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Building Economies of Scope for Business Value Creation
Ajay Durrani, Managing Director Covestro India Private Limited In terms of value, the specialty chemicals market size is projected to reach $470 Billion by 2020. "Despite being a huge consumer market, the per capita consumption of specialty chemicals is one of the lowest in India as compared to other emerging economies, says Ajay Durrani, Managing Director Covestro India Private Limited, in an exclusive interaction with Chemical Engineering World. He adds, "As chemical industries are not labour intensive, India should focus on creating economies of relevant scope rather than emulating other countries and focusing solely on capacity building."

What is your outlook towards the global and Indian specialty chemicals industry?
After suffering an adverse impact during recession, globally, the specialty chemicals industry has grown steadily and will continue to grow at CAGR of more than 5 per cent between now and 2020.

Globally, specialty chemicals industry is in a phase of transition. The rapid growth of the newly industrialised Asian and Middle Eastern economies and rising standards of living in these emerging economies, has led to the increased demand from these regions. This development has shifted the centre of gravity of the global chemical industry towards the emerging economies.

In India, the specialty chemical is one of the fastest growing sectors in the chemical industry and is growing at a rate of about 15 per cent per annum, thanks to exports as well as encouraging opportunities in the domestic market. India’s share in global specialty chemical industry is estimated to grow from about 2.8 per cent in 2013 to 6-7 percent in 2023, with a market size in the range of $ 80-100 billion.

Despite improving levels, the per capita consumption of specialty chemicals in India is one of the lowest in comparison with developed and other emerging markets. However, with focus on availability of improved products and usage intensity coupled with high growth in the end-user industry, I feel that the industry is poised for strong growth in India.

If you look closely at India's specialty polymers portfolio of - commodity polymers, mid-range polymers, high performance polymers and ultra-polymers; it is heavily inclined towards mid-range polymers and forms approximately 95 per cent of market share and the share of high performance and ultra-polymers stands at around 5 per cent. What are your thoughts on such wide gap between the end-user segments for the specialty polymers in India?
High performance polymers are a class of polymers which differ from commodity and mid-range polymers due to their better mechanical properties and high chemical and heat stability. Due to their better thermal stability the high performance polymers require special machinery. Also high performance polymers are more expensive than the mid-range polymers as they cater to superior design and technicality. With no certainty of significant price declines in the near future — since investment costs for production equipment, R&D and high distribution costs remain constant — the industry would remain inclined towards the mid-range polymers.

What is the scope of opportunities at present for the specialty polymer manufacturers in the space of high performance and ultra-polymers currently in the Indian market?
Opportunities for high performance and ultra polymers is high as these polymers are being increasingly used in every aspect of our lives such as automotives, defence, energy, medical, sports and electronics. Due to the high thermal and chemical stability these polymers are excellent materials for the harsh conditions. The complete effect of National Policy on Electronics will offer huge scope.

What are your thoughts on impact of the Make in India campaign in the near foreseeable future on specialty chemicals industry in the advanced polymers in India?
The 'Make in India' campaign by the Indian government will help boost the speciality chemicals industry in India which is driven by three main factors: Growth in key consumer industries such as electronics and automotive; rising consumer needs due to demand in durable electronics and lightweight and strong automotive parts; and new manufacturing processes leading to upgraded equipment.

We would also urge Indian government to focus on creating business value for attracting chemical industries. As chemical industries are not labour intensive. India should focus on creating economies of relevant scope rather than emulating other countries and focusing solely on capacity building.

As of now India lacks a well-established manufacturing base for advanced electronics, semiconductors, smart devices and medical devices. What steps do you think should be taken by the industry and government in concurrence as way forward?
The government has taken cognizance of the lack of indigenous manufacturing capabilities for electronics system design and manufacturing. In this regard, the government launched the National Policy on Electronics 2012 which aims to transform the domestic electronic hardware manufacturing segment into a $ 400 Billion industry by 2020. The proposed national policy has the potential to be a game-changer for the country with far-reaching consequences. The policy aims to address the huge gap between locally produced electronics and the domestic demand for electronics in India.

In order for the policy to be truly effective, during its implementation, the industry and government need to work hand-in-hand. The objective should be to enhance the limited knowledge of the diverse nature of manufacturing technologies for advanced electronics and smart devices. The Government should also develop effective and appropriate regulatory framework and thus provide guidance & advice to meet the legal obligations and safety of consumers.

Please talk about Covestro's unique specialty polymers portfolio and presence in the Indian market. Which segments will drive the growth of Covestro in India in the near foreseeable future?
Covestro is one of the leading polymer companies in India and supplies high-tech polymer materials and application solutions for the Indian sub-continent including Nepal, Bangladesh and Sri Lanka. Our three key supply areas - polyurethanes, polycarbonates and coatings, adhesives, specialties are growing rapidly. In India, our biggest segments are automotive, foam and furnishings, and electronics.

We have three manufacturing plants across the country at Greater Noida, Ankleshwar and Cuddalore to support the needs of the Indian market. We manufacture polyols at our Greater Noida facility, and polyisocyanate at the Ankleshwar facility for coatings. In our commitment towards the ‘Make in India’ campaign we have expanded our manufacturing capacity at Cuddalore in Tamil Nadu for production of Thermoplastic Polyurethanes (TPU) to cater to footwear, IT, cables, industrial mechanical, automotive, compounding and films and coatings segments.

In the near foreseeable future, growing interest towards high end automotives will drive the demand for polyurethanes, coatings and sealants in India; whereas the green and sustainable lighting solutions such as LEDs will drive the market for polycarbonates.

With the presence of many global players already in the market and manufacturing facilities in India, how do you plan to be competent in the Indian market?
Covestro is a highly innovation driven organisation and offers a wide range of a product portfolio. We are well established and command a respectable share of the market. We are growing more than the GDP of India which is a testament of our business performance in the country. Moreover, our recent commitment to expand the Cuddalore facility for production of Thermoplastic Polyurethanes (TPU) is aimed at increasing our service to the footwear, IT, cables, industrial mechanical, automotive, compounding and films and coatings segments highlight our competitiveness.

There is a generic view that bringing regulatory guidelines across the enduser industries of specialty chemicals like automotive, packaging, construction, paints and coatings etc. help increase demand of specialty chemicals.

Strong and robust regulatory frameworks across end-user industries will undoubtedly aid speciality chemicals industry to grow in the right direction towards sustainability. For example, a regulatory focus on reducing pollution or sustainable energy could have tremendous upside for speciality chemicals. Hence, such guidelines will not only drive the demand but would also help in leveraging best solutions available globally.

How have things changed for the company since the organization acquired a new identity?
Since September 1, 2015 — when Covestro became completely independent from the Bayer Group — we have been performing extremely well. We are listed on the Frankfurt Stock Exchange since October 6, 2015, and have also been ranked among the top 80 companies in Germany. Our shares were oversubscribed by three times; thus indicating good market sentiment towards the company.

What are the challenges for in this domain in the foreseeable future and how do you plan to capture growth opportunities?
While plastics industry plays an important role in shaping the national economy and offers tremendous scope for growth, it also faces several sustainability challenges. Issues such as plastic waste management and recycling require special attention from us in terms of providing sustainable solutions. Though we have challenges in terms of low capita consumption of plastics in India, increased growth in end-user industries could propel the growth of plastics in India since the full potential of plastics in various industries such as construction, food processing and electronics is yet to be realised. We plan to capture these upcoming opportunities by our focus on customer centricity and being close to market. A number of projects are now being driven by our team in close partnership with customers and I will confidently say that we are creating the opportunities in the market.

Tell us about the role the Indian arm playing in the global growth strategy, new investments and expansions in the Indian market.

We are currently not looking at expanding or having any new investments in India since we have sufficient production capacity to support the Indian market which we will be aligned to the local needs at an appropriate time.

Covestro India plays a very important role in the global growth strategy. As markets world over plummet due to economic slowdown, Indian markets provides us with opportunities to further our R&D. To cater to the Indian market, we have well-established manufacturing and technical development facilities across the country.