baerostab, Baerolub

· Non-PVC plasticizers

Manufacturing

locations · Dewas, Madhya Pradesh

Baerlocher India

www.baerlocher.com

52 53

165

300

2005 2010

Polymer additives market ($ Mn)

10.5%

Source: Industry reports, Tata Strategic estimates

Projected growth and demand drivers

The market for polymer additives is expected to grow at a CAGR of 10% to reach ~$ 500

Mn in 2015. Key demand drivers include:

Growth in end-use industries:

o Increasing growth in plastic demand due to higher usage in packaging,

construction and automotive sectors

New applications:

o Increasing environmental concerns and cost considerations leading to

replacement of wood, metals and glass by plastic in various applications

v

v

300

500

2010 2015

Market outlook ($ Mn)

10%

Source: Industry reports, Tata Strategic estimates

Future outlook and levers for growth

Development of environment friendly additives is a major challenge being faced by the

industry. Increasing demand for environment friendly additives by domestic market

together with regulations such as REACH is forcing companies to adopt environment

friendly products. With rising consumer awareness, players switching to oleo-chemical

route could have a competitive advantage over others. Strict regulation on additive use in

plastics is expected to drive demand and increase sales.

The market has recently witnessed falling prices and low profit margins due to

overcapacity of major manufacturers and reduction in import tariffs. The problem of

overcapacity could be addressed by consolidation in the industry resulting in entities with

better economies of scale. Also, manufacturers able to rapidly develop and customize

products in line with customer requirements are more likely to succeed. Additionally, a

focus on developing products that can be used after recycling of plastics (many current

plastic additives lose their usability post-recycle) could help attain competitive advantage.

Company overview

· India subsidiary of Lanxess GmbH

· 13 Business Units in the fields of Performance Polymers,

Advanced Intermediates and Performance Chemicals

Sales Revenue in

CY2010 · Rs. 816 crore

Key products lines · Antioxidants for polymers, blowing agents, polymer

auxiliaries, plasticizers for polymers

Manufacturing

locations

· Jhagadia, Gujarat

· Nagda, Madhya Pradesh

Lanxess India

www.lanxess.in

Profiles of key playersBrief profile: Lanxess India

Brief profile: Baerlocher India

Company overview· Entered India through acquiring Dewas polymer additive unit

of National Peroxide Ltd.

Key products lines· PVC plasticizers: Baeropan, Baerostab, Baerolub

· Non-PVC plasticizers

Manufacturing

locations · Dewas, Madhya Pradesh

Baerlocher India

www.baerlocher.com

5554

5. Aroma chemicals

Introduction

Aroma chemicals, also commonly called flavours & fragrances are the essential

ingredients used as additives in a variety of food, personal and home care products for

adding taste and smell. Globally, the aroma chemicals industry size stood at $ 19.8 Bn in

2010, roughly equally split between flavours and fragrances. The five largest global

manufacturers of aroma chemicals are Givaudan, International Flavors & Fragrances (IFF),

Firmenich, Symrise and Quest International.

The Indian aroma chemicals market size is of $ 300 Mn, with fragrances accounting for

~55% of the market. The Indian aroma chemicals industry can be segmented based on the

end-use application, as follows:

Flavours

o Bakery

o Confectionary

o Dairy and frozen foods

o Savory food items

o Beverages

o Pharmaceuticals

o Meat, poultry and seafood

o Tobacco

o Toothpaste

Fragrances

o Detergents and fabric care products

o Wash products

o Talcum powders

o Skin care products

o Deodorants and sprays

o Air fresheners

o Household cleaners

o Tobacco

v

v

Beverag20%

es,

Toothpa11%

ste,

Others,12%

Pharma,9%

Bakery,14%

Savoryfoods,14%

Tobacco20%

Talc, 3%

Others,38%

Deterge10%

nts,

Skincare,6%

Washproducts,

42%

End-use application: Fragrances

Source: Industry reports; Tata Strategic estimates

End-use application: Flavours

Demand-supply scenario

The demand for aroma chemicals has increased annually at 8%, to grow from $ 225 Mn in

2006 to ~ $ 300 Mn in 2010. Demand has been driven by growth in consumption of FMCG

products (both food and non-food), which in turn has been increasing on the back of

rising population and growing per capita income.

225

300

FY06 FY10

Aroma chemicals market, India ($ Mn

8%

Flavours,45%

Fragranc55%

es,

Key segments, 2010

Source: Industry reports; Tata Strategic estimates

The top five global companies have a significant presence in India's aroma chemicals

market, cumulatively accounting for ~55% of the market. Beyond the five players, the

supply side is heavily fragmented and is characterized by the presence of numerous

privately-owned manufacturers, including SH Kelkar, Sachee Aromatics and Oriental

Flavors & Fragrances, Ultra International, Gupta & Company.

Projected growth and demand drivers

The demand for aroma chemicals is expected to grow between 11%-14%, p.a. over the

next decade. The total industry in India could potentially grow to nearly $ 1 Bn in 2020.

5554

5. Aroma chemicals

Introduction

Aroma chemicals, also commonly called flavours & fragrances are the essential

ingredients used as additives in a variety of food, personal and home care products for

adding taste and smell. Globally, the aroma chemicals industry size stood at $ 19.8 Bn in

2010, roughly equally split between flavours and fragrances. The five largest global

manufacturers of aroma chemicals are Givaudan, International Flavors & Fragrances (IFF),

Firmenich, Symrise and Quest International.

The Indian aroma chemicals market size is of $ 300 Mn, with fragrances accounting for

~55% of the market. The Indian aroma chemicals industry can be segmented based on the

end-use application, as follows:

Flavours

o Bakery

o Confectionary

o Dairy and frozen foods

o Savory food items

o Beverages

o Pharmaceuticals

o Meat, poultry and seafood

o Tobacco

o Toothpaste

Fragrances

o Detergents and fabric care products

o Wash products

o Talcum powders

o Skin care products

o Deodorants and sprays

o Air fresheners

o Household cleaners

o Tobacco

v

v

Beverag20%

es,

Toothpa11%

ste,

Others,12%

Pharma,9%

Bakery,14%

Savoryfoods,14%

Tobacco20%

Talc, 3%

Others,38%

Deterge10%

nts,

Skincare,6%

Washproducts,

42%

End-use application: Fragrances

Source: Industry reports; Tata Strategic estimates

End-use application: Flavours

Demand-supply scenario

The demand for aroma chemicals has increased annually at 8%, to grow from $ 225 Mn in

2006 to ~ $ 300 Mn in 2010. Demand has been driven by growth in consumption of FMCG

products (both food and non-food), which in turn has been increasing on the back of

rising population and growing per capita income.

225

300

FY06 FY10

Aroma chemicals market, India ($ Mn

8%

Flavours,45%

Fragranc55%

es,

Key segments, 2010

Source: Industry reports; Tata Strategic estimates

The top five global companies have a significant presence in India's aroma chemicals

market, cumulatively accounting for ~55% of the market. Beyond the five players, the

supply side is heavily fragmented and is characterized by the presence of numerous

privately-owned manufacturers, including SH Kelkar, Sachee Aromatics and Oriental

Flavors & Fragrances, Ultra International, Gupta & Company.

Projected growth and demand drivers

The demand for aroma chemicals is expected to grow between 11%-14%, p.a. over the

next decade. The total industry in India could potentially grow to nearly $ 1 Bn in 2020.

56 57

300

970

2010 2020

Projected demand, India ($ Mn)

12.5%

Source: Industry reports; Tata Strategic estimates

The demand growth in aroma chemicals has a positive outlook, and would be growing at

1.5 times the GDP growth rate, driven primarily by three levers:

Growth in demand for end-use products: Driven by rising disposable incomes, leading

to increased consumption of processed foods and non-food FMCG including personal

care and detergents

Changing lifestyles: Demand for high-end aroma chemicals is set to increase driven by

increasing demand for higher-end personal care products

Regulatory environments: Regulations mandating stringent consumer products quality

standards will lead to substitution of low-end chemicals with high-end, safe

replacement formulations

Future outlook and levers for growth

Though traditionally aroma chemicals commanded high prices due to the nature of

customization involved, the prices have fallen over the last decade due to increasing price

pressures from customers (mainly FMCG manufacturers), who are finding it difficult to

pass on input price increases to the end customers. This, combined with the increasing

price of petrochemicals (feedstock for manufacture of numerous aroma chemicals), has

led to consolidation among large players in the industry and this trend is expected to

continue. Globally, aroma chemical manufacturers are moving towards long-term supply

contracts and joint product development with its customers. This has given them the

freedom to invest in product innovation and customization and charge higher margins in

return. Thirdly, owing to implementation of stringent quality norms in FMCG products

many downstream companies globally are now reverting to captive R&D for manufacture

of certain aroma chemicals, especially in flavours. This would pose to be a threat to

specialty chemical manufacturers and can only be countered by implementing the

stringent quality and safety norms as well as focusing on product innovation themselves.

Indian aroma chemical manufacturers could address these challenges through three key

strategic levers. Firstly, they could enter long term supply contracts with organized FMCG

v

v

v

(food and non-food) players, allowing them stability of business and the flexibility to

invest in customization of products. Secondly, they should increasingly focus on

development of formulations which would meet changing environment and safety

standards. Lastly, acting closely in association with regulatory authorities could help

develop quick and accurate understanding of global food standards. This would facilitate

implementation of such standards locally and significantly enhance access to export

markets, especially to developed economies.

Profiles of key playersBrief profile: S H Kelkar & Co.

Company overview·Largest Indian flavours and fragrances manufacturer

·In business for over nine decades

Sales revenue in FY2009

·Rs. 228 crore

Key end -use customer

segments

·Flavours: Dairy products, bakery, savouries, pharma

·Fragrances: Personal care, hair care, fabric care

Manufacturing ·Patalganga, Maharashtra

S H Kelkar

www.kelkargroup.com

Brief profile: Sachee Aromatics

Company overview· Started by Mr. Manoj Arora, a leading aroma chemical

manufacture r for five decades

Key end -use customer

segments

· Personal wash, personal care, fabric care, incense sticks,

aerosols, candles, tobacco products

Manufacturing

locations

· Delhi

· Paris

Sachee Aromatics

www.sachee.com

56 57

300

970

2010 2020

Projected demand, India ($ Mn)

12.5%

Source: Industry reports; Tata Strategic estimates

The demand growth in aroma chemicals has a positive outlook, and would be growing at

1.5 times the GDP growth rate, driven primarily by three levers:

Growth in demand for end-use products: Driven by rising disposable incomes, leading

to increased consumption of processed foods and non-food FMCG including personal

care and detergents

Changing lifestyles: Demand for high-end aroma chemicals is set to increase driven by

increasing demand for higher-end personal care products

Regulatory environments: Regulations mandating stringent consumer products quality

standards will lead to substitution of low-end chemicals with high-end, safe

replacement formulations

Future outlook and levers for growth

Though traditionally aroma chemicals commanded high prices due to the nature of

customization involved, the prices have fallen over the last decade due to increasing price

pressures from customers (mainly FMCG manufacturers), who are finding it difficult to

pass on input price increases to the end customers. This, combined with the increasing

price of petrochemicals (feedstock for manufacture of numerous aroma chemicals), has

led to consolidation among large players in the industry and this trend is expected to

continue. Globally, aroma chemical manufacturers are moving towards long-term supply

contracts and joint product development with its customers. This has given them the

freedom to invest in product innovation and customization and charge higher margins in

return. Thirdly, owing to implementation of stringent quality norms in FMCG products

many downstream companies globally are now reverting to captive R&D for manufacture

of certain aroma chemicals, especially in flavours. This would pose to be a threat to

specialty chemical manufacturers and can only be countered by implementing the

stringent quality and safety norms as well as focusing on product innovation themselves.

Indian aroma chemical manufacturers could address these challenges through three key

strategic levers. Firstly, they could enter long term supply contracts with organized FMCG

v

v

v

(food and non-food) players, allowing them stability of business and the flexibility to

invest in customization of products. Secondly, they should increasingly focus on

development of formulations which would meet changing environment and safety

standards. Lastly, acting closely in association with regulatory authorities could help

develop quick and accurate understanding of global food standards. This would facilitate

implementation of such standards locally and significantly enhance access to export

markets, especially to developed economies.

Profiles of key playersBrief profile: S H Kelkar & Co.

Company overview·Largest Indian flavours and fragrances manufacturer

·In business for over nine decades

Sales revenue in FY2009

·Rs. 228 crore

Key end -use customer

segments

·Flavours: Dairy products, bakery, savouries, pharma

·Fragrances: Personal care, hair care, fabric care

Manufacturing ·Patalganga, Maharashtra

S H Kelkar

www.kelkargroup.com

Brief profile: Sachee Aromatics

Company overview· Started by Mr. Manoj Arora, a leading aroma chemical

manufacture r for five decades

Key end -use customer

segments

· Personal wash, personal care, fabric care, incense sticks,

aerosols, candles, tobacco products

Manufacturing

locations

· Delhi

· Paris

Sachee Aromatics

www.sachee.com

58 59

6.Personal care ingredients

Introduction

The Indian personal care industry is estimated to be ~$ 6 Bn in 2010. It can be categorized

into distinct product segments such as bath & shower products, hair care, skin care, oral

care, fragrances etc. The bath and shower products segment is the largest one.

The Indian personal care ingredients market stood at ~$ 400 Mn in 2010 and can be

divided into active and inactive ingredients. Actives and inactives account for 40% and

60% by value of the total personal care ingredients market respectively.

UV ingredientsPolymer ingredients

Conditioning agentsPreservatives

ExfoliantsSurfactants

Anti - ageingColorants

Active ingredientsInactive ingredients

Surfactants25%

Conditioning agents,

14%

Others,17%

UVingredients

10%

Polymer

ingredients

33%

Major sub-segments, 2010 (% of total)

Source: Industry reports; Tata Strategic estimates

Demand-supply scenario

Personal care ingredients market has grown at 12% p.a. in the period from FY05 to FY10

to reach ~$ 400 Mn. Rising income, increased availability and wider product portfolio of

companies has led to growth in personal care products and thereby personal care

ingredients.

The market is extremely competitive with more than 1,500 manufacturers of personal

care ingredients in India. The market is dominated by small and medium scale domestic

companies which account for more than 50% of the market. Major domestic players

include Vivimed Laboratories and Sami Labs. On the other hand, multi-national companies

currently account for about 35% of the market. BASF India Ltd. and Clariant Chemicals are

the leading multinational players in India.

400

220

2005 2010

Personal care ingredients market ($ Mn)

12%

Source: Industry reports; Tata Strategic estimates

Projected growth and demand drivers

Personal Care Ingredients market in India is expected to grow at 14% to reach ~$ 770 Mn

by 2015 and has the potential to grow to ~$ 1.5 Bn by 2020.

400

770

1500

2010 2015E 2020E

Projected demand growth ($ Mn)

14%

Source: Industry reports; Tata Strategic estimates

The demand for personal care ingredients is expected to be driven by two major factors:

Growth in end-use industry

o Rising demand for personal care products due to growing population and

increasing per capita income

v

58 59

6.Personal care ingredients

Introduction

The Indian personal care industry is estimated to be ~$ 6 Bn in 2010. It can be categorized

into distinct product segments such as bath & shower products, hair care, skin care, oral

care, fragrances etc. The bath and shower products segment is the largest one.

The Indian personal care ingredients market stood at ~$ 400 Mn in 2010 and can be

divided into active and inactive ingredients. Actives and inactives account for 40% and

60% by value of the total personal care ingredients market respectively.

UV ingredientsPolymer ingredients

Conditioning agentsPreservatives

ExfoliantsSurfactants

Anti - ageingColorants

Active ingredientsInactive ingredients

Surfactants25%

Conditioning agents,

14%

Others,17%

UVingredients

10%

Polymer

ingredients

33%

Major sub-segments, 2010 (% of total)

Source: Industry reports; Tata Strategic estimates

Demand-supply scenario

Personal care ingredients market has grown at 12% p.a. in the period from FY05 to FY10

to reach ~$ 400 Mn. Rising income, increased availability and wider product portfolio of

companies has led to growth in personal care products and thereby personal care

ingredients.

The market is extremely competitive with more than 1,500 manufacturers of personal

care ingredients in India. The market is dominated by small and medium scale domestic

companies which account for more than 50% of the market. Major domestic players

include Vivimed Laboratories and Sami Labs. On the other hand, multi-national companies

currently account for about 35% of the market. BASF India Ltd. and Clariant Chemicals are

the leading multinational players in India.

400

220

2005 2010

Personal care ingredients market ($ Mn)

12%

Source: Industry reports; Tata Strategic estimates

Projected growth and demand drivers

Personal Care Ingredients market in India is expected to grow at 14% to reach ~$ 770 Mn

by 2015 and has the potential to grow to ~$ 1.5 Bn by 2020.

400

770

1500

2010 2015E 2020E

Projected demand growth ($ Mn)

14%

Source: Industry reports; Tata Strategic estimates

The demand for personal care ingredients is expected to be driven by two major factors:

Growth in end-use industry

o Rising demand for personal care products due to growing population and

increasing per capita income

v

60 61

o Increasing personal care ingredient usage in formulation: Demand for products

with higher/ better performance

Changing lifestyle

o Increasing demand for multi-functional personal-care products

o Growing global demand for green products giving rise to huge exports

potential

Future outlook and levers for growth

The industry is highly competitive with large number of domestic and international

players. Domestic companies are registering good growth due to their meeting the market

need for cost effective products. Indian personal care industry is highly cost sensitive and

companies develop domestic substitutes for ingredients used globally. Indian market for

personal care products like anti-ageing creams, sunscreen lotions etc. is very nascent and

is developing at a fast pace leading to increasing requirement for investments in research

and development of personal care ingredients. The growing awareness amongst the

consumers is increasing the market for natural personal care products and in turn for

natural ingredients. The rich heritage of Ayurveda is expected to make India a hub for

natural ingredients.

Manufacturers of personal care ingredients could explore capitalizing on this opportunity

by collaborating with personal care FMCG companies to jointly develop customizable,

localized ingredients - offering opportunities for higher margins and stable demand for

the manufacturers. Also, companies which are able to innovate and come out with value

offerings to meet unique needs of the Indian consumers could have a competitive edge in

the market. Finally, they could explore working together with regulatory agencies to

develop a quick and accurate understanding of global regulations and ensure domestic

manufacturing quality meets exports requirements, thereby opening up access to

overseas opportunities.

v

Company overview·Sales footprint across 50 geographies with SBUs in USA,

Europe and a marketing office in China

Sales Revenue in

FY2011·Rs. 211 crore

Key product lines

·Oral care: Anti -bacterial, enamel protection

·Skin care: Anti -ageing, skin lightening

·Hair care: Jarocol, dyes, anti -dandruff, UV filters

Manufacturing

locations

·Bonthapally, Bidar, Jeedimetla (Andhra Pradesh)

·Haridwar, Kashipur (Uttarakhand)

Vivimed Labs

www.vivimedlabs.com

Profiles of key playersBrief profile: Vivimed Labs

Brief profile: Sami Labs

Company o verview

·Established 1991 in Bangalore

·Sales footprint and s trategic alliances in USA, Europe, Japan,

Australia, Middle East, South Africa, China,

Key products

·Alpha lipolic acid

·Cococin

·Ellagic acid

Manufacturing

locations

·Bangalore (4 plants)

·Hyderabad

·Utah, USA

Sami Labs Ltd.

www.samilabs.com

Conclusion

Given India's potential to emerge as a global specialty chemicals destination, both in

terms of domestic demand and as a global manufacturing hub. Companies could explore

how best they could participate in this growth story. A detailed growth strategy

formulation would need to be based on each company's respective strengths and focus

areas. Emerging trends in consumer industries call for innovation and development of

local products/ solutions based on understanding of the unique needs of the Indian

consumer. Secondly, the development of strong channels to reach out effectively to

customers is of immense strategic significance. Establishing leadership position in

sustainable growth through an integrated approach across the value chain could help

create positive differentiation. This would not only help companies create value through

green product/ process innovation but also generate end consumer pull through

60 61

o Increasing personal care ingredient usage in formulation: Demand for products

with higher/ better performance

Changing lifestyle

o Increasing demand for multi-functional personal-care products

o Growing global demand for green products giving rise to huge exports

potential

Future outlook and levers for growth

The industry is highly competitive with large number of domestic and international

players. Domestic companies are registering good growth due to their meeting the market

need for cost effective products. Indian personal care industry is highly cost sensitive and

companies develop domestic substitutes for ingredients used globally. Indian market for

personal care products like anti-ageing creams, sunscreen lotions etc. is very nascent and

is developing at a fast pace leading to increasing requirement for investments in research

and development of personal care ingredients. The growing awareness amongst the

consumers is increasing the market for natural personal care products and in turn for

natural ingredients. The rich heritage of Ayurveda is expected to make India a hub for

natural ingredients.

Manufacturers of personal care ingredients could explore capitalizing on this opportunity

by collaborating with personal care FMCG companies to jointly develop customizable,

localized ingredients - offering opportunities for higher margins and stable demand for

the manufacturers. Also, companies which are able to innovate and come out with value

offerings to meet unique needs of the Indian consumers could have a competitive edge in

the market. Finally, they could explore working together with regulatory agencies to

develop a quick and accurate understanding of global regulations and ensure domestic

manufacturing quality meets exports requirements, thereby opening up access to

overseas opportunities.

v

Company overview·Sales footprint across 50 geographies with SBUs in USA,

Europe and a marketing office in China

Sales Revenue in

FY2011·Rs. 211 crore

Key product lines

·Oral care: Anti -bacterial, enamel protection

·Skin care: Anti -ageing, skin lightening

·Hair care: Jarocol, dyes, anti -dandruff, UV filters

Manufacturing

locations

·Bonthapally, Bidar, Jeedimetla (Andhra Pradesh)

·Haridwar, Kashipur (Uttarakhand)

Vivimed Labs

www.vivimedlabs.com

Profiles of key playersBrief profile: Vivimed Labs

Brief profile: Sami Labs

Company o verview

·Established 1991 in Bangalore

·Sales footprint and s trategic alliances in USA, Europe, Japan,

Australia, Middle East, South Africa, China,

Key products

·Alpha lipolic acid

·Cococin

·Ellagic acid

Manufacturing

locations

·Bangalore (4 plants)

·Hyderabad

·Utah, USA

Sami Labs Ltd.

www.samilabs.com

Conclusion

Given India's potential to emerge as a global specialty chemicals destination, both in

terms of domestic demand and as a global manufacturing hub. Companies could explore

how best they could participate in this growth story. A detailed growth strategy

formulation would need to be based on each company's respective strengths and focus

areas. Emerging trends in consumer industries call for innovation and development of

local products/ solutions based on understanding of the unique needs of the Indian

consumer. Secondly, the development of strong channels to reach out effectively to

customers is of immense strategic significance. Establishing leadership position in

sustainable growth through an integrated approach across the value chain could help

create positive differentiation. This would not only help companies create value through

green product/ process innovation but also generate end consumer pull through

62 10

ingredient branding in "green products". The development of chemical/ petrochemical

infrastructure/ clusters through PCPIRs (Petroleum, Chemicals and Petrochemicals

Investment Regions) could enable companies to establish effective upstream linkages for

increased cost effectiveness. Finally, the chemical industry in the coming decades has to

promote sustainable development by investing in technology that protects environment

and stimulates growth while balancing economic needs and financial constraints.

References

1. RBI Handbook of Statistics

2. Economic Advisory Council to the Prime Minister

3. Department of Industrial Policy and Promotion

4. Gujarat Socio-Economic Review, 2009-2010

5. Vibrant Gujarat summit, 2011

6. Company websites

7. Annual reports

8. IndiaChem 2010 handbook on Indian chemical industry, FICCI and Tata Strategic

9. Conference on Agrochemicals, 2011, FICCI and Tata Strategic

10. Chemical Task Force, Government of India

11. Meetings with senior officials of Government of India

12. Department of Chemicals & Petrochemicals

13. Indian Chemical Council

14. Chemical Weekly magazine

15. Farm chemicals international

16. Phillips McDougall report on agrochemicals

17. Crop protection business in the new decade, Cheminova

18. Global Market for agrochemicals,BCC Research

19. Crisil research

20. IMS Health

21. Frost & Sullivan industry report

22. CMIE report

23. European Federation of Admixtures Association

24. Business press

THOUGHT NOTES

62 10

ingredient branding in "green products". The development of chemical/ petrochemical

infrastructure/ clusters through PCPIRs (Petroleum, Chemicals and Petrochemicals

Investment Regions) could enable companies to establish effective upstream linkages for

increased cost effectiveness. Finally, the chemical industry in the coming decades has to

promote sustainable development by investing in technology that protects environment

and stimulates growth while balancing economic needs and financial constraints.

References

1. RBI Handbook of Statistics

2. Economic Advisory Council to the Prime Minister

3. Department of Industrial Policy and Promotion

4. Gujarat Socio-Economic Review, 2009-2010

5. Vibrant Gujarat summit, 2011

6. Company websites

7. Annual reports

8. IndiaChem 2010 handbook on Indian chemical industry, FICCI and Tata Strategic

9. Conference on Agrochemicals, 2011, FICCI and Tata Strategic

10. Chemical Task Force, Government of India

11. Meetings with senior officials of Government of India

12. Department of Chemicals & Petrochemicals

13. Indian Chemical Council

14. Chemical Weekly magazine

15. Farm chemicals international

16. Phillips McDougall report on agrochemicals

17. Crop protection business in the new decade, Cheminova

18. Global Market for agrochemicals,BCC Research

19. Crisil research

20. IMS Health

21. Frost & Sullivan industry report

22. CMIE report

23. European Federation of Admixtures Association

24. Business press

THOUGHT NOTES

64 65

Farming solutions - the next frontier for breakthrough growth of Indian agrochemical companies

India has a population of 1.18 Bn which is expected to reach 1.45 Bn by 2030. This rising

population will lead to increasing demand for food grains. On the other hand, per capita

land available for agriculture has been steadily decreasing. This coupled with rapid

urbanization and non availability of agricultural manpower has had a strong impact on

farm production. Agricultural produce has not been growing in tune with demand.

Currently average crop yields in India are much lower than global benchmarks. For

example, average yield for rice is 3.2 tons/ha in India vis-à-vis 4.2 tons/ha globally.

Similarly, yields for soybean and corn are 1.0 and 2.4 tons/ha domestically compared to

2.5 and 5.0 tons/ha globally. The current price increases of food products reflect the

situation having reached alarming levels and we have to rely on imports to meet our

domestic consumption. This is only expected to worsen further if we do not take

necessary steps to reverse it. Improving crop yields has become very critical and will

become imperative in the future.

India has the resources necessary to meet all its increasing needs and be left with a

handsome surplus if we can use our significantly large area under cultivation effectively.

This would however call for a holistic 'friend of the farmer' approach, offering locally

relevant farming solutions, where agrochemical companies could lead and benefit by

improving yield and productivity. The Indian agrochemical industry, which is Rs. 15,000 Cr

today, could grow well beyond its aspirational target of Rs. 50,000 Cr by 2020. The

opportunity lies in developing and executing innovative farming solutions that address the

needs of the Indian farmer with very low landholding size, resources and knowhow

available to him. Farming solutions would require a collaborative approach together with

seed technology, IT, nutrients and other service providers. For the agrochemical

companies it implies that to achieve such growth, capacity additions of over 100,000 tons

would be required with significant capital investments of over Rs 3,000 Cr. In addition,

substantial investment will be required for R&D and farmer-awareness activities.

Besides effectively creating farming solutions with other partners, the Indian

agrochemical industry itself faces critical challenges which could hinder its growth if not

addressed effectively. The industry is predominantly generic in nature with very little

investment in R&D. Lack of awareness amongst farmers on usage of agrochemicals and

best practices followed globally is a major roadblock for the growth of the industry.

Current per capita consumption of pesticides in India continues to be very low at 0.6

kg/ha compared to 7 kg/ha in USA and 13 kg/ha in China. It is estimated that crop losses

64 65

Farming solutions - the next frontier for breakthrough growth of Indian agrochemical companies

India has a population of 1.18 Bn which is expected to reach 1.45 Bn by 2030. This rising

population will lead to increasing demand for food grains. On the other hand, per capita

land available for agriculture has been steadily decreasing. This coupled with rapid

urbanization and non availability of agricultural manpower has had a strong impact on

farm production. Agricultural produce has not been growing in tune with demand.

Currently average crop yields in India are much lower than global benchmarks. For

example, average yield for rice is 3.2 tons/ha in India vis-à-vis 4.2 tons/ha globally.

Similarly, yields for soybean and corn are 1.0 and 2.4 tons/ha domestically compared to

2.5 and 5.0 tons/ha globally. The current price increases of food products reflect the

situation having reached alarming levels and we have to rely on imports to meet our

domestic consumption. This is only expected to worsen further if we do not take

necessary steps to reverse it. Improving crop yields has become very critical and will

become imperative in the future.

India has the resources necessary to meet all its increasing needs and be left with a

handsome surplus if we can use our significantly large area under cultivation effectively.

This would however call for a holistic 'friend of the farmer' approach, offering locally

relevant farming solutions, where agrochemical companies could lead and benefit by

improving yield and productivity. The Indian agrochemical industry, which is Rs. 15,000 Cr

today, could grow well beyond its aspirational target of Rs. 50,000 Cr by 2020. The

opportunity lies in developing and executing innovative farming solutions that address the

needs of the Indian farmer with very low landholding size, resources and knowhow

available to him. Farming solutions would require a collaborative approach together with

seed technology, IT, nutrients and other service providers. For the agrochemical

companies it implies that to achieve such growth, capacity additions of over 100,000 tons

would be required with significant capital investments of over Rs 3,000 Cr. In addition,

substantial investment will be required for R&D and farmer-awareness activities.

Besides effectively creating farming solutions with other partners, the Indian

agrochemical industry itself faces critical challenges which could hinder its growth if not

addressed effectively. The industry is predominantly generic in nature with very little

investment in R&D. Lack of awareness amongst farmers on usage of agrochemicals and

best practices followed globally is a major roadblock for the growth of the industry.

Current per capita consumption of pesticides in India continues to be very low at 0.6

kg/ha compared to 7 kg/ha in USA and 13 kg/ha in China. It is estimated that crop losses

66 67

in India due to non usage of agrochemicals amount to Rs. 90,000 Cr p.a. Relatively weak IP

protection regime is another area of concern. A huge parallel market for spurious and

spiked pesticides exists which leads to significant revenue loss for genuine manufacturers.

In addition, long lead times for new product registrations and non-availability of land and

regulatory clearances are hindrances to setting up new investments.

The Indian agricultural landscape is distinct from most other countries of the world and

needs to be well understood to arrive at relevant farming solutions. We have a largely

fragmented land-holding structure (refer fig.1) with subsistence farming in several

regions. Farmers are typically not educated or exposed to modern methods of farming.

The fragmented and small landholdings translate to lesser spending power by individual

farmers for seeds, irrigation, fertilizer or agrochemicals. Deeper understanding of the

market by geography, perhaps even at a district level, becomes critical to success. These

differences need to be clearly understood and call for customized solutions to suit India's

diverse agro-climatic conditions.

Fig. 1: Land ownership pattern by district - rural India

Agrochemical companies can take the lead to look beyond the traditional offerings and

adopt a holistic approach to farm management to enable India to achieve its true

potential in agriculture. These companies have a strong farmer-connect and reach, with

the potential to influence and change the way farming is traditionally done in this country.

If ever there was a burning platform necessitating this, it is now!

The Indian market abounds with such examples where innovative and customized

solutions have grown the market and catapulted the first movers to market leaders. The

automotive industry in India received a strong fillip with India becoming a manufacturing

hub for small cars. A call to develop the low cost car meeting specific needs of the Indian

customer who could not afford it earlier, helped to create and proliferate the low end

'micro' segment. Similarly, the paint industry experienced a huge growth with

introduction of tinting machines which offer customized paint solutions closer to point of

sale, recognizing the Indian consumer's need for tailored shades and 'look and feel' before

deciding. Castrol took the initiative to develop a completely new channel for lubricant

sales. This offset the disadvantage of not being able to utilize traditional sales channels,

which were controlled by PSUs, and created a robust distribution network for Indian

motorists and car owners through other points of sale.

Let us consider the benefits of adopting a holistic and innovative approach with the case

of pulses. A brief study indicated that India could more than double its current production

of pulses if crop nutrients, timely availability and usage of better seed varieties, requisite

irrigation and proper storage were available (refer fig.2). This would improve our yield to

global levels and help us meet our domestic demand. Arriving at the solutions

innovatively recognizing the Indian context is critical. However the real challenge lies in

the execution. First movers will be able to reap the benefits and enjoy sustainable growth.

25% increase inyield due to use ofHYV seeds.(Potential 35-40%)

25% increase dueto pestmanagement.(Potential 30-40%)

20% increase due tosupply of irrigationand nutrients.(Potential 20-25%)

15% increasedue to proper storage.(Potential 20%)

Increase due toadditional area- rice fallows &intercropping

CurrentProduction

HW Seeds PastManagement

Irrigation/Nutrient supply

Storage/Transportation

Increased yield Additional Area Total availability

India could increase production of pulses to 37 Mn tons with an integrated approach

INDIA: LEVERS TO INCREASE PRODUCTION OF PULSES INDICATIVE

28

37

15

32

9

(Mn tons)

Source: Primary interviews with Ministry of Agriculture, Pulses Research Institutes and Associations, Tata Strategic Analysis STRATEGIC MANAGEMENT GROUP

4

4

Fig 2: Realizing India's potential for production of pulses

66 67

in India due to non usage of agrochemicals amount to Rs. 90,000 Cr p.a. Relatively weak IP

protection regime is another area of concern. A huge parallel market for spurious and

spiked pesticides exists which leads to significant revenue loss for genuine manufacturers.

In addition, long lead times for new product registrations and non-availability of land and

regulatory clearances are hindrances to setting up new investments.

The Indian agricultural landscape is distinct from most other countries of the world and

needs to be well understood to arrive at relevant farming solutions. We have a largely

fragmented land-holding structure (refer fig.1) with subsistence farming in several

regions. Farmers are typically not educated or exposed to modern methods of farming.

The fragmented and small landholdings translate to lesser spending power by individual

farmers for seeds, irrigation, fertilizer or agrochemicals. Deeper understanding of the

market by geography, perhaps even at a district level, becomes critical to success. These

differences need to be clearly understood and call for customized solutions to suit India's

diverse agro-climatic conditions.

Fig. 1: Land ownership pattern by district - rural India

Agrochemical companies can take the lead to look beyond the traditional offerings and

adopt a holistic approach to farm management to enable India to achieve its true

potential in agriculture. These companies have a strong farmer-connect and reach, with

the potential to influence and change the way farming is traditionally done in this country.

If ever there was a burning platform necessitating this, it is now!

The Indian market abounds with such examples where innovative and customized

solutions have grown the market and catapulted the first movers to market leaders. The

automotive industry in India received a strong fillip with India becoming a manufacturing

hub for small cars. A call to develop the low cost car meeting specific needs of the Indian

customer who could not afford it earlier, helped to create and proliferate the low end

'micro' segment. Similarly, the paint industry experienced a huge growth with

introduction of tinting machines which offer customized paint solutions closer to point of

sale, recognizing the Indian consumer's need for tailored shades and 'look and feel' before

deciding. Castrol took the initiative to develop a completely new channel for lubricant

sales. This offset the disadvantage of not being able to utilize traditional sales channels,

which were controlled by PSUs, and created a robust distribution network for Indian

motorists and car owners through other points of sale.

Let us consider the benefits of adopting a holistic and innovative approach with the case

of pulses. A brief study indicated that India could more than double its current production

of pulses if crop nutrients, timely availability and usage of better seed varieties, requisite

irrigation and proper storage were available (refer fig.2). This would improve our yield to

global levels and help us meet our domestic demand. Arriving at the solutions

innovatively recognizing the Indian context is critical. However the real challenge lies in

the execution. First movers will be able to reap the benefits and enjoy sustainable growth.

25% increase inyield due to use ofHYV seeds.(Potential 35-40%)

25% increase dueto pestmanagement.(Potential 30-40%)

20% increase due tosupply of irrigationand nutrients.(Potential 20-25%)

15% increasedue to proper storage.(Potential 20%)

Increase due toadditional area- rice fallows &intercropping

CurrentProduction

HW Seeds PastManagement

Irrigation/Nutrient supply

Storage/Transportation

Increased yield Additional Area Total availability

India could increase production of pulses to 37 Mn tons with an integrated approach

INDIA: LEVERS TO INCREASE PRODUCTION OF PULSES INDICATIVE

28

37

15

32

9

(Mn tons)

Source: Primary interviews with Ministry of Agriculture, Pulses Research Institutes and Associations, Tata Strategic Analysis STRATEGIC MANAGEMENT GROUP

4

4

Fig 2: Realizing India's potential for production of pulses

68 69

Agrochemical companies could adopt specific crops or geographies within their sphere of

influence and help farmers increase output. This may mean working with various

stakeholders such as microfinance companies, adopting contract farming, increasing

farmer awareness through demonstrations and extension services, propagating better

farm practices, ensuring right usage of crop protection chemicals, increasing usage of

hybrids/ GM seeds and providing better storage facilities to reduce post harvest losses.

The power of IT can be effectively leveraged to provide farmers with timely advice and

guidance for improving productivity, addressing pest related issues and optimizing the

value chain.

This article has been authored by Pratik Kadakia (pratik.kadakia@tsmg.com), Practice

Head- Chemicals & Energy and Jeffry Jacob (jeffry.jacob@tsmg.com), Principal -Chemicals

of Tata Strategic Management Group

Contract Research - Deriving Strategic Value from Emerging markets

Global pharmaceutical companies are re-looking at their R&D processes in order to

leverage the opportunity presented by emerging economies, such as India, in contract

research. Besides offering the opportunity to save costs tactically in the short term,

this is also a strategic move to improve productivity and develop further capabilities in

order to compete successfully in the future, while staying close to geographies which

will drive future growth; say Aleksandar Ruzicic of Roland Berger Strategy Consultants

and Jeffry Jacob of Tata Strategic Management Group

Matching R&D footprint with long-term growth in emerging markets

Globally pharmaceutical companies are under immense pressure with existing business

models under threat. The growth is expected to taper off in the US and other developed

countries while emerging economies are expected to drive a large part of the future

growth. Until 2020, pharmerging countries will represent more than a quarter of the

healthcare and pharma market value globally. These markets will contribute almost half

of the absolute growth for both the healthcare and pharmaceutical markets (Refer Figure

1). Hence, it does not come as a surprise that pharmaceutical companies have started to

boost their footprint and presence in these locations and also elevated these regions

organizationally. For example, GlaxoSmithKline has created an Emerging Markets unit in

June 2008 headed by Abbas Hussain and executed numerous acquisitions and direct

investments resulting in a significant part of its workforce being located in emerging

markets.

Declining productivity, relatively dry pipeline for new drugs, increasing penetration of

generics and margin pressures have been leading to lower profitability for global

pharmaceutical companies. This trend is expected to further intensify going forward into

the future. This has forced companies to continuously adapt their cost structures, as

exemplified by major multi-billion cost cutting/restructuring projects in all major

pharmaceutical companies, as announced most recently in September 2010 by the Roche

group that is not affected by imminent significant patent expirations.

68 69

Agrochemical companies could adopt specific crops or geographies within their sphere of

influence and help farmers increase output. This may mean working with various

stakeholders such as microfinance companies, adopting contract farming, increasing

farmer awareness through demonstrations and extension services, propagating better

farm practices, ensuring right usage of crop protection chemicals, increasing usage of

hybrids/ GM seeds and providing better storage facilities to reduce post harvest losses.

The power of IT can be effectively leveraged to provide farmers with timely advice and

guidance for improving productivity, addressing pest related issues and optimizing the

value chain.

This article has been authored by Pratik Kadakia (pratik.kadakia@tsmg.com), Practice

Head- Chemicals & Energy and Jeffry Jacob (jeffry.jacob@tsmg.com), Principal -Chemicals

of Tata Strategic Management Group

Contract Research - Deriving Strategic Value from Emerging markets

Global pharmaceutical companies are re-looking at their R&D processes in order to

leverage the opportunity presented by emerging economies, such as India, in contract

research. Besides offering the opportunity to save costs tactically in the short term,

this is also a strategic move to improve productivity and develop further capabilities in

order to compete successfully in the future, while staying close to geographies which

will drive future growth; say Aleksandar Ruzicic of Roland Berger Strategy Consultants

and Jeffry Jacob of Tata Strategic Management Group

Matching R&D footprint with long-term growth in emerging markets

Globally pharmaceutical companies are under immense pressure with existing business

models under threat. The growth is expected to taper off in the US and other developed

countries while emerging economies are expected to drive a large part of the future

growth. Until 2020, pharmerging countries will represent more than a quarter of the

healthcare and pharma market value globally. These markets will contribute almost half

of the absolute growth for both the healthcare and pharmaceutical markets (Refer Figure

1). Hence, it does not come as a surprise that pharmaceutical companies have started to

boost their footprint and presence in these locations and also elevated these regions

organizationally. For example, GlaxoSmithKline has created an Emerging Markets unit in

June 2008 headed by Abbas Hussain and executed numerous acquisitions and direct

investments resulting in a significant part of its workforce being located in emerging

markets.

Declining productivity, relatively dry pipeline for new drugs, increasing penetration of

generics and margin pressures have been leading to lower profitability for global

pharmaceutical companies. This trend is expected to further intensify going forward into

the future. This has forced companies to continuously adapt their cost structures, as

exemplified by major multi-billion cost cutting/restructuring projects in all major

pharmaceutical companies, as announced most recently in September 2010 by the Roche

group that is not affected by imminent significant patent expirations.

70 71

• Share of healthcare andpharma market value of pharmerging countriesmore than doublingbetween 2009 and 2020

• Share of absolutehealthcare and pharmamarket value growthbetween 2009 and 2020larger than 40%

Source: EIU; OECD; WHO; IMS; Roland Berger

Healthcare market Pharmaceutical market

7%

6%

43%35%

26%

12%

43%

5%

14%

9,900

14%

26%

19%

Other

Pharmerging

Japan

USA

4,5005,400

16%

12%

22%

11%

8%

38%29%

17%

7%

Other

Pharmerging

Japan

USA

450-700

23%

49%

4%

1,250 -1,500

22%

27%

14%

800

20%

12%

19%EuropeTop 5

EuropeTop 5

Fig. 1: Geographic shift towards pharmerging markets (USD Bn)

Assessment of shift

20202009 20202009

The pharmaceutical industry is fundamentally re-evaluating the make-up of its value

chain, differentiating clearly between core capabilities and those that could be potentially

outsourced. Within R&D, particularly pre-clinical and discovery seem to be representing

potential outsourcing opportunities, also driven by huge cost differences (Refer Figure 2 &

3). In the future, the pharmaceutical industry will be forced to capture the increasing

benefits from emerging countries, particularly given the long-term benefit from matching

better its global work force footprint to the future geographic distribution of revenues.

The initial wave of pharma outsourcing was successfully witnessed for manufacturing of

Active Pharmaceutical Ingredients and off patent drugs. As late as 2006, contract

manufacturing accounted for over 70% of the revenues of the Indian CRAMS market.

However post compliance with WTO norms on intellectual property, there has been a

spurt of off-shoring activities in the areas of clinical development and manufacture of

patented APIs and formulations, as well as discovery and pre-clinical services.

Multitude of key success factors in R&D drive relevance of emerging

countries

Many key success factors for pharmaceutical R&D apply equally to all phases, such as the

availability of highly skilled English speaking staff, adherence to quality and compliance,

flexibility and agility given significant attrition, costs per unit (related for example to

activity, FTEs, patients) and tight project management. In addition, exploratory R&D also

requires IP protection, trained/ experienced scientists/ researchers, speed of learning/

know-how development, access to academia/ basic research labs, as well as access to

funding whether public or private. In case of confirmatory R&D, the key success factors

are driven by fast access to patients, local regulations for animal/ clinical studies, overall

speed for critical path activities, e.g. data analysis upon database lock of clinical trials,

access to product approval regulators and cost/benefit assessment agencies in key

markets as well as strength of relationships with medical opinion leaders driving product

adoption through international and national guidelines.

Pharmaceutical companies need to decide on their geographic footprint by assessing the

various locations rigorously against the suggested key success factors. In addition, we

suggest differentiating outsourcing decisions by activity type (differentiating ongoing/

repetitive tasks from projects) and outsourcing option (off-shoring leading to a strategic

cost advantage vs. outsourcing within US/ EU/ Japan). Near and off-shoring seems to be

equally driven by unit cost advantages, e.g. animal studies, as well as critical resource

access, e.g. patients meeting clinical trial inclusion criteria, experienced medicinal

chemists.

India's strong positioning on the key success factors

India's large population of 1.15 Bn people translates into a vast patient pool and faster

patient recruitment for clinical trials, which go a long way in meeting overall timelines

Quotes from TopExecutive Interviews

•

•

•

QUESTION:

What are the top 3 core competencies of your company concerningthe following steps along the value chain?

Source: Top executive interviews; Roland Berger Survey 2007/2008

Fig. 2: Core competencies across the value chain

"We have paid for the same pre -clinical work USD 120,000 inChina, which would have cost usUSD 5 million in the US"

"Data management can alreadybe outsourced to places likeIndia, for example leveraging ITcompanies such as TataConsultancy Services" "Emerging markets do providecost savings potential for clinicaldevelopment which need to bebalanced with the demand forclinical data generated in theUS/EU"

Research

Discovery

Pre-development

clinical

Clinicaldevelopment

Regulatory

Marketing

Sales

Distribution/ logistics

Active ingredientproduction

Pharmaceuticalproduction

DistributionMarketing and sales

ProductionR&D

1%

22%

24%

9%

12%

6%

3%

16%

6%

1%

Fig. 3: Pharmaceutical Companies R&D Budget Split

Source: Secondary research, Zinnov, Tata Strategic Analysis

R&D Budget break- up (%) Clinical Budget break- up (%)

Phase 1

Phase II and III

Phase IV16

67

18

27

20

11

438

Clinical Development DiscoveryNon-clinical RegulatoryOthers

A study by the Tufts Center for the Study of Drug Development concluded that:Pharma CROs stay closer to schedule than othersCROsexpand the speed and capacity of product development pipeline whilemaintaining high levels of qualityCROs help companies reduce costs

companies with high reliance on •

•

•

ProjectsOngoing/repetitive tasks

Complexity

Activity type

Fig. 4: Selected R&D examples byoutsourcing option and activity type

Outsourcingto US / EU /

Japan

Low costoff-shoring

PivotalTrials

PharmaServices

IT

Drug SafetyReporting

PMS Studies

CMC forOptimization

AnimalStudies

CompetitiveIntelligence

MedicinalChemistry

Ou

tso

urc

ing

op

tio

n

70 71

• Share of healthcare andpharma market value of pharmerging countriesmore than doublingbetween 2009 and 2020

• Share of absolutehealthcare and pharmamarket value growthbetween 2009 and 2020larger than 40%

Source: EIU; OECD; WHO; IMS; Roland Berger

Healthcare market Pharmaceutical market

7%

6%

43%35%

26%

12%

43%

5%

14%

9,900

14%

26%

19%

Other

Pharmerging

Japan

USA

4,5005,400

16%

12%

22%

11%

8%

38%29%

17%

7%

Other

Pharmerging

Japan

USA

450-700

23%

49%

4%

1,250 -1,500

22%

27%

14%

800

20%

12%

19%EuropeTop 5

EuropeTop 5

Fig. 1: Geographic shift towards pharmerging markets (USD Bn)

Assessment of shift

20202009 20202009

The pharmaceutical industry is fundamentally re-evaluating the make-up of its value

chain, differentiating clearly between core capabilities and those that could be potentially

outsourced. Within R&D, particularly pre-clinical and discovery seem to be representing

potential outsourcing opportunities, also driven by huge cost differences (Refer Figure 2 &

3). In the future, the pharmaceutical industry will be forced to capture the increasing

benefits from emerging countries, particularly given the long-term benefit from matching

better its global work force footprint to the future geographic distribution of revenues.

The initial wave of pharma outsourcing was successfully witnessed for manufacturing of

Active Pharmaceutical Ingredients and off patent drugs. As late as 2006, contract

manufacturing accounted for over 70% of the revenues of the Indian CRAMS market.

However post compliance with WTO norms on intellectual property, there has been a

spurt of off-shoring activities in the areas of clinical development and manufacture of

patented APIs and formulations, as well as discovery and pre-clinical services.

Multitude of key success factors in R&D drive relevance of emerging

countries

Many key success factors for pharmaceutical R&D apply equally to all phases, such as the

availability of highly skilled English speaking staff, adherence to quality and compliance,

flexibility and agility given significant attrition, costs per unit (related for example to

activity, FTEs, patients) and tight project management. In addition, exploratory R&D also

requires IP protection, trained/ experienced scientists/ researchers, speed of learning/

know-how development, access to academia/ basic research labs, as well as access to

funding whether public or private. In case of confirmatory R&D, the key success factors

are driven by fast access to patients, local regulations for animal/ clinical studies, overall

speed for critical path activities, e.g. data analysis upon database lock of clinical trials,

access to product approval regulators and cost/benefit assessment agencies in key

markets as well as strength of relationships with medical opinion leaders driving product

adoption through international and national guidelines.

Pharmaceutical companies need to decide on their geographic footprint by assessing the

various locations rigorously against the suggested key success factors. In addition, we

suggest differentiating outsourcing decisions by activity type (differentiating ongoing/

repetitive tasks from projects) and outsourcing option (off-shoring leading to a strategic

cost advantage vs. outsourcing within US/ EU/ Japan). Near and off-shoring seems to be

equally driven by unit cost advantages, e.g. animal studies, as well as critical resource

access, e.g. patients meeting clinical trial inclusion criteria, experienced medicinal

chemists.

India's strong positioning on the key success factors

India's large population of 1.15 Bn people translates into a vast patient pool and faster

patient recruitment for clinical trials, which go a long way in meeting overall timelines

Quotes from TopExecutive Interviews

•

•

•

QUESTION:

What are the top 3 core competencies of your company concerningthe following steps along the value chain?

Source: Top executive interviews; Roland Berger Survey 2007/2008

Fig. 2: Core competencies across the value chain

"We have paid for the same pre -clinical work USD 120,000 inChina, which would have cost usUSD 5 million in the US"

"Data management can alreadybe outsourced to places likeIndia, for example leveraging ITcompanies such as TataConsultancy Services" "Emerging markets do providecost savings potential for clinicaldevelopment which need to bebalanced with the demand forclinical data generated in theUS/EU"

Research

Discovery

Pre-development

clinical

Clinicaldevelopment

Regulatory

Marketing

Sales

Distribution/ logistics

Active ingredientproduction

Pharmaceuticalproduction

DistributionMarketing and sales

ProductionR&D

1%

22%

24%

9%

12%

6%

3%

16%

6%

1%

Fig. 3: Pharmaceutical Companies R&D Budget Split

Source: Secondary research, Zinnov, Tata Strategic Analysis

R&D Budget break- up (%) Clinical Budget break- up (%)

Phase 1

Phase II and III

Phase IV16

67

18

27

20

11

438

Clinical Development DiscoveryNon-clinical RegulatoryOthers

A study by the Tufts Center for the Study of Drug Development concluded that:Pharma CROs stay closer to schedule than othersCROsexpand the speed and capacity of product development pipeline whilemaintaining high levels of qualityCROs help companies reduce costs

companies with high reliance on •

•

•

ProjectsOngoing/repetitive tasks

Complexity

Activity type

Fig. 4: Selected R&D examples byoutsourcing option and activity type

Outsourcingto US / EU /

Japan

Low costoff-shoring

PivotalTrials

PharmaServices

IT

Drug SafetyReporting

PMS Studies

CMC forOptimization

AnimalStudies

CompetitiveIntelligence

MedicinalChemistry

Ou

tso

urc

ing

op

tio

n

72 73

faster. This results in substantial acceleration of the drug development time in addition to

lower costs per patient. In addition, India has a large population of doctors and scientists,

representing the largest English-speaking talent pool in some disciplines. For example,

India produces three times as many master graduates annually in chemistry than the US.

With the large number of DMF filings, technical competency is well established. It has the

largest number of USFDA approved facilities outside US with GMP and GLP certifications.

Intellectual property is respected and the laws are conducive to IP protection. Moreover,

Indian strength in synthetic and medicinal chemistry makes it a lucrative destination for

contract research, even for early research and discovery activities. Given the advantages

of focus, cost and speed, the question is no longer about whether to outsource but rather

of finding the right partners. Overall, clinical development, discovery and non-clinical

services costs account for 85% of R&D budget which can be reduced by using CROs. In

addition to cost advantages, multinational pharmaceutical companies benefit from staying

closer to schedule and their ability to expand speed and capacity of their R&D operations

while maintaining high levels of quality resulting in a much required boost of R&D

productivity (Refer Figure 4).

Moving up the value chain ladder

Contract work in research/ discovery has evolved from low end research activities to more

value added high end research. Reputation for research quality, speed in project

execution, world class infrastructure, quality manpower, patent protection and strong

client relationships are critical for growth of CRAMS. Currently clinical trials account for

the largest share of the Indian CRO market (Refer Figure 5). Increasingly, Indian CRAMS

such as Jubilant Biosys are striving for end-to-end solutions, integrating a large array of

services into a holistic offering, particularly within Discovery/ Pre-clinical. Furthermore,

Indian CRAMS have also started to engage in performance-based contracts enabling them

to retain a larger share of their value-added, as exemplified by the collaboration between

Jubilant Biosys and Endo on the area of oncology.

Outsourcing in drug discovery occurs mainly in the following segments - broad based

screening, genomic targets, chemistry and gene therapy. Therapeutic areas involved

include oncology, infectious diseases, CNS, cardiovascular disorders, autoimmune/

inflammation and metabolic diseases. Currently Phase II-III has emerged as the most

established component of clinical development. The adoption of new tools and

techniques such as biotechnology, bio informatics, genomics etc. along with new IT

solutions has brought about a change in the way new drugs are being developed and

brought to market. This will increasingly drive outsourcing of research and development to

India, also due to its strong IT services sector (Refer Figure 6).

Fig. 6: Indian CRO Industry

22 70202

485

1020

2002 2004 2006 2008 2010e

Indian CRO Revenues, 2002-2010e (USD Mn.)

62% CAGR

Leading Indian CROs

Source: Secondary research, Zinnov, Tata Strategic Analysis

Illustrative list of areas addressed eg. GVK Bio:Medicinal chemistry InformaticsBiology Process R&DClinical research BA/ BE StudiesKnowledge process outsourcing

Data management and early phase trials offer immense opportunities for CROs. There

have been several Private Equity (PE) investments in the recent past, driven by current

attractive returns and future potential. Actis' investment in Veeda Clinical Research, Kotak

Private Equity Group and 3i Capital in Siro Clinpharm, OrbiMed in Ecron Acunova and

MPM Capital in Sai Advantium are some examples. Actis Biologics is working together

with the Malaysian government on new molecules for diabetes, anti-cancer diagnosis,

and asthma and also jointly building the Bio-City Park in Malaysia. 'Developing country'

diseases offer another area of huge potential where the focus of Western drug companies

is currently limited. The long term arrangement between the Malaysian government and

Vivo Bio for manufacturing malaria vaccine is one such example.

Contract research (and manufacturing) offers a long term strategic advantage

The nature of relationships between Indian CRAMS suppliers and the pharma companies

is transitioning from transactional based to long term partnerships, often involving

sharing and creation of joint intellectual property triggering performance-based milestone

payments. Big pharma companies are also acquiring stakes in their CRAMS partners to

secure supply and develop a stronger relationship.

Fig. 5: Indian CRO Industry

Source: Crisil Research, Tata Strategic Analysis

CRO segments inIndia

Break up of Developmentstage in India

(Focus on genericdrug development)

Break up of Clinicalstudies

• Availability of large patient population in diverse therapeutic category is the major driver for growth of CRO - Clinical Trial in India

• Cost of clinical trials is a fraction compared to developed markets like US

Developmentstage (Clinical),

80%

Discovery20%

Clinical studies,63%

BE/ BA Studies,37%

Phase III,53%

Phase II,30%

Phase IV,10%

Phase I,7%

72 73

faster. This results in substantial acceleration of the drug development time in addition to

lower costs per patient. In addition, India has a large population of doctors and scientists,

representing the largest English-speaking talent pool in some disciplines. For example,

India produces three times as many master graduates annually in chemistry than the US.

With the large number of DMF filings, technical competency is well established. It has the

largest number of USFDA approved facilities outside US with GMP and GLP certifications.

Intellectual property is respected and the laws are conducive to IP protection. Moreover,

Indian strength in synthetic and medicinal chemistry makes it a lucrative destination for

contract research, even for early research and discovery activities. Given the advantages

of focus, cost and speed, the question is no longer about whether to outsource but rather

of finding the right partners. Overall, clinical development, discovery and non-clinical

services costs account for 85% of R&D budget which can be reduced by using CROs. In

addition to cost advantages, multinational pharmaceutical companies benefit from staying

closer to schedule and their ability to expand speed and capacity of their R&D operations

while maintaining high levels of quality resulting in a much required boost of R&D

productivity (Refer Figure 4).

Moving up the value chain ladder

Contract work in research/ discovery has evolved from low end research activities to more

value added high end research. Reputation for research quality, speed in project

execution, world class infrastructure, quality manpower, patent protection and strong

client relationships are critical for growth of CRAMS. Currently clinical trials account for

the largest share of the Indian CRO market (Refer Figure 5). Increasingly, Indian CRAMS

such as Jubilant Biosys are striving for end-to-end solutions, integrating a large array of

services into a holistic offering, particularly within Discovery/ Pre-clinical. Furthermore,

Indian CRAMS have also started to engage in performance-based contracts enabling them

to retain a larger share of their value-added, as exemplified by the collaboration between

Jubilant Biosys and Endo on the area of oncology.

Outsourcing in drug discovery occurs mainly in the following segments - broad based

screening, genomic targets, chemistry and gene therapy. Therapeutic areas involved

include oncology, infectious diseases, CNS, cardiovascular disorders, autoimmune/

inflammation and metabolic diseases. Currently Phase II-III has emerged as the most

established component of clinical development. The adoption of new tools and

techniques such as biotechnology, bio informatics, genomics etc. along with new IT

solutions has brought about a change in the way new drugs are being developed and

brought to market. This will increasingly drive outsourcing of research and development to

India, also due to its strong IT services sector (Refer Figure 6).

Fig. 6: Indian CRO Industry

22 70202

485

1020

2002 2004 2006 2008 2010e

Indian CRO Revenues, 2002-2010e (USD Mn.)

62% CAGR

Leading Indian CROs

Source: Secondary research, Zinnov, Tata Strategic Analysis

Illustrative list of areas addressed eg. GVK Bio:Medicinal chemistry InformaticsBiology Process R&DClinical research BA/ BE StudiesKnowledge process outsourcing

Data management and early phase trials offer immense opportunities for CROs. There

have been several Private Equity (PE) investments in the recent past, driven by current

attractive returns and future potential. Actis' investment in Veeda Clinical Research, Kotak

Private Equity Group and 3i Capital in Siro Clinpharm, OrbiMed in Ecron Acunova and

MPM Capital in Sai Advantium are some examples. Actis Biologics is working together

with the Malaysian government on new molecules for diabetes, anti-cancer diagnosis,

and asthma and also jointly building the Bio-City Park in Malaysia. 'Developing country'

diseases offer another area of huge potential where the focus of Western drug companies

is currently limited. The long term arrangement between the Malaysian government and

Vivo Bio for manufacturing malaria vaccine is one such example.

Contract research (and manufacturing) offers a long term strategic advantage

The nature of relationships between Indian CRAMS suppliers and the pharma companies

is transitioning from transactional based to long term partnerships, often involving

sharing and creation of joint intellectual property triggering performance-based milestone

payments. Big pharma companies are also acquiring stakes in their CRAMS partners to

secure supply and develop a stronger relationship.

Fig. 5: Indian CRO Industry

Source: Crisil Research, Tata Strategic Analysis

CRO segments inIndia

Break up of Developmentstage in India

(Focus on genericdrug development)

Break up of Clinicalstudies

• Availability of large patient population in diverse therapeutic category is the major driver for growth of CRO - Clinical Trial in India

• Cost of clinical trials is a fraction compared to developed markets like US

Developmentstage (Clinical),

80%

Discovery20%

Clinical studies,63%

BE/ BA Studies,37%

Phase III,53%

Phase II,30%

Phase IV,10%

Phase I,7%

74 75

It is a foregone conclusion that pharmaceutical and biotech companies need to relook at

their business models if they have to successfully compete in the new environment.

Contract manufacturing was just the tip of the iceberg. If companies have to be really

successful and optimize their operations for better business results, they need to revamp

their R&D process and capture the opportunity presented by emerging economies. Price

realizations that the pharma companies have got used to may be a thing of the past,

especially with focus on reducing final cost of dose by payers and governments even in

the developed world. Off-shoring contract research (and manufacturing) services are

therefore an opportunity to not just save costs tactically for the short term, but also a

strategic move to improve productivity and develop further capabilities, while also moving

closer to the future healthcare customers in developing markets.

© Tata Strategic Management Group. All rights reserved

GST: An Opportunity to reassess your Supply Chain

The cascading effect of local taxes and complex regulatory structure of central and

state bodies have added to the inefficiencies for businesses. The proposed GST augurs

well for businesses thru simplified process that will create competitive advantage for

those who are prepared say Siddharth Paradkar (Principal - Logistics) and Pratik

Kadakia (Practice Head - Chemicals & Energy) of Tata Strategic Management Group.

Introduction

The dual governance structure of central and state bodies make the current tax system

very complicated. The multi-layered system, with both Central and State governments

having the power to levy taxes brings about many inefficiencies in the system. The double

taxation policy also adds cost as the tax paid in earlier in the value chain gets re-taxed and

firms end up paying tax on the tax paid.

The government over the past years has tried to bring about some changes to try and

minimise this cascading impact, however this is not to the same extent as the new Goods

and Services Tax (GST) intends to do.

GST is expected to be the next big bang fiscal reform in the Indian context. GST, if

implemented in the true spirit of its intent, will bring about major change and result in

rationalizing and simplifying the tax structure at both the Central and State levels (even

across state borders).

What is Goods and Services Tax (GST)

GST is an evolution of the current tax regime, transforming the complex and cascading

structure into a unified value added system of taxation. Under this, a value added tax

would be levied at every point of the supply chain providing for credit for any / all taxes

paid previously.

Keeping in line with the governance structure of the country GST would be levied

simultaneous by the Centre and State (CGST and SGST respectively). All essential

characteristics in terms of its structure, design applicability, etc. would be common

between CGST and SGST, across all states.

GST is expected to replace most of the current applicable indirect taxes as listed in the

table below (Exhibit 1).

74 75

It is a foregone conclusion that pharmaceutical and biotech companies need to relook at

their business models if they have to successfully compete in the new environment.

Contract manufacturing was just the tip of the iceberg. If companies have to be really

successful and optimize their operations for better business results, they need to revamp

their R&D process and capture the opportunity presented by emerging economies. Price

realizations that the pharma companies have got used to may be a thing of the past,

especially with focus on reducing final cost of dose by payers and governments even in

the developed world. Off-shoring contract research (and manufacturing) services are

therefore an opportunity to not just save costs tactically for the short term, but also a

strategic move to improve productivity and develop further capabilities, while also moving

closer to the future healthcare customers in developing markets.

© Tata Strategic Management Group. All rights reserved

GST: An Opportunity to reassess your Supply Chain

The cascading effect of local taxes and complex regulatory structure of central and

state bodies have added to the inefficiencies for businesses. The proposed GST augurs

well for businesses thru simplified process that will create competitive advantage for

those who are prepared say Siddharth Paradkar (Principal - Logistics) and Pratik

Kadakia (Practice Head - Chemicals & Energy) of Tata Strategic Management Group.

Introduction

The dual governance structure of central and state bodies make the current tax system

very complicated. The multi-layered system, with both Central and State governments

having the power to levy taxes brings about many inefficiencies in the system. The double

taxation policy also adds cost as the tax paid in earlier in the value chain gets re-taxed and

firms end up paying tax on the tax paid.

The government over the past years has tried to bring about some changes to try and

minimise this cascading impact, however this is not to the same extent as the new Goods

and Services Tax (GST) intends to do.

GST is expected to be the next big bang fiscal reform in the Indian context. GST, if

implemented in the true spirit of its intent, will bring about major change and result in

rationalizing and simplifying the tax structure at both the Central and State levels (even

across state borders).

What is Goods and Services Tax (GST)

GST is an evolution of the current tax regime, transforming the complex and cascading

structure into a unified value added system of taxation. Under this, a value added tax

would be levied at every point of the supply chain providing for credit for any / all taxes

paid previously.

Keeping in line with the governance structure of the country GST would be levied

simultaneous by the Centre and State (CGST and SGST respectively). All essential

characteristics in terms of its structure, design applicability, etc. would be common

between CGST and SGST, across all states.

GST is expected to replace most of the current applicable indirect taxes as listed in the

table below (Exhibit 1).

76 77

Impact of GST

Implementation of GST will have significant impact and will change the manner in which

business is carried out in comparison with the ways of the current tax regime.

With a single rate being applied to all goods and services there will be a significant

redistribution of taxes across all categories resulting in reduction in taxes on

manufactured goods and hence impacting the pricing of the product.

The integration of tax on Goods and Service through GST would provide the additional

benefit of providing credit for service tax paid by manufacturers. Both CENVAT & VAT

which are in practice now, give tax credit to the manufacturer for the tax paid for raw

materials (hence a tax is charged only on the value added by the manufacturer). More

often than not, there are various services including logistics involved in getting the input

material to its final customer. Service tax is paid on the cost of such services. With the

implementation of GST, cost of any services including logistics cost will be considered a

value add, and the manufacturer will get tax credit for the service tax paid.

Inter-state transactions to become tax neutral

Under GST inter-state sales transaction between two dealers would be cost equivalent

compared with stock transfers / branch transfers. According to the proposed model,

Centre would levy IGST which would be CGST plus SGST on all inter-state transactions of

taxable goods and services. The inter-State seller will pay IGST on value addition after

adjusting available credit of IGST, CGST, and SGST on his purchases. Similarly the

importing dealer will claim credit of IGST while discharging his output tax liability in his

own State. This will result in inter-state sales transaction becoming tax neutral when

compared to intra-state sales. India would become one single common market no longer

divided by state borders.

Business implication of GST

Logistics and supply chains will therefore see a major change; sourcing, distribution and

warehousing decisions which are currently planned based on a state level tax avoidance

mechanism instead of operational efficiencies will be reorganized to leverage efficiencies

of scale, location and other factors relevant to the business.

Rationalization of Warehouses and Transport network

Exhibit 1: Taxes subsumed under GST

> Central Excise Duty > VAT / Sales Tax > Service Tax > Entertainment Tax> Additional customs Duty > Entry Tax (not in lieu of Octroi)> Surcharge and cesses > Other Taxes and Duties (includes Luxury Tax, Taxes

on lottery, betting and gambling, and all cesses and surcharges by States)

Central Taxes State Taxes

GST would eliminate the existing penalties on inter state sales transactions and facilitate

consolidation of vendors and suppliers. This will eliminate the need to have state wise

warehouses to avoid CST and the associated paperwork, leading to elimination of one

extra, redundant level of warehousing in the supply chain. This will result in reduction in

the number of warehouses (Exhibit 2), improved efficiencies, better control and reduction

in inventory due to lesser numbers of stocking points and cases of stock outs. This would

allow a firm to take advantage of economies of scale and consolidate warehouses at the

same time reduce capital deployed in the business. Larger warehouses can benefit from

technological sophistication by deploying state-of-the-art planning and warehousing

systems which are not feasible in smaller, scattered warehouses. At the same time IT

costs of having ERPs deployed at many small warehouses can be saved. This will pave the

way for improved service levels at lower cost in the overall supply chain.

A rationalization similar to warehousing can also be done in distribution and

transportation routes as tax ceases to become the deciding factor. Since the tax rates

across states are envisaged to be uniform, state boundaries will no longer be the

parameter for deciding routes. At the same time, with larger warehouses, transportation

lot sizes will automatically increase, making way for more efficient bigger trucks. The

optimization and rationalization that these options can bring about in the supply chains of

a firm on account of GST will provide a competitive advantage to the business through

better service and faster turnaround times at lower costs.

STRATEGIC MANAGEMENT GROUP

99STRATEGIC MANAGEMENT GROUP

Exhibit 2 : GST will enable manufacturers to realize higher margins

COMPARISON BETWEEN CURRENT AND POST -GST1 SCENARIO

130Final Price0CST

30Margin100Landed cost

Manufacturer

State Border

5Depot cost

140.4Final Price5.4VAT

0Margin

130Landed costDepot

145.6Final Price5.6VAT5.4VAT credit

5Margin140.4Landed cost

Distributor

171.6MRP6.6 VAT5.6VAT credit25Margin

145.6Landed costRetailer

Current Scenario - Companies have depots in destination states to counter CST 2 All figures in Rs. / Unit

135Final Price35Margin

100Landed costManufacturer

State Border

145.6Final Price5.6 VAT

5Margin135Landed cost

Distributor

Post GST Scenario - Zero CST on inter -state sales

Post-GST the supply chain can be designed purely on logistics cost and customer service considerations that will positively impact the business

Notes :1) Goods and Services Tax 2) Central sales tax: Inter-state sales tax

Source: Tata Strategic analysis

A

B

INDICATIVE

171.6MRP6.6 VAT5.6VAT credit25Margin

145.6Landed costRetailer

76 77

Impact of GST

Implementation of GST will have significant impact and will change the manner in which

business is carried out in comparison with the ways of the current tax regime.

With a single rate being applied to all goods and services there will be a significant

redistribution of taxes across all categories resulting in reduction in taxes on

manufactured goods and hence impacting the pricing of the product.

The integration of tax on Goods and Service through GST would provide the additional

benefit of providing credit for service tax paid by manufacturers. Both CENVAT & VAT

which are in practice now, give tax credit to the manufacturer for the tax paid for raw

materials (hence a tax is charged only on the value added by the manufacturer). More

often than not, there are various services including logistics involved in getting the input

material to its final customer. Service tax is paid on the cost of such services. With the

implementation of GST, cost of any services including logistics cost will be considered a

value add, and the manufacturer will get tax credit for the service tax paid.

Inter-state transactions to become tax neutral

Under GST inter-state sales transaction between two dealers would be cost equivalent

compared with stock transfers / branch transfers. According to the proposed model,

Centre would levy IGST which would be CGST plus SGST on all inter-state transactions of

taxable goods and services. The inter-State seller will pay IGST on value addition after

adjusting available credit of IGST, CGST, and SGST on his purchases. Similarly the

importing dealer will claim credit of IGST while discharging his output tax liability in his

own State. This will result in inter-state sales transaction becoming tax neutral when

compared to intra-state sales. India would become one single common market no longer

divided by state borders.

Business implication of GST

Logistics and supply chains will therefore see a major change; sourcing, distribution and

warehousing decisions which are currently planned based on a state level tax avoidance

mechanism instead of operational efficiencies will be reorganized to leverage efficiencies

of scale, location and other factors relevant to the business.

Rationalization of Warehouses and Transport network

Exhibit 1: Taxes subsumed under GST

> Central Excise Duty > VAT / Sales Tax > Service Tax > Entertainment Tax> Additional customs Duty > Entry Tax (not in lieu of Octroi)> Surcharge and cesses > Other Taxes and Duties (includes Luxury Tax, Taxes

on lottery, betting and gambling, and all cesses and surcharges by States)

Central Taxes State Taxes

GST would eliminate the existing penalties on inter state sales transactions and facilitate

consolidation of vendors and suppliers. This will eliminate the need to have state wise

warehouses to avoid CST and the associated paperwork, leading to elimination of one

extra, redundant level of warehousing in the supply chain. This will result in reduction in

the number of warehouses (Exhibit 2), improved efficiencies, better control and reduction

in inventory due to lesser numbers of stocking points and cases of stock outs. This would

allow a firm to take advantage of economies of scale and consolidate warehouses at the

same time reduce capital deployed in the business. Larger warehouses can benefit from

technological sophistication by deploying state-of-the-art planning and warehousing

systems which are not feasible in smaller, scattered warehouses. At the same time IT

costs of having ERPs deployed at many small warehouses can be saved. This will pave the

way for improved service levels at lower cost in the overall supply chain.

A rationalization similar to warehousing can also be done in distribution and

transportation routes as tax ceases to become the deciding factor. Since the tax rates

across states are envisaged to be uniform, state boundaries will no longer be the

parameter for deciding routes. At the same time, with larger warehouses, transportation

lot sizes will automatically increase, making way for more efficient bigger trucks. The

optimization and rationalization that these options can bring about in the supply chains of

a firm on account of GST will provide a competitive advantage to the business through

better service and faster turnaround times at lower costs.

STRATEGIC MANAGEMENT GROUP

99STRATEGIC MANAGEMENT GROUP

Exhibit 2 : GST will enable manufacturers to realize higher margins

COMPARISON BETWEEN CURRENT AND POST -GST1 SCENARIO

130Final Price0CST

30Margin100Landed cost

Manufacturer

State Border

5Depot cost

140.4Final Price5.4VAT

0Margin

130Landed costDepot

145.6Final Price5.6VAT5.4VAT credit

5Margin140.4Landed cost

Distributor

171.6MRP6.6 VAT5.6VAT credit25Margin

145.6Landed costRetailer

Current Scenario - Companies have depots in destination states to counter CST 2 All figures in Rs. / Unit

135Final Price35Margin

100Landed costManufacturer

State Border

145.6Final Price5.6 VAT

5Margin135Landed cost

Distributor

Post GST Scenario - Zero CST on inter -state sales

Post-GST the supply chain can be designed purely on logistics cost and customer service considerations that will positively impact the business

Notes :1) Goods and Services Tax 2) Central sales tax: Inter-state sales tax

Source: Tata Strategic analysis

A

B

INDICATIVE

171.6MRP6.6 VAT5.6VAT credit25Margin

145.6Landed costRetailer

78 79

Opportunity to explore alternate distribution models

Organizations will now be able to explore different distribution models such as setting up mother warehouse and regional distribution hubs and possibly step away from traditional C&F and distributor based models currently adopted. This will lead to logistics and distribution to evolve more strongly as a competitive advantage.

The government has already begun the process of amending the constitution and getting the necessary consensus from all the stake holders. Though the exact details are still sketchy, the structure and deliverables have been clearly laid down for all to see. We expect GST to be implemented during the course of the financial year 2012-13.

Thus GST offers a great opportunity to revisit your Supply Chain & Distribution strategy, and identify what is required to become GST ready. Those who move early are likely to gain an advantage on cost and service levels over their competitors and deliver a better value proposition to the customer.

©Tata Strategic Management Group, 2011. No part of it may be circulated or reproduced for distribution without prior written approval from Tata Strategic Management Group.

78 79

Opportunity to explore alternate distribution models

Organizations will now be able to explore different distribution models such as setting up mother warehouse and regional distribution hubs and possibly step away from traditional C&F and distributor based models currently adopted. This will lead to logistics and distribution to evolve more strongly as a competitive advantage.

The government has already begun the process of amending the constitution and getting the necessary consensus from all the stake holders. Though the exact details are still sketchy, the structure and deliverables have been clearly laid down for all to see. We expect GST to be implemented during the course of the financial year 2012-13.

Thus GST offers a great opportunity to revisit your Supply Chain & Distribution strategy, and identify what is required to become GST ready. Those who move early are likely to gain an advantage on cost and service levels over their competitors and deliver a better value proposition to the customer.

©Tata Strategic Management Group, 2011. No part of it may be circulated or reproduced for distribution without prior written approval from Tata Strategic Management Group.

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About FICCIEstablished in 1927, FICCI is the largest and oldest apex business organisation in India. Its history is

closely interwoven with India's struggle for independence and its subsequent emergence as one of the

most rapidly growing economies globally. FICCI plays a leading role in policy debates that are at the

forefront of social, economic and political change. Through its 400 professionals, FICCI is active in 53

sectors of the economy. FICCI's stand on policy issues is sought out by think tanks, governments and

academia. Its publications are widely read for their in-depth research and policy prescriptions. FICCI

has joint business councils with 75 countries around the world.

A non-government, not-for-profit organisation, FICCI is the voice of India's business and industry. FICCI

has direct membership from the private as well as public sectors, including SMEs and MNCs, and an

indirect membership of over 3,00,000 companies from regional chambers of commerce.

FICCI works closely with the government on policy issues, enhancing efficiency, competitiveness and

expanding business opportunities for industry through a range of specialised services and global

linkages. It also provides a platform for sector specific consensus building and networking.

Partnerships with countries across the world carry forward our initiatives in inclusive development,

which encompass health, education, livelihood, governance, skill development, etc. FICCI serves as the

first port of call for Indian industry and the international business community.

Industry’s Voice for Policy Change

FICCIFederation House, 1 Tansen Marg, New Delhi-110 001

Tel: +91-11-2331 6540 (Dir)EPBX: +91-11-2373 8760-70 (Extn 395)

Fax: +91-11-2332 0714/ 2372 1504E- Mail: rkbhatia@ficci.com

Mr P. S. Singh Consultant-Chemicals Division

Ms Charu SmitaAssistant Director- Chemicals Division

Contact Details