Invest and set the Foundation to Come out Ahead in the Rebound, Recommends Frost & Sullivan for the Indian Chemicals & Materials Industry

MUMBAI, India -

- Frost & Sullivan’s ‘The Rising Tide’, an Exclusive Strategic Management and Partnership Summit for the Indian Chemicals & Materials Industry

The economic downturn has taken its toll on the chemicals & materials industry in India. Over the last year, the industry has not only been affected by fluctuations in demand, prices of both raw material and end products but credit and support from financial institutions has also been hard to come by. While India and China have been fortunate in the sense that the global recession has only manifested itself as a slowdown in these countries, the impact cannot be ignored.

The chemicals production growth rate has been historically ahead of the industry production growth in India, but September 2008 saw chemicals production growth being negative. However, this has not lasted long and resurgence has been seen since Jan 2009.

Industry margins too were affected since Q3 FY 2008-09 and are expected to continue for the first two quarters of FY 2009-10 before bottoming out.

The basic chemicals industry in India has always been dominated by domestic participants, but now a significant presence of MNCs is seen in this industry. This has resulted in a drive for global competitiveness by Indian players in order to effectively compete on three fronts, namely, pricing, innovative products and finally, services. The Indian specialty chemicals industry has made significant advances over the last decade; the industry can now be a genuine global competitor, no longer dependent on the major driver of the past decade - price competitiveness. Over the next decade, the industry is optimistic about increased globalization by Indian participants. Also, stable and strong economic growth and demand means the industry will not be merely export-oriented but also focused on customization for Indian customers.

The Chinese specialty chemicals industry is similar to the Indian industry in terms of the basic historical drivers for growth, and the current growth phase. China has been, due to a combination of industry initiatives and government policies, able to attract greater FDI and grow at a faster rate. The Chinese industry is also expanding its global footprint and working towards an image makeover on brand and reliability concerns whilst at the same time navigating increasingly stringent regulatory norms both at home and abroad.

While some companies may choose to lie low and minimize risk during the downturn, there are others that will choose to invest and prepare the foundation on which they can come out ahead of the curve during the rebound. There are many options that industry participants opt for in order to face the current economic scenario. In general, the focus is on core competencies and divesting poor performing business units, efficiency and productivity are important to improve margins, strategic partnerships to leverage core competencies while sharing risk exposure, a keen eye on customer demands and focusing on the least affected industries and a proactive approach in catering to the market is all the more imperative now.

According to Frost & Sullivan, given the degree of fragmentation in many sub sectors in the South Asian and Southeast Asian region, consolidation is inevitable and this trend is here to stay for the long term. Companies will look to consolidation for diverse interests ranging from enhancing product portfolio to global footprint, customer acquisition and economies of scale.

The wild fluctuation in raw material prices and availability across sectors also has the industry considering vertical integration and securing feedstock supply. The industry is also witnessing increased regulations and a call for more stringent norms from multiple regions. Environmental concerns and an increasing base of ‘green’ customers has resulted in many businesses and chemicals manufacturers also becoming aware and working towards these green trends, not merely in terms of products, but also processes, chemistry and at the business level.

Over the last decade in the chemicals sector, we have seen an increase in total transaction value, number of investors / buyers and also in the average deal size. Due to restrained liquidity in the market, M&A activity has been on a lull during the past year in spite of attractive valuations. However, activity is expected to pick up in 2010. It is also expected that specialty chemicals and private equity players will be the first movers in the market when M&A activity picks up.

According to Mamta Wadhwa, Sr. Director, CMF Practice, Frost & Sullivan, South Asia & Middle East, “Over the last few years, the Indian industry has become aware of global best practices in many areas such as consolidation, vertical integration, product innovation, marketing and customer support, and has already begun taking concrete measures to imbibe some of these Apart from these, some other areas where the Indian participant could take a leaf out of the global best practices book are, logistics excellence, supply chain management and operations management, recycling ,waste management and by products management and energy efficiency, etc.”

The CMF Practice of Frost & Sullivan, the global growth partnership company, in its efforts to address issues and advice companies on the effects of downturn faced by the Chemicals & Material market, organized an Executive MindXchange titled “The Rising Tide, An Exclusive Strategic Management & Partnership Summit” on 3rd-4th August, which gave a special insight into strategic management in the Chemicals & Materials sector.

This MindXchange saw a knowledge sharing on topics, namely, CEO’s perspective on Growth: Maintaining a 360 Degree Perspective, CEO 360 presentation on the Indian specialty chemical industry, Eye on Economy - A Case Study on how to overcome Economic Downturns, A workshop by Frost & Sullivan on How to Mitigate Risks in the Current Industry Scenario, Managing Mergers and Acquisitions ,Workshop on M&A by Frost & Sullivan Experts, 360 Degree Perspective on the Chinese Specialty Chemicals Industry, Case Study on How to do Successful Business in China, Case Study on How to Lead Strategic Changes and Overcome Complex Corporate Problems, Navigating the Global Regulatory Map: A Strategic Overview, Workshop on Innovation: A Strategy in Itself, Managing Successful Outsourcing Models.

Eminent speakers at the event included Mr. Anand Rangachary - Managing Director, Frost & Sullivan, South Asia and Middle East, Dr. Arup Basu - COO - Chemicals, Tata Chemicals Limited, Mr. Aditya Sapru - Partner and VP Strategic Alliances, Frost & Sullivan, Mr. R. Sankaraiah - Executive Director, Finance, Jubilant Organosys Limited, Mr. Neil Wang - Managing Director, Frost & Sullivan, China, Mr. Dev Bhattacharya - Group Executive President, Corporate Strategy and Business Development, Aditya Birla Group, Dr. Ramesh Ramachandran - President and Chief Executive Officer, Dow Chemical International Private Limited, Mr. Ravi Raghavan - Editor, Chemical Weekly, Mr. Balvinder Singh Kalsi - President and CEO,E.I DuPont India Private Limited, Mr. Anand Subramanian - Technical Insights Business Director, Frost & Sullivan, Mr. Chris de Lavigne - Global Vice President - Consulting, Frost & Sullivan, Mr. Andrew Calvert - VP Financial & Business Services, Frost & Sullivan

The media partners for the event were Chemical Weekly, Chemical Industry Digest, Chemical World and Chemical Engineering World.

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Media contact: Anish Charles P: +91-22-4001-3419 F: +91-22-2832-4713 E: anish.charles@frost.com Caroline Lewis P: +91-98217-37935 F: +91-22-2832-4713 E: caroline.lewis@frost.com

Source: Frost & Sullivan (India) Pvt. Ltd.

Media contact: Anish Charles, P: +91-22-4001-3419, F: +91-22-2832-4713, E: anish.charles at frost.com; Caroline Lewis, P: +91-98217-37935, F: +91-22-2832-4713, E: caroline.lewis at frost.com