Excerpts of an interview with M S Sekhar, Managing Director, Sanmar Speciality Chemicals Ltd., published by Chemical Weekly in their issue dated June 21, 2004.
What was the rationale behind getting into speciality chemicals?
SSCL’s entry into the speciality chemicals business started as late as 1991 when we formed a joint venture with Dragoco for manufacturing aroma chemicals. The Sanmar Group also formed joint ventures with Bayer, for polyurethanes and with Elf Atochem, for organic peroxides. We restructured the joint venture with Dragoco in 1995 and Drachem Speciality, became Sanmar Speciality - 100% owned by Sanmar.
Our focus within the speciality chemical business has shifted from flavours and fragrances to pharma intermediates, polymer chemicals and natural products. The year 1997-98 was our starting point for the speciality chemicals’ expansion into pharma intermediates. At the end of 1999, we acquired the bulk drugs unit of American Remedies in Alathur (near Chennai) to make niche APIs. The unit is certified by the US FDA. In 2002, we set up our research services, as we felt there was a big market opening up for outsourcing of services. We felt that come 2005, there will be an urgent need for pharma companies to speed up their development activities and that companies would look to India, considering the skill sets available here.
Our research centre at Perungudi, in the outskirts of Chennai, has about 90 people working for customers in the US and Europe. This business is dependent on intellectual capital and Sanmar’s strength has been to attract the best people and retain them. Having gone into the business in Chemistry in which South India has traditionally been strong, the logical step was to look at opportunities in biotechnology, another important segment in the Life Sciences space. There has been lot of hype on biotechnology, but we were cautious in entering this segment.
Then, we found this company, Bangalore Genei, promoted by an individual, successfully making biotech products. In end 2003, we acquired the company. The promoter Dr Babu is a very well respected person in the industry and wanted someone to grow the business to its high potential and Sanmar stepped in. He is continuing with us to see that the potential is actualised.
Where do you see the company going?
In performance chemicals, we want to grow both organically and through acquisitions. In APIs, we are looking to grow the business to sales of Rs.500 crores by setting up a new plant.
We have enough land and have set up a project team. By the end of 2005/ early 2006, we expect that a new plant will be operational, in addition to the existing one. We will not enter the formulations business but will restrict ourselves to bulk actives and backwards. Plans are being worked out.
It is difficult to outline the kind of investments at this moment, as it depends on the product choice, but it could be in the region of Rs.50-60 crore to start with in the first phase. Will your APIs be primarily targeted at regulated markets? Yes, we will target mainly regulated markets.
Even today, whatever little we make are exclusively for supply to regulated markets. Our natural products business is also substantially export-oriented. We are planning to grow this business as well, and are looking at options for acquiring medium-sized companies.
What is the kind of advantage you think India brings?
One is the chemistry knowledge and skill and the second is the cost advantage. More importantly, good companies in India respect IPR. Since all our work is in the drug discovery area, customers get comfort only when they are confident that their IPR will be protected. This is where pedigree matters and Sanmar has impeccable credentials through its many successful JVs with leading multinationals in the world. As a company, we do not compete with any of our customers, and only complement them.
There seems to be an issue with getting good quality people. What are your efforts in this area?
In our Performance Chemicals Division, we needed engineers for our plant near Hosur. We collaborated with an Engineering College nearby and structured a course to suit our needs. We employed their graduates and trained them.
This worked extremely well for us. For our Research business, we do campus recruitments and find the talent that we need. We in Sanmar have always been able to attract good people from all over India. Our people philosophy, management philosophy and ethics policy, carefully nurtured and driven personally by our Chairman Mr N Sankar, are the core strengths of the Sanmar Group. The work environment, professionalism and transparency that we provide have helped us in having a strong Human Resources base.
What do you think needs to be done to project capabilities in the business?
At a country level, I don’t think we have really addressed this issue.
Each company is having a strategy of its own. For example, Syngene started 10 years ago could grow its business as a part of Biocon Group. Chembiotek on the other hand is more a standalone operation in Kolkata. Each one of these companies felt that this was the promising area to work in. Globally, outsourcing was becoming a necessity for companies in the pharmaceuticals space, in particular, and they had to decide between China and India to tap the pool of chemistry talent. Many felt comfortable with India, due to the commonality of language, better protection of IPR, etc. We need to project our talent pool, our respect for IPR and benefits of cost arbitrage in manpower costs and capital costs of setting and running the business.
IPR: How much of an issue is that today?
I believe that the solution to this problem will come not by legislation, but by individuals recognising the need to honour IPR. A lot of work needs to be done in educating people abroad and telling them about the efforts that companies like Sanmar are taking to protect IPR. We, at Sanmar, are very conscious of this and all of us have to sign secrecy and confidentiality agreements and are honour-bound to ensure that nobody down the line abuses them.
Where do you think this business is going?
We do not speculate on numbers. We will grow the business through organic growth, as well as through acquisitions and expansions. The Sanmar group is strongly committed to the growth of this business.