As always, the Sanmar Group Annual Day was the big event of the year. This year, Sanmar invited top business personalities from outside the group. Adit Jain, Chairman, IMA India, of the Economist Corporate Group, R Sankar, CEO of Mercer India and R Seshasayee, Managing Director, Ashok Leyland, lent substance to the proceedings with their thoughtful presentations.
The Sanmar business presentations took place on the second day. Vijay Sankar took the audience through the trends and performance of each business, and the business managers then took the conference forward, with their individual presentations. P Viswanathan (Shipping), V Ramesh (Chemplast), S Gopal and P Natarajan (SEC) and V R Venkataraman, C G Sethuram and Swaminathan Subramaniam (SSCL) were the presenters.
A major highlight of the Group Annual Day was the giving away of the Employee of the Year awards to 22 Sanmar employees, plus the very senior S B Prabhakar Rao, M N Radhakrishnan and P U Aravind. Sarada Jagan who anchored the proceedings, opened with some apt quotations to illustrate the Sanmar way. Ethics and discipline are our hallmark and Sanmar is known to practise a more right way among right ways of doing business, she said.
The main thrust of Adit Jain’s presentation was that the Indian economy was still robust and quite independent of the political situation. While referring to the modest fiscal deficit, he also stressed the size of India’s foreign exchange reserves, though this may not always be an unmixed blessing.
R Sankar of Mercer Human Resource Consulting spoke of the challenges posed by an economy in transition. The employer brand of a group is as important as any product brand, its elements have to be defined and reviewed to ensure they hang together. Groups have to understand the dynamics of their businesses, classify their talent, define their talent market and identify the competition in each talent category.
R Seshasayee of Ashok Leyland spoke on Globalisation and Its Impact, in the context of niche players. You have to grow, scale up to meet globalisation. He used the ocean metaphor of big and small fish coexisting to explain how agility is at least as important as size. It is important to innovate, but ‘sparklers’ are as important as big bang innovations.‘Relearn, Reskill, Re-enter’ was his parting shot.
Vijay Sankar gave a broad overview of all the businesses, the challenges faced, the progress registered, the areas of concern and the steps taken or being planned to address these, etc. On a year on year comparison, Vijay noted a 10% growth in the top line and a robust 60% growth in the bottomline for the group as a whole, the bottomline growth being largely the contribution of Sanmar Shipping and SEC. Going forward, he expects similar trends in 04-05.
There were major developments and challenges in the form of high input costs in the PVC operations of Chemplast. Investment proposals to the extent of Rs. 200 crore had been initiated, including the strategic acquisition of the Kothari caustic soda operations at Karaikal.
An expansion proposal had been approved at Cabot, the capacity being augmented from 700 to 950 tpa. At SEC, the foundry operations had stabilised and one business, Sanmar Micropack had been divested. There was considerable activity at SSCL, with the acquisition of Bangalore Genei at Bangalore and Intec Polymers at Dadra, in Gujarat. The business had been divided into focused areas of operation:
API, Performance Chemicals, Biotech, Research Services.
Vijay Sankar
Vijay Sankar also spoke of some of the important initiatives in IR undertaken by the group, including the introduction of more productivity-linked schemes. Training was now increasingly a focus area in HR, and the launch of the HR portal, Sparsh, was a major step forward, as was the integration of HR into SAP ERP.
An important feature of the streamlining of finance was the repayment of Rs. 150 crore of high cost debt. There was a secretarial-legal focus on tax efficiency, the merger of SPIL with Chemplast one such initiative. There was an effort to centralise accounts with the setting up of an internal BPO and the formation of a central SAP core team.
V Ramesh
In his presentation on Chemplast, V Ramesh spoke of pressures on the bottomline and the focus on topline growth. Ramesh took the audience through the prevailing scenario of all- time high global EDC prices, fluctuation in availability of feedstock, CFC and CTC phasing out, the limited market for silicon wafers and environmental challenges.
He gave a detailed account of the various initiatives to meet all the challenges including the acquisition of the Karaikal caustic soda plant, and the cost control measures launched at Chemplast. He also spoke of the measures to be initiated at Cabot Sanmar in order to counter the threat of replacement of fumed silica by competitive materials.
S Gopal
In S Gopal’s presentation on five SEC businesses, Flowserve Sanmar, BS&B Safety Systems (India) and Asco (India) (all three serving the same market), Sanmar Weighing Systems and Sensortronics Sanmar, he stated that the companies were leaders in the Indian market, confident of exceeding targets in both the topline and bottomline, based on their exemplary first quarter performance.
Gopal sees huge export potential for each of the businesses. Flowserve has registered impressive growth in 2004-05 and has a market share of 32%. BS&B has virtually a 100% market share, with export sales now catching up with domestic sales. One of the factors is the growth in exports by OEM customers of BS&B; for example, ABB circuit breakers. Asco (India) will soon become the sole global source for Asco worldwide.
Many Asco products being developed for export will also be sold in the domestic market. Modernisation of retail distribution of petrol will lead to increased demand for Asco solenoid valves; equally the increasing emphasis on dust control and clean environments will mean requirements for air handling and dust collection equipment, leading to high volumes for Asco. On an acquisition spree in the last 18 months, the Sensortronics JV partner, Vishay Transducers is the biggest player in the loadcells business now. Phenomenal cost control and a focused business model at SWSL have led to high profits.
P Natarajan
P Natarajan made a presentation on the valve businesses of SEC. He spoke of virtually “unlimited” potential to grow inter-company export sales. The key to success lies in achieving focus on operational excellence and responsiveness.
There are excellent prospects to grow sales even in the domestic market. Other goals include being an “integrated part” of the worldwide strategy of the JV partner, becoming a centre of excellence with the best plant in the world in each of the businesses, expanding the product portfolio to include more high end valves, and growing the technical services business to a significant size. Recent manufacturing initiatives include being in sync with the JV partner’s programmes of LEAN, Lean Black Belt, and Six Sigma, sharing best practices across the companies; and a focus on improvement in the supply chain, accounts receivable and inventory, and creating a vibrant environment to foster high performance.
P Viswanathan
P Viswanathan described the peculiarities of the shipping trade in some detail. Shipping is a truly international business governed by standard regulations and a high level of transparency, with fixed expenses and variable income dictated by a large number of imponderables. Sanmar Shipping went through a period of low earnings rates, a huge debt burden, high interest costs and mismatched cash flows, resulting in cash deficits.
Sarada Jagan
This was followed by a period of correction, when it went back to basics, identifying a focused business area, retired high cost debt, established a screen for purchase of ships, arrived at long term maintainable earnings, and associated with one strong pool partner. Some of the strategic moves could include: upgrading the fleet to double hull, increasing fleet strength, identifying a new business segment, and focusing on addressing the training needs of the company.
C G Sethuram
In his presentation on the API business of Sanmar Speciality Chemicals, C G Sethuram, presented an overview of the global situation in the business. Pharma sales-totalled USD 498.1 billion in 2003, achieving a growth rate of 9%. Many patents are expiring in 2004- 2010, there are not enough new products in the pipeline, and there is a need for quick R&D. Manufacture is shifting out of the West. Drugs worth $ 60 billion in the US are expected to go off patent between 2004 and 2010, peaking in 2006.
Sanmar’s opportunity lies in many MNCs from the West looking for partners for development and manufacture in India. We have some self-gained experience and confidence born of R&D and manufacture execution skills. Sanmar is known for its respect for IPR, has demonstrated success through JV partnerships, and has an impressive width of management talent and practice, not common in the Indian API industry. The vision of SSCL’s API business is to be a high quality, cost effective and reliable service provider of APIs and intermediates to the global innovator and generic pharma industry.
Dr Swaminathan Subramaniam
In his presentation on the research businesses of SSCL, Swaminathan Subramaniam spoke of the research outsourcing trend in the West. The momentum is building for increased research outsourcing to India. The primary reason for big pharma resorting to outsourcing to India is that of lower costs. From 2005, the focus will shift in biotech to integrated JV partnerships. There is potential to emerge as a global player. We have to differentiate ourselves by developing specialised expertise and integrate our unique combination of assets and capabilities. There is an opportunity to participate in IP creation. Research is a high-entry barrier business with sustainable, profitable revenues.
One of Sanmar’s advantages as a partner in chemistry services is that we are a nonpharma corporate and integrated, assets/ capability-wise. The opportunities are in specialised services, further integration, and the big move to India that is taking place. Bangalore Genei offers research tools for biologists and manufactures biology products. It has an opportunity to become a global manufacturer with its own brand, but large MNCs are setting up base in India. The organic growth potential can be sustained by acquisitions in clinical development.