N Sankar, spoke about his own recollections of the Indian chemical industry as it grew and transformed from a fairly small base in the 60s, to the vibrant, growing giant that it is today, poised to challenge the industry’s world leaders. He touched on different topics from his own experience, drawing inferences that apply to the chemical industry as a whole. Extracts from the lecture -
Chemplast, in the mid 60s, was a pioneering venture – a Joint Venture with a world leader, B F Goodrich; treading a hitherto unbeaten path by using alcohol as raw material; and producing what was then a new generation product - PVC Thermoplastic. At that time the chemical industry leaders in India were companies like Union Carbide, ICI, Polychem, Synthetics and Chemicals, etc. Today many of them have disappeared or are very, very small remnants of what they were. NOCIL which came in with, a mega petro chemical cracker project, does not exist any more.
In 1967, PVC was sold at Rs 3000 per tonne, and today it is Rs. 60,000 per tonne. The price of a particular heat Exchanger, those days was between Rs 30,000 and Rs 40,000 each, which is close to Rs 11 – 12 lakhs today. The largest chemical plants those days produced around 20,000 tonnes of product annually. Today plants of half a million tonnes per annum or more are common. The Indian market for PVC which was around 10,000 tonnes per annum is now close to 1.1 million tonnes.
The facts would be similar for most other chemicals and thermoplastics. In the 60s Chemplast tried hard to sell 20 or 30 tonnes of PVC pipes a year.
Today that market is over 750,000 tonnes a year. At that time almost all equipment for chemical plants were imported. Today the Indian chemical process equipment industry has matured to such an extent that it is one of the main suppliers to the rest of the world.
Learnings from a 35 year long track record
• Return on capital employed is far more important than growth of the top line.
• The best way to maintain and improve margins is to capture more and more of the value chain, by integrating backwards and forwards.
• Variable costs – primarily raw material and fuel – influence profitability far more than other factors.
• It is a common misconception that scale, geography, market leadership, and focus are critical to maintaining profitability.
• Commodity businesses like the chemical industry are by nature violently cyclical, and cyclical businesses are incompatible with the demands of the stock market.
• Finally, commodity chemical plants should be based on the coast or on locations conducive to the management of the logistics of bulk transport of hazardous materials.
The most important issue facing the Indian chemical industry, since the Bhopal tragedy of 1984, is that of pollution control and environmental impact. In the past the chemical industry, internationally, was responsible for quite a bit of environmental impact and degradation. But a lot of it was due to lack of knowledge and appreciation of the long term impacts. It is only in the last few years that environmental protection technology has improved to an extent where it can solve the problem on a long term basis. The industry will also benefit from better implementation of policies on environmental protection. It would be uneconomic for each industry to continue to tackle its pollutants on an individual basis, and designated chemical regulatory zones with common treatment facilities would have to be set up early. While there is the need for strict legislation and control of potentially polluting industries, including the chemical industry, it is also necessary to separate the real problems from the many false alarms that are raised with different motives.
The Sanmar Group, has a strong commitment to corporate social responsibility, including the protection of the environment. Even before the Bhopal tragedy, the Group has been aware of the importance of controlling the impact on our environs, and have invested in state-of-the-art technology. In the next couple of weeks, Chemplast is bringing on stream at Mettur, a plant invested at a cost of several crores to ensure ‘Zero Liquid Discharge’. Chemplast is the first Indian chemical company to do so, and perhaps one of the very first in the world. But this comes at heavy capital and running cost, and calls for corporate social commitment far beyond what can be mandated by legislation and regulation. I can only hope that there is appreciation that not all industry in this State is a villain, and that most of the Indian chemical industry has woken up to its responsibilities as corporate citizens.
India is today probably the lowest cost source for chemical equipment in the world. Availability of low cost castings and forgings combined with our huge pool of manpower, gives us an enviable global advantage. However, there are some contra factors, and one in particular overshadows all the rest - that is the cost of energy.
Energy and electrical power are issues that have become hugely important to the chemical industry over this period. We took pioneering steps in self sufficiency in energy and power. However, a better energy policy designed to deliver electricity to industrial consumers at a reasonable price is essential. This is an issue that India will have to tackle in the coming decades if it is to maintain the momentum that it has generated in its industrial sector.
Dignitaries present at the lecture