India: Huge, untapped potential for specialty chemicals
5:36 PM MST | February 11, 2013 | —Deepti Ramesh
The specialty chemicals sector in India offers tremendous growth opportunities for manufacturers as a result of rising domestic demand and the untapped potential that exists in the country, experts say. Multinational chemical companies’ share of the burgeoning specialty chemicals market in India has doubled in the last decade, and those companies are looking to strengthen their presence in the country through further investments in manufacturing capacity and R&D.
The Indian Chemical Council (ICC; Mumbai) expects that sales by India’s chemical industry will grow 7–9% in 2013. The specialty chemicals segment is expected to be one of the fastest-growing segments within the Indian chemical sector in 2013 and the near future, ICC and other experts say. “The specialty chemicals segment in India is expected to grow at a rate of 11–12% in 2013,” says Chaitra Narayan, program manager/chemicals, materials, and foods practice at Frost & Sullivan (Bangalore). “And this growth rate will be maintained over the next 3–4 years.” The expanding list of end-user industries and growth in domestic production in many of these industries—including agriculture, health care, infrastructure, and food processing—are driving this growth, Narayan says.
Multinational chemical companies are looking to tap the potential of India’s specialty chemicals market for several reasons, says a recent report by McKinsey & Co. entitled Winning in India—The specialty-chemicals opportunity. “First, the growth potential for India’s economy over the next decade and beyond is well known. GDP is expected to rise between 5%/year and 8%/year over the next 5 years, while the Indian middle class could increase from 46 million households in 2010 to 148 million households by 2030, with quadrupled consumption. Such developments put India on track to experience the kind of economic liftoff seen in China since the early 2000s,” the McKinsey report says. “Second, the specialty chemicals sector in India is picking up momentum; its compound annual growth rate (CAGR) rose to 13% from 2005–10, a marked increase over its CAGR of 10% from 2000 to 2005.... Third, a number of domestic and international companies are already seeing healthy growth and returns in the Indian specialty chemicals sector.... Fourth, microeconomic analysis makes the case for major growth potential across the specialty chemicals industry. A detailed analysis of 15 specialty chemicals sectors, and an evaluation of the potential for Indian consumption and usage intensity to reach levels seen in China suggest that the Indian specialty chemicals industry could grow 4- or 5-fold by 2020, to become a market worth $80–100 billion/year. With growth of this magnitude, the existing landscape is likely to be completely redrawn, opening up opportunities for newcomers,” the report says.
India’s specialty chemicals industry is highly fragmented. Out of approximately 700 companies in the specialty chemicals market in the country, the top 20 companies have a 48% market share, McKinsey says. “International companies account for 5 of the 10 largest players in the Indian specialty chemicals market, and this group of leaders has been achieving high growth,” the report says.
The international players in the top 10 are Syngenta, Bayer, Kansai Paint (Osaka), BASF, and DuPont, McKinsey says. “International companies’ share overall of the Indian market rose from 11% in 2000 to 20% in 2010,” the report says.
According to CW’s first annual ranking of specialty chemical companies by sales, which was published last December, BASF—the top-ranked company in CW’s Billion-Dollar Club since 2007—is also the top specialty chemicals company, with about $40.4 billion of its $95.3-billion sales derived from specialty chemicals in 2011. BASF has a significant specialty chemicals business in India. The company says there are numerous opportunities for the specialty chemicals industry in the country. BASF’s business in India is largely focused on specialty chemicals, and the company caters to several end-use industries there, including agriculture, pharmaceuticals, textiles, leather, construction, paper, paints and coatings, refining, and automotive. “The demand for specialty chemicals is strongly founded on the needs of end-use industries. As they grow, demand for specialty chemicals will also grow. We see growth opportunities in almost every [end-use sector] as they plan to expand their manufacturing base in India,” Prasad Chandran, chairman/BASF companies in India and head of South Asia, tells CW. “As part of our growth strategy, we have identified six key growth segments for India: automotive, packaging, construction, paints and coatings, pharmaceuticals, and food and agriculture,” Chandran says.
BASF says that its sales have more than doubled in India during the last five years. On the basis of the location of customers, BASF recorded sales of 75.0 billion Indian rupees ($1.4 billion) in India in 2011, an increase of 15% compared with 2010. Sales figures for 2012 will be disclosed later this month. “With concentrated efforts to meet the demands of the target industries that have been identified, we are poised to grow even further,” Chandran says.
There are several factors contributing to the growth of the specialty chemicals industry in India, and the country is the third-largest market for specialty chemicals in Asia, BASF says. “Demand for chemicals in India is founded on strong domestic demand rather than on exports,” Chandran says. “With the increasing purchasing power of the Indian population, consumers want to buy longer-lasting goods, and goods that improve their quality of life and status. This offers tremendous scope for innovations from the specialty chemicals industry,” he says. The Indian market offers many opportunities for chemical innovations, BASF says. “We have already introduced innovations in several end-use industries such as engineering plastics for lightweight cars, insulation systems and concrete admixtures for energy-efficient housing, biodegradable packaging materials, environmentally friendly paint ingredients, and advanced intermediates for pharmaceutical production. Going forward, there will be an increased focus on research and development for BASF in India,” Chandran says.
Indian government policies are also propelling growth in the specialty chemicals industry, BASF says. “The Indian government has been focused on opening up the manufacturing sector in the country. The National Manufacturing Policy of the government, which was approved in 2011, aims to increase the contribution of the manufacturing sector to the GDP of the country from the current level of 16%, to 25%, by 2022,” Chandran says. “This will be a major stimulus for the growth of the Indian chemical industry. And in the next few years, the specialty chemicals segment will grow at least 1.5 times the GDP growth rate.”
However, India has “a modest chemicals infrastructure on which international companies can build,” the McKinsey report says. “Recognizing this, the Indian government has attempted to address the problem: in 2007, it announced five petroleum, chemicals, and petrochemical investment regions [PCPIR]. To date, only one of them—Dahej in Gujarat—has made progress.”
BASF is planning to utilize the Dahej PCPIR’s infrastructure to build additional manufacturing capacity to meet rising demand. The company announced last year that it would spend €150 million ($202 million) to build a manufacturing site at the PCPIR at Dahej. The site, which will be focused on specialty chemicals, will include facilities for producing polymer dispersions for coatings and paper, as well as personal-care chemicals and polyurethanes. Production at the site is scheduled to start in 2014. “Located in close proximity to many important customers in key industries such as appliances, footwear, automotive, construction, coatings, and personal care, the PCPIR is an excellent site with a strong safety culture, good local infrastructure, and transport links,” Chandran says. “The new site will strengthen our position in northern and western markets in India and complement our existing production facilities [in India at] Ankleshwar, Chennai, Mangalore, and Thane. The Dahej investment is a platform for expansion of our current manufacturing activities in India to cater to the growing market demand.”
BASF announced last October that it plans to start production of precious metal–based fine chemical catalysts at the company’s manufacturing site at Mangalore. These catalysts are used in the production of active pharmaceutical ingredients. Start-up is slated for the second quarter of 2013. The Mangalore site is BASF’s largest manufacturing complex in India and South Asia. The site, which has been operational since 1996, currently produces performance chemicals, dispersions and paper chemicals, automotive and coil coatings, and construction chemicals.
BASF says it is continuously scanning and monitoring the business environment to identify further growth opportunities in India. “Growth could be organic, or through mergers and acquisitions or partnerships,” Chandran says.
Momentive Specialty Chemicals says that India is a key market for the company and that it is looking to strengthen its presence there. “India is a strategic part of the high-growth region where we have placed considerable investment. We are tracking a three-to-four-times faster growth rate in this region when compared to more mature markets,” says V P Nalian, v.p. and general manager for India, Mideast, and Africa (IMEA) at Momentive. “We have tracked a 14% compound annual growth rate for the Indian region from 2009 to present, which also includes Bangladesh, Pakistan, and Sri Lanka,” Nalian says. Momentive does not disclose its annual sales figure in India. The company opened a global R&D center and business headquarters for the IMEA region at Bangalore in November 2012. The new facility will initially house about 100 employees. Research scientists based at the facility will work on new global technology platforms, and product development for new and existing applications in diverse industry segments, including personal care, energy, health care, electronics, automotive, and construction. Momentive also expanded its manufacturing facility and application development center at Chennai last year. The facility, which opened in 2009, focuses on manufacturing high-end specialty silicones to serve the growing needs of customers in India, the Mideast, and South Asia. “This investment represents a major step forward in our ability to grow the silicones business in India,” says Craig Morrison, CEO of Momentive. “India is one of the world’s fastest-growing regions for automotive, construction, telecoms, and energy. Chennai, in particular, is developing into a significant center for multiple industries,” Morrison says.
The automotive, energy, paint and coatings, personal-care, and construction industries in India have been growing significantly, and products from each of Momentive’s three divisions—silicones and quartz; epoxy, phenolic, and coating resins; and forest products—align well with these industries, Nalian says. “With our local manufacturing investments, we are well positioned to offer various products from our Momentive portfolio, for example in our silicones portfolio our Niax additives for the polyurethane foam industry, Magnasoft and Silsoft products for the textiles and personal care industries, and SilFort hard coats for abrasion and [ultraviolet]-resistant transparent coatings, go for various applications into these industries,” he says. “The IMEA region represents one of the fast-growing regions for Momentive, and is projected to be a key growth area for the company in the future.”
Ashland says that emerging markets such as India offer attractive growth opportunities within a number of the company’s businesses, and that the company’s overall presence has been growing in the region. Ashland does not disclose its annual sales in India. The company recorded total sales of $8.1 billion in 2012, and Asia/Pacific accounted for 14% of the total. Ashland says it sees a number of opportunities in India across the company’s four commercial units: specialty ingredients, water technologies, performance materials, and consumer markets.
Ashland’s specialty ingredients unit opened a care specialties lab at Mumbai last October, which supports producers of personal- and home-care products in India and Southeast Asia. Activities at the facility are focused on bringing new personal- and home-care innovations to market and providing technical support. “With close to 2 billion consumers in the region, India and Southeast Asia are home to one of the fastest-growing populations in the world,” the company says. “Ashland is committed to making the strategic investments necessary to develop innovations that reflect the trends and requirements of our customers in the region. The opening of the Mumbai technical center is part of our commitment to serving this need and reinforcing Ashland’s market leadership as a global ingredients innovator.”
Ashland employs about 150 people in India. The company uses a number of contract manufacturers in the country, but it does not own any specialty chemicals manufacturing capacity there. Ashland says its Valvoline automotive and industrial lubricants and automotive chemicals business has a joint venture in India with Cummins (Pune, India). The jv, Valvoline Cummins (Gurgaon), has about 300 employees and is one of India’s fastest-growing lubricant marketers and producers of branded automotive and industrial products, Ashland says.
Ashland declined to comment on whether it plans to build specialty chemicals manufacturing capacity in India in the near future. The company is currently more focused on investing to strengthen its R&D efforts in emerging countries. “Globally, Ashland has doubled its investment in R&D spending since 2007. Examples of this investment can be seen across our businesses, such as in new R&D and technical centers we opened last year in India and China. We expect to invest a higher proportion in emerging regions in the years ahead as we pursue attractive growth opportunities,” Ashland says.
Frank Lelek, regional president/India at Evonik Industries tells CW that he strongly believes in India’s growth, particularly for sectors such as health care, feed, automotive, construction, personal care, and renewable energy. Evonik India (Mumbai) recorded sales of approximately €200 million in 2012, and the company employs about 300 people. All of Evonik’s business units are active in India: The company has a research center for pharmaceutical formulations at Mumbai; several applied technology labs for various business lines, also at Mumbai; and a production platform for precipitated silica at its Insilco (Gurgaon) subsidiary’s production site at Gajraula, 100 kilometers east of New Delhi. Insilco is one of the leading producers of precipitated silica in South Asia. Insilco increased production capacity for precipitated silica at the Gajraula site by 6,000 m.t./year, to 21,000 m.t./year, in 2011.
Evonik has not outlined a specific strategy for growth in India, but says that the company plans to make large investments in Asia, which will include significant investments in India. “To capitalize on the rapidly growing chemical market in Asia, Evonik has established a long-term, comprehensive Asia growth program to ensure the right strategy and capabilities are in place. Taking 2010 as our basis, we aim to double sales in the highly attractive Asian growth markets, to €4 billion, by 2016. In the same time frame, we plan to invest a total of €2 billion in Asia, significantly expanding our innovation activities including basic research, and employing another 2,000 new employees. Various investment projects amounting to triple-digit-millions of euros have been initiated this year to realize this goal,” Evonik says.
Growth in India’s specialty chemicals industry will be driven “not only by underlying end-market growth but also by increased usage intensity and new product specifications and standards,” the McKinsey report says. “The intensity of usage of specialty chemicals in India is at a much earlier stage of development than in Western markets and China, creating significant scope for growth... For example, as India’s construction and real-estate industries see how concrete admixtures can help reduce maintenance and repair costs, there is potential to at least double the intensity of admixture use in the country. The adoption of new product specifications and environmental standards also have the potential to boost specialty chemicals usage. In water treatment, for example, expected tightening of India’s municipal water pollution norms is likely to increase water treatment chemicals usage substantially. Moving from concentration-based standards to pollution load–based standards with tighter limits for industrial effluent is likely to further increase water treatment chemicals usage,” the report says.
“If India’s specialty chemicals industry can capture the potential of these sectors, it could become the most attractive specialty chemicals growth market in the world over the next decade,” the report adds. “A few international companies are strongly positioned as India’s specialty chemicals growth picks up speed. Most, however, are in one of three camps,. First, there are companies with long-standing Indian businesses, which have seen limited recent growth. Second, there are companies that have made preliminary steps with small investments or acquisitions to get a toehold—and that now need to reset their Indian operations. The third and largest group has little or no presence, often trying to cover India from their regional headquarters elsewhere in Asia. All these companies have much to gain from greater engagement in India,” the McKinsey report says.