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"We Target Becoming 5000 Crore Company by End of This Decade Serving Our Global Customers"
Dr Deepak Parikh, Vice Chairman & Managing Director, Clariant Chemicals India Ltd. "Indian legal system is good and is expected to provide confidence to foreign investors. These along with good labour laws, low R&D cost and also low cost of capital, could push India as a more preferred destination for setting up manufacturing units," envisages Dr Deepak Parikh, Vice Chairman & Managing Director, Clariant Chemicals India Ltd. He shares his views on Indian Specialty Chemical Market, growth prospects, product portfolio expansions, global partnering and relevance of GST in chemical industry and much more in a candid conversation with Mittravinda Ranjan.

During the last financial year ending March 2016, Clariant India has posted 12 per cent growth over the period of 15 months and increase in quarterly growth by 21 per cent. What have been the growth drivers for the company and how do you see the business in the near foreseeable future?
The Indian market is witnessing strong positive trends in consumer behaviour, which is a strong driver for product demand in, among others, home and personal care, consumer goods and infrastructure. These are growing at rate higher than the GDP and have been strong external drivers for our business.

The real help came from the stability in pricing of raw materials and crude oil and the subsequent derivative and transportation costs. The slide in crude prices does not have an impact of as high as 70- 80 per cent as in case of manufacturing of commodity chemicals but there is an impact of 35-40 per cent which is quite significant when it comes to managing the operational costs and maintaining a healthy bottom line.

Internally, our team has been working aggressively on our marketing strategy for products and services and developed effective channels for distribution to ensure strong pan India market presence. Our entire product portfolio has seen a strong positive trend in the past quarter and there was no weakness that I could point out, and I am pretty pleased with our performance. Looking at the orders, customer sentiment, assuming the stability of crude prices and pent up demand- it is going to be a solid year for us and the outlook is positive for the next few quarters.

Please share insights into your presence in Indian market.

In India, Clariant has a balanced portfolio comprising of eleven manufacturing locations present across the states of Madhya Pradesh, Gujarat, Maharashtra, Tamil Nadu, and Kerala, out of which two are globally strategic sites. We are very well positioned as far as manufacturing, and latest technology availability is concerned; and will continue to serve our customers in Indian as well as global markets.

Clariant launched a Greenfield project for healthcare packaging in Cuddalore earlier this year? How does this fit into company's growth strategy?
We all know that India is one of the undisputed market leaders in APIs for drug manufacturing and with a population size of over 1.2 billion (and growing), it is a strong market for the pharma industry. The medical packaging industry is now witnessing a boom which is driven by the growth of the pharma sector. Clariant is present in the space of desiccants and produces packaging for generic drugs for over a billion units for supplying globally.

The state-of-the-art production facility in Cuddalore complies with FDA norms and is built in accordance with the best manufacturing practices so as to produce products with the highest standards of global compliance. It is about Rs 70 crores of investment and the project is well on schedule. We expect the production to go operational sometime by early half of next year and when that happens, we will be ready to supply to the whole Indian market.

I would like to point out that we are not looking into the commodities in this space of the healthcare industry. Instead, we definitely are concentrating on specialties which play the critical role in enhancing the value of products that go into healthcare; and that’s what we are going to focus on. As I see, in the next 5 years, the healthcare sector will play a major role in our growth strategy.

What is the significance of Clariant venturing in the innovation portfolio of the group and how do you go about identifying the partners for the company?
As a group we have a very strong focus on innovation which is carried out inhouse and our teams are always scouting for innovative technologies that can be a strategic fit for our business or technology portfolio. The intent of Clariant Venturing is to identify innovative technologies which are at nascent stage of development and to get them patented and invest into the technologies that are in early stages of expansion and align ourselves with them.

Our teams are constantly engaged with the chemical research institutes and Universities across the globe, which play a very vital role in carrying out basic research work; and also with various private parties outside our company. We continuously get a lot of enquiries but the biggest challenge here is to fit the new entities into the portfolio of the company and geographies.

Recently, Mr Ananth Kumar has stated that the GST will reduce the tax burden by 12-15 per cent for the chemical industry. How do you see the impact of GST on specialty chemical manufacturers after it is implemented on specialty chemicals industry?
Even today, India has a complex processes for setting up any kind of business – irrespective of the nature of the project - whether it is a Greenfield project, Brownfield expansion, joint venture or acquisition. Once the GST is in place and things get streamlined, this will definitely help the specialty chemicals industry to grow aggressively.

The trickle-down and cascading effects of the GST in other sectors such as logistics, manufacturing, automotive and consumer products will have a positive impact on the chemical industry too.

We, as a company, do expect very positive things from the GST. However it is not going to affect us this calendar year because of the financial cycle we follow. But we are definitely looking at this as a big plus during the next financial year.

Do you feel that there is a need for other reforms like relooking at anti-dumping to provide a level playing field for chemical manufacturing industry in India?
There cannot be a blanket rule of imposing the anti-dumping duties as chemical manufacturers continue to depend on imports of certain chemicals in significant quantities for processes. But from case to case, when there is blatant dumping of products, the governments have to impose anti-dumping duty to protect the interest of domestic manufacturers. There are few cases where measures have been taken by the government to protect the interest of local manufacturing.

How do you plan to leverage on Make in India campaign?
India has a skilled labour force and our cost of manufacturing in India is very competitive; at times substantially lesser for the same technologies if you compare with the rest of the world, which makes India preferable manufacturing hub for the world. Also the Make in India campaign will make things positive and bilateral trade will be a bonanza.

At Clariant, we have been manufacturing in India for the world without compromising on the quality. Now, in the recent past, with energy price under control because of low crude prices, we have a win-win situation because of a combination of factors such as domestic demand, favourable energy price and high domestic consumption. In fact I believe that Make in India initiative is getting more momentum in our space and for us as a company, we are already exporting 45 per cent of manufactured products to various international markets which itself is a testimony of our stance.

For our space I see South East Asia, Middle East and Africa to be the real corridor for us along with China and we plan to leverage on this opportunity in a robust manner.

What are your thoughts on Reverse SEZs that India is setting up in Iran and announced having the same arrangement with Bangladesh recently?
Reverse SEZs are always going to be about commodities and high volumes and will enable the development of downstream chemicals and petrochemicals industry. However, specialty chemicals are a very niche industry with many highly specialised sub segments within the chemical industry. There are many key ingredients that are required for specialty chemical manufacturing which cannot be manufactured like general chemicals and are produced by handful of manufacturers globally which cannot be produced in SEZs.

Overall, SEZs is a good concept and I am very pleased to see what Iran is doing and Bangladesh could evolve in the near future.

Within the world of Clariant which geographies are performing the best and what is your vision for 2020?
In the last few quarters, the India operations are delivering solid performance with dynamic growth rates. We have observed positive growth momentum in most of the regions we are present in.

To answer your question about our vision 2020 – we target becoming Rs. 5000 Crore company by end of this decade serving our customers across the globe

Availability of human resources has been identified as one of the key challenges for the chemical industry where the industry needs to develop the skillset first and then later face the challenge of retaining the talent in the organization. How do you address this for your organisation?
We operate in a large number of countries around the world. As an international Company the effective deployment of employees on a global basis is important for the continued development and success of Clariant. We continue to invest in our people by implementing learning & capability development programs, providing tailored continuing education and career pathing opportunities ranging from individual global training programs to leadership seminars to enhancing refresher training for our employees at the shopfloor. Clariant in India aims to continue enhancing its exemplary sustainable standards, not only through products, services and performance, but also through integrity and behaviour. We also constantly engage with our employees to educate them on the importance of ensuring compliance across our standards.

For example:
• Internet-based training modules on the topic of Preventing Bribery and Corruption to provide employees with a good understanding of the demands of anti-bribery and corruption laws.

• A performance driven remuneration policy structured to motivate employees, recognize their merits & achievements and promote excellence in their performance.

• The Whistle Blower Policy for employees to report to the management about any incidents of unethical behaviour, fraud or violation of Company's code of conduct

After tax, it is the feedstock & the high cost of power that every chemical manufacturer is concerned about in the country. In your view to what extent do these two parameters are deciding factor for the specialty chemical manufacturers to be globally competitive?
Chemical companies are increasingly working towards reducing energy intensity of their operations and diversifying their raw material base to include bio-feedstock. For chemical companies, availability of feedstock is one of the most critical criteria for setting up a production base. It is here that a lot of companies in India face a challenge. Either the feedstock is unavailable or limited in the country. This is certainly hindering growth of the chemical sector. However, feedstock is not necessarily a challenge for a specialty chemicals manufacturer, as the focus is more on R&D and innovative products for end-user applications.

Which are the key areas that still need to be addressed by the government, by the industry - holistically and by the organizations – within to take the industry to greater heights and how?
Increasing global demand is most likely to result in increased production by low cost manufacturing locations of Asia Pacific. At present, India exports to most of the Asia-pacific countries and other developed countries of Europe and America. Going ahead, India’s exports is likely to increase further as many of the nearby countries don’t have competitive capacities and developed countries are likely to prefer India as a sourcing destination. India has a balanced IPR regime with good talent pool. Indian legal system is good and is expected to provide confidence to foreign investors. These along with good labour laws, low R&D cost and also low cost of capital, could push India as a more preferred destination for setting up manufacturing units.

The government’s readiness to provide incentives for bio-based raw materials to reduce dependence on crude oil, encourage companies to seek “Responsible Care Certification” and facilitate priority loans to those who meet environment norms, has been a positive step towards enhancing the industry. The government is planning to expedite the consolidation of multiple legislations governing the chemical industry into one Integrated Chemical Legislation. This legislation should cover the entire life cycle of chemicals. It can act as REACH like legislation for safe use of chemicals for protection of human health & environment. Establishment of PCPIRs is of immense importance for chemical industry as the policy is expected to attract major investments, both domestic and foreign for chemicals. Policies have been initiated to set up integrated petroleum, chemicals and petrochemicals investment regions (PCPIRs). However there is a need for faster implementation of PCPIRs projects. Additionally, there should be larger emphasis by the government on public-private partnerships for R&D.