Avendus Specialty Chemicals Report

SPECIALTY
CHEMICALS
IN INDIA
A sum of disparate parts, segment leaders
poised to create value
4<
AVENDUS CAPITAL PRIVATE LIMITED
SPECIALTY CHEMICALS REPORT

TABLE OF CONTENTS

I. Message from the authors ............................................................................................. 05
II. Specialty chemicals : Amalgamation of disparate parts .................................... 06
t Market growth drivers .................................................................................................................... 07
t Key success factors .......................................................................................................................... 07
t Key trends ............................................................................................................................................ 08
t Challenges .......................................................................................................................................... 09
t Segment attractiveness .................................................................................................................. 10
t Key takeaways ................................................................................................................................... 11
III. Specialty chemical segments ................................................................................................... 12
AGROCHEMICALS | Page 12 - 29
t Executive summary .......................................................................................................................... 13
t Introduction to agrochemicals : A critical agricultural input ............................................. 14
> Introduction to agrochemicals .............................................................................................................. 14
> Classification of agrochemicals ............................................................................................................. 14
> Agrochemicals value chain ..................................................................................................................... 16
t Market size and growth .................................................................................................................. 17

t Key success factors ........................................................................................................................... 23
t Key trends shaping the market ................................................................................................... 24
t Key challenges ................................................................................................................................... 25
t Competitive landscape.................................................................................................................... 26
> Companies to watch out for .................................................................................................................... 27
t Rallis .......................................................................................................................................................... 28
t Indofil ........................................................................................................................................................ 28
t PI Industries ............................................................................................................................................. 28
t Dhanuka ................................................................................................................................................... 29
t Future outlook : Marketing and product portfolio management as the

key differentiators ............................................................................................................................................. 29
FLAVORS AND FRAGRANCES | Page 30 - 43

t Executive summary........................................................................................................................... 31
t Introduction to F&F : An important contributor to sensorial connect .......................... 32
> An introduction to F&F ............................................................................................................................. 32
> Industry value chain ................................................................................................................................... 32
t Market size and market growth ................................................................................................... 34

> Ingredient manufacturers ........................................................................................................................ 37
> Blenders .......................................................................................................................................................... 37
t Trends shaping the market ........................................................................................................... 37

t Challenges and concomitant opportunities for Indian players ....................................... 40
> 01
SPECIALTY CHEMICALS IN INDIA

t Competitive landscape and companies to watch out for .................................................. 41
> Ingredients manufacturers ...................................................................................................................... 41
> Blenders .......................................................................................................................................................... 41
t Synthite Industries ................................................................................................................................ 42
t Privi Organics .......................................................................................................................................... 42
t Future outlook ................................................................................................................................... 42
> M&A and JVs in the Indian market ........................................................................................................ 43
DYES AND PIGMENTS | Page 44 - 53

t Introduction to the market ........................................................................................................... 46
> Introduction to dyes and pigments ..................................................................................................... 46
> Value chain .................................................................................................................................................... 46
> Classification of dyes and pigments ..................................................................................................... 47
t Market size and market growth .................................................................................................. 48

t Key sucess factors ............................................................................................................................. 49
t Competitive landscape .................................................................................................................. 51
t Aarti Industries ...................................................................................................................................... 52
t Sudarshan Chemicals .......................................................................................................................... 52
t Neelikon ................................................................................................................................................... 53
t Future outlook ................................................................................................................................... 53
SURFACTANTS | Page 54 - 59
> Introduction to surfactants ..................................................................................................................... 56
> Value chain .................................................................................................................................................... 56

> M&A activity and capital expansion ..................................................................................................... 59
t Future outlook ................................................................................................................................................ 59
POLYMER ADDITIVES | Page 60 - 67

> Plastic : Value chain .................................................................................................................................... 62
> Types of polymer additives ..................................................................................................................... 62
02 <

> Companies to watch out for ..................................................................................................................... 66
t HPL Additives .......................................................................................................................................... 66
t Future outlook ................................................................................................................................... 66
PERSONAL CARE INGREDIENTS | Page 68 - 77

> Types of personal care ingredients ....................................................................................................... 70
> Value chain ..................................................................................................................................................... 71
t Kumar Organics ..................................................................................................................................... 76
t Future outlook ................................................................................................................................... 77
CONSTRUCTION CHEMICALS | Page 78 - 85

t Introduction to the market ............................................................................................................ 80
> Value chain .................................................................................................................................................... 80
> Types of products ....................................................................................................................................... 80
t Pidilite ....................................................................................................................................................... 84
t Future outlook ................................................................................................................................... 84
WATER CHEMICALS | Page 86 - 95

> Types of water chemicals ......................................................................................................................... 88

t Future outlook ................................................................................................................................... 94
> 03

TEXTILE CHEMICALS | Page 96 - 101
t Executive summary ........................................................................................................................ 97
t Introduction to the market ......................................................................................................... 98
t Market size and market growth ................................................................................................ 99
t Trends shaping the market .........................................................................................................100
t Competitive landscape ................................................................................................................100
t Challenges for textile chemicals ...............................................................................................101
t Future outlook .................................................................................................................................101
IV. APPENDICES | Page 102 - 106

t Appendix-I ........................................................................................................................................103
> Segment attractiveness : Scoring methodology ........................................................................... 103
t Appendix-II .......................................................................................................................................104
> Recent inbound and outbound transactions : Strategic M&A .................................................. 104
t Appendix-III ......................................................................................................................................106
> Trading multiples of select listed Indian and global specialty chemical players ................ 106
04 <
MESSAGE FROM THE AUTHORS

Specialty chemicals, which comprise low volume, high value chemicals with specific applications, constitute a significant
part of the Indian chemcial industry. With increasing demand for value added high performance products in all spheres
of the life of an average Indian, we expect growth in demand for specialty chemicals that add such functionalities to
products. At the same time, the shift of manufacturing to the East and Indias export competitiveness is expected to
strengthen Indias position as a manufacturing hub for specialty chemicals. A glimpse of Indias emergence as a major
export hub is already seen in segments such as agrochemicals and colorants, in which a significant part of Indias
production is exported.
While globally the specialty chemicals industry is differentiated from bulk chemicals by extensive R&D and innovation,
such a demarcation is almost non-existent in the Indian context due to the genericized nature of the Indian specialty
chemicals industry. However, we view the specialty chemicals space as an amalgamation of parts multiple segments
having unique characteristics and correspondingly witnessing different industry dynamics.
While the Indian specialty chemicals sector is well covered and researched, given the disparate characteristics of
the various segments, we felt there was need for a more detailed study on each of the segments. In this
report we will endeavour to deep - dive into the key segments within this space to test how they compare on
various performance parameters. Our aim has been to identify, in the Indian context, the most attractive segments
and within these segments, the most specialized and high growth niches.
Mr. Preet Mohan Singh Mr. Koushik Bhattacharyya

Executive Director Vice President
> 05

SPECIALTY CHEMICALS
AMALGAMATION OF DISPARATE PARTS

The definition of specialty chemicals varies widely across the industry. For the purpose of this whitepaper, we have defined it as
chemicals which are used in low quantities (not in bulk) and are targeted towards specific end-use applications. From a financial
perspective, a more tangible metric to distinguish between specialty and bulk chemicals is the EBITDA margin of the business.
Specialty chemicals, by virtue of being high value, specialized products command higher margins than most bulk products.
Globally, specialty chemicals are driven by extensive product R&D and innovation, which is a significant differentiator over the
commoditized chemical industry. However, in the Indian context, this line of demarcation is almost non-existent due to the
genericized nature of the specialty industry. This also leads to a visible difference in margin structure of global and Indian
specialty chemical companies.
Specialty chemicals can be sub-divided based on end-user industries. In addition to end-use driven segments, there are a few
categories of specialty chemicals which are used across several end-user segments for similar applications. Our whitepaper breaks
down the specialty chemicals industry into a mix of end-use driven segments (agrochemicals, personal care ingredients, polymer
additives, water chemicals, textile chemicals and construction chemicals) and application-driven segments (surfactants, flavours
and fragrances and dyes and pigments). These are the largest constituents of the specialty chemicals industry and cumulatively
constitute over 80% of the specialty chemicals universe.
Segments within specialty chemicals vary in attractiveness and witness varying levels of competitive intensity, margin profiles,
defensibility against raw material cost movements, and growth (including growth of the end-user segment in many cases).
Figure 1: Market size and growth

Source: Literature review; Avendus analysis
Note: USD 1 = INR 60 throughout the report
06 <
The nine segments that we have covered cumulatively constitute a market of USD
18.8 bn in India and are expected to grow at 12% p.a. to reach USD 33.2 bn by 2019. The
largest segments are agrochemicals and dyes and pigments; these are expected to grow at
1112% p.a. Water treatment and construction chemicals, are expected to be the fastest
growing segments with expected growth rate of 15% p.a. over 2014-19.
MARKET GROWTH DRIVERS : DOMESTIC DEMAND AND EXPORT OPPORTUNITIES
The growth for specialty chemicals is driven by both domestic consumption and exports. Specialty chemicals finding
applications across consumer (eg. personal care chemicals), industrial (eg. water chemicals) and infrastructure (eg. construction
chemicals) segments are driven by the overall growth of the Indian economy. Agrochemical growth has a strong linkage to the
growth of the rural economy.
In certain segments (such as agrochemicals, dyes and pigments, flavours and fragrances), a significant proportion of production
in India is exported. Exports are growing rapidly as India is becoming an important manufacturing hub for such chemicals.
Tightening environmental norms (eg. REACH regulations) in developed countries and the slowdown of China (in certain
segments) are contributing to the growth of exports. The recently launched Make in India campaign is also expected to add
impetus to the emergence of India as a manufacturing hub for the chemicals industry in the medium term.
KEY SUCCESS FACTORS

Low cost labour and raw material availability have been the advantages enjoyed by Indian manufacturing companies traditionally.
Increasingly, though, specialty chemicals companies are focusing beyond these traditional cost advantages. In agrochemicals,
for instance, the focus is largely on branding and distribution. Product development capabilities have become increasingly
important across segments and account for the difference between top and bottom performers. Surfactants and dyes are areas
where scale and operational efficiency are still the success factors these segments correspondingly have lower margins.
SEGMENT PRODUCTION RAW MATERIAL PRODUCT BRANDING DISTRIBUTION

SCALE SOURCING DEVELOPMENT
PERSONAL CARE
ACTIVE
INGREDIENTS
AGRO
CHEMICALS
Increase in EBITDA margin
FLAVOURS AND
FRAGRANCES
CONSTRUCTION
CHEMICALS
DYES AND
PIGMENTS
SURFACTANTS
Shift from factor advantage
Figure 2: Basis for competitive advantage

Source: Avendus analysis
> 07

SPECIALTY CHEMICALS AMALGAMATION OF DISPARATE PARTS
KEY TRENDS IN THE MARKET

1. Regulatory and environmental considerations : Developed markets are tightening their import regulations due to
environmental concerns and also to protect domestic manufacturers. The regulation which has maximum impact on Indian
exports is the European Unions REACH (Registration, Evaluation, Authorisation and Restriction of Chemicals), which came into
force on 1st June 2007 and addresses the production and use of chemicals and their potential impact on human health and the
environment. Significant impact of REACH will be felt with the implementation of Phase 3, which is scheduled to come into force
by 1st June 2018 and would regulate any chemical supplied to EU at quantities of 1 tonne p.a. or more. REACH increases the
safety, health and environmental compliance of chemicals manufacturers supplying to EU, and as a result affecting underlying
process costs. While most scaled up exporters are already in the process of becoming REACH compliant, mid to small scale Indian
companies are likely to find this difficult. This would separate the well prepared companies from the rest of the pack and would
be a key source of differentiation.
2. Shift of production to Asia : Many MNCs are focusing on Asia, particularly India and China, as their manufacturing hubs as a
result of tighter environmental norms in the west. At the same time, lower cost of production and availability of skilled manpower
in Asian countries have further aided this process. This has been particularly evident in relatively standardized products with low
differentiation, such as textile chemicals and dyes and pigments, wherein IP protection hasnt been a significant threat.
Recently, tightened pollution control norms in China have led to multiple plant shutdowns in the country in chemicals and other
manufacturing segments. As a result of this, Indian chemical manufacturers have gained from production shift to India, especially
visible in segments such as Dyes and Pigments.
3. M&A activity on the rise : M&A activity in this sector has been driven by several strategies.
Inbound Activity :
t Gaining market access / increase in market share : Eg. Evoniks acquisition of Monarch Catalysts (May, 2015)
t Creating a manufacturing base : Cost efficiencies and shifting base from the west due to more stringent environmental regulations
t Sourcing and strengthening of supply base (intermediates/ ingredients) : Eg. Manes acquisition of Kancor Ingredients(Nov, 2014)
t Acquiring brands and distribution network : Eg. Nihon Nohyaku s acquisition of Hyderabad Chemicals (Nov, 2014)
t Enhancing product portfolio : Eg. Clariants acquisition of Plastichemix (Apr, 2014)
Outbound Activity :
t Technology access : Eg. Sudarshans acquisition of Ekcart (Dec, 2011)
t Market access : Eg. UPLs acquisition of DVA Agro do Brazil (Jul, 2011)
t Enhance product portfolio : Eg. Indofils acquisition of Dows dithane business (Mar, 2012) ; Dorf Ketals acquisition of Exxons
lubricant additives business (Mar, 2007)
t Strengthen global market share : Eg. Dorf Ketal in organometallic titanates : DuPont, Johnson Matthey, etc. (Jan, 2010 and Aug,
2010 respectively); Kiris acquisition of Dystar (Dec, 2009)
Going forward, we anticipate inbound M&A to be more rampant than outbound and domestic transactions. Several MNCs have
been present in India for some time (BASF, Bayer, Clariant, Nalco, Huntsman, etc.) and are focusing on both organic and inorganic
strategies to capture the growing opportunity in this space. Other MNCs have recently entered India through M&A (like Kerry,
Takasago, Chryso, Nihon Nohyaku, etc.).
In a limited way, Indian companies are also engaging in M&A activities for expanding their market presence and product portfolio.
Some Indian companies (UPL, Kiri, Dorf Ketal, etc.) have acquired companies overseas to expand their footprint. There have also
been a number of acquisitions by other Indian companies (Rallis, Coromandel International, Oriental Aromatics, etc.) to expand
their product portfolios and also grow their India presence.
As opportunities and ambitions expand, we are witnessing heightened levels of M&A interest by players across the spectrum.
The increased globalisation of the sector, sustained market opportunities and the emergence of Indian leaders are combining to
create an exciting period for specialty chemicals.
08 <
CHALLENGES REMAIN
Despite the demand side growth drivers, several challenges still remain. While some are segment specific issues, there are three
systemic challenges the sector is confronted with fragmentation and lack of scale, commoditisation and regulations.
t Fragmented industry structure with few scaled up Indian players : Most players operating in India are still small in scale.
At the global level, however, there is significant level of concentration. Most segments in India witness a dominating presence
of a few global leaders. This has implications on the competitiveness of Indian players. Only a few Indian players have the scale
or capabilities to compete with the global giants on product development and innovation. As the global companies enter and
strengthen their presence in the Indian market, they will also invest in marketing, distribution and production systems that local
companies may struggle to match.
t Commoditisation : Several mature products in the sector have already been commoditised or are at risk of the same. Specialty
chemical manufacturers need to strengthen their focus on niche applications and product innovation in order to protect their
margins.
t Regulations : Cost of compliance might make operations increasingly economically unviable for small players.
Handful of players have been able to overcome challenges and have built leadership positions
Ability to scale up, offering differentiated products through innovation, implementing an effective sales and marketing strategy,
and maintaining high levels of regulatory standards clearly separate winners from the crowd in this space.
On an analysis of financial performance of 35 scaled up players across the specialty chemical segments over FY11-14 (FY15 where
available), we clearly see emergent leaders outperforming their peers on the back of differentiated and niche offerings. The figure
below illustrates the relative position of these 35 firms. We have normalised performance for segment specific growth rates and
margins between FY11 and FY14 (FY15 where available). The companies indicated in the top right quadrant are those that have
demonstrated growth rates and profitability above their segment averages and form part of our high performance segment.
Aarti, Kumar Organic, Pidilite, PI Industires, Rallis, Sharda Cropchem, Synthite and Vivimed Labs are some of the players that have
consistently demonstrated attractive growth rates and profitability relative to their segment averages.
COMPETITIVE LANDSCAPE
High performance segment
PI Industries
Viswaat
Sharda CropChem
Insecticides India
Growth / Industry growth
Aarti (surfactants) Synthite

Pidilite (Construction
Kiri Chemicals)
Indofil
Atul
Bodal UPL Aarti (Dyes and Pigments)
HPFL Kancor
Rallis
Kumar Organic
HPL Additives Camphor Sudarshan Dhanuka
Sunshield Privi
Chembond (specialty chemicals)
Excel Crop Fineotex
Rossari Vivimed Labs (Chemicals)
CICO Sharp
Godrej Meghmani Ultramarine
EBITDA margin / Industry average EBITDA margin
Figure 3: Specialty chemicals competitive landscape

Note: Bubble size indicates relative 2014 revenue (FY15 where available)
> 09

SPECIALTY CHEMICALS AMALGAMATION OF DISPARATE PARTS
While some companies retain their edge using traditional factor advantages, there is a definitive shift from production to marketing
driven differentiators. Branding and marketing, distribution, product innovation, customer relationships are becoming much
more important than they used to be, driven by increased maturity of the domestic market and heightened levels of competition.
Table 1: Summary of players to watch out for

SEGMENT COMPANY EBITDA MARGIN SALES GROWTH TOTAL SHAREHOLDER
(FY12-15 AVERAGE) (FY1115 CAGR) RETURN (5YR PERIOD)
Rallis 15% 14% 20%
Indofil* 14% 19% NA
AGROCHEMICALS
PI Industries 17% 28% 83%
Dhanuka 15% 13% 52%
FLAVOURS AND Privi* 11% 13% NA

FRAGRANCES Synthite* 15% 21% NA
Aarti 20% 18% 54%
DYES AND PIGMENTS Neelikon* 20% 28% NA
Sudarshan 14% 14% 25%
PERSONAL CARE
ACTIVE Kumar Organic* 20% 13% NA
INGREDIENTS
CONSTRUCTION
Pidilite 21% 18% 35%
CHEMICALS
POLYMER
HPL Additives* 10% 12% NA
ADDITIVES
Total Shareholder Return per annum for the period between 1st Jan, 2010 and 31st Dec, 2015
*Up to FY14
SEGMENT ATTRACTIVENESS
In the following pages of the report we have analysed the individual segments on several parameters including market opportunity,
financial performance, levels and sources of product differentiation, etc. to identify high performing and attractive segments. The
table below summarizes this analysis.
Table 2: Summary performance parameters for segments
Market Growth Rate EBITDA Product Presence of Overall

Size Margins Differentiation / scaled up Attractiveness
Specialization Indian players
Agrochemicals
Flavours & Fragrances
Personal Care
Dyes & Pigments
Surfactants
Polymer Additives
Construction
Water Treatment
Textile
Note : Appendix 1 for details
10 <
KEY TAKEAWAYS
Agrochemicals, Flavours and Fragrances

(F&F) and Personal Care are the three
most attractive sectors in our opinion.
They are characterized by strong product
differentiation / specialization and strong
end industry growth. Amongst these,
Agrochemicals and F&F have a large market
and a number of scaled up investible assets.
> 11

AGROCHEMICALS
OVERALL ATTRACTIVENESS
Indian Market Size
Profitability
Presence of Scaled Up Players
Market Growth Rate
Product Differentiation
12<
12 <
MARKET SIZE AND GROWTH

t Global market size of USD 54.5 bn; to grow at 5.5% over 2014-19. Growth to be driven by
decreasing arable land, increasing population and consequent need for improvement in crop yields
t Indian market size (production) of USD 5.7 bn; to grow at 12% over 2014-19. Growth to be driven by increase
in awareness level of farmers, improvement in rural income and the pressure for improving productivity
KEY SUCCESS FACTORS

t Ability to create strong brands
t Strong distribution network
t Robust product pipeline
TRENDS SHAPING THE MARKET

t Investments and capacity expansion have resulted in excess capacity and low utilization
t Strategic partnership models are giving way to potential inbound M&A opportunities
t Inorganic growth by outbound acquisitions has been a key trend among Indian players
t Upcoming patent cliff is expected to result in an oppportunity in generics

t The market comprises several large Indian and global companies, including significant presence of global
giants like Bayer, Syngenta, Mosanto and DuPont
t UPL, Bayer Crop Science and Rallis are the top 3 players in the Indian market
t Companies enjoy strong EBITDA margins driven by the premium commanded by strong brands and low cost
of manufacturing in India
t Companies to watch out for - Rallis, Dhanuka, PI Industries, Indofil
CHALLENGES FOR INDIAN PLAYERS

t Seasonality due to overdependence of Indian agriculture on the monsoon
t Introduction of GM (genetically modified) crops may affect demand
FUTURE OUTLOOK

t Domestic market presents a huge growth opportunity
t Marketing, distribution network and product portfolio management will continue to be key differentiators
> 13

AGROCHEMICALS
An attractive market driven by compelling macro drivers and a
strong footprint in export markets
A. INTRODUCTION TO AGROCHEMICALS : A CRITICAL Classification of agrochemicals

AGRICULTURAL INPUT Agrochemicals can be classified as follows :
India ranks second in the world in terms of farm output. Constituting 1. Insecticides : These are used to limit insects below a certain
~ 14% of the Indian GDP and employing over 50% of Indias level, thereby improving crop yields by preventing damage such
workforce, agriculture continues to be a key element of the Indian as plant defoliation, boring of parts of the plant, etc. They can be
economy. Over the last few decades, agrochemicals has played further classified based on their mode of action :
a vital role in improving agricultural productivity, necessitated
a. Contact insecticides : These kill insects on direct contact and
by a growing population base and the resultant demand arising
leave no residual activity, hence causing minimal environmental
from the need to achieve food sufficiency. These fundamental
damage. Examples include carbaryl, fipronil, pyrethrins, pyrethroids
factors will continue to drive growth in the agrochemicals industry
(bifethrin, cyfluthrin, cypermethrin, deltamethrin, lambda-
going forward. While agrochemicals is a generic term referring
cyhalothin, permethrin, es-fenvalerate, tefluthrin or tralomethrin),
to a broad range of chemicals used in agriculture (including crop
and liquid fipronil or spinosad.
protection chemicals, synthetic fertilizers, hormones and chemical
growth agents), for the purpose of this report, we have defined b. Systemic insecticides : These are absorbed by the plant
agrochemicals exclusively as crop protection chemicals. tissues and destroy insects when they feed on the plant. These
are usually associated with long term residual activity. Examples
Agricultural productivity has been a key concern globally, driving include imidacloprid, terbufos, thiamethoxam, dimethoate and
significant research efforts across the various aspects, including dinotefuran.
crop protection chemicals. Global agrochemicals players spend a
Insecticides had traditionally been a major contributor in
sizable proportion of their revenue towards development of novel
increasing agricultural yields through the 20th century, but have
crop protection molecules. As a result, agrochemicals is sometimes
been currently overtaken by herbicides (discussed below) in
referred to as knowledge chemicals, and shares several similarities
developed markets.
with pharmaceuticals. At the same time, generic and off patent
proprietary agrochemicals also constitute a significant part of the 2. Fungicides : They are agrochemicals that control fungal
market (52% and 26% respectively of the total global agrochemical diseases by either inhibiting or killing the causative fungi. This
consumption in terms of value as of 2013). India is the fourth in turn improves productivity, reduces blemishes on crop (thus
largest producer and amongst the fastest growing markets of enhancing market value of the crop) and improves storage life and
agrochemicals in the world. The Indian agrochemicals industry is quality of harvested crop. Fungi are the most widespread causes of
dominated by a host of global giants with local operations as well crop loss across the world.
as a number of scaled up Indian players catering to domestic as
3. Herbicides : They are the agrochemicals used to kill unwanted
well as export markets.
plants. Selective herbicides kill specific plants, leaving the desired
crop unharmed, while non selective herbicides are used for
The Crop Care Federation of India (CCFI) estimates that 85% of
widespread clearance of ground and are used to control weeds
Indias crop loss (worth ~ USD 20 bn) is caused by pest infestation,
before crop planting.
disease and weeds and is avoidable by the use of agrochemicals.
This, coupled with rising awareness amongst farmers and growing 4. Other pesticides : Other categories include nematicides
rural income, and the resultant willingness to spend on crop (for roundworms), termiticides (for termites), molluscicides (for
protection chemicals, is expected to provide a significant fillip to molluscs), rodenticides (for rodents), bactericides (for bacteria),
the domestic consumption of agrochemicals. etc. Biopesticides is an emerging category comprising derivatives
of naturally occurring substances with pesticidal properties and
At the same time, supported by availability of skilled manpower, includes pesticidal microbes, plant incorporated protectants,
low labour costs and the ability to offer quality products meeting biochemical or hormonal pesticides, etc. The biopesticides
international quality standards, India is also emerging as a category currently is a small proportion of the market but has a
manufacturing hub to cater to the global markets. huge growth potential considering its non-toxic nature.
^ The global agrochemicals market is worth USD 54.5 bn and is expected to grow at
5.5% p.a. over the next five years
14 <
Table 3: Commonly used agrochemical molecules
MOLECULE TYPE USE KEY MANUFACTURERS
Imidacloprid Insecticide Used to control sucking pests aphids, jassids, thrips, Bayer, Du Pont, Syngenta,
whitefly, brown planthopper and a variety of insects in Dow, BASF, PI Industries, Rallis
cotton, rice and vegetable crops
Fipronil Insecticide Used to control rice stem borer, diamondback moth of Bayer, Syngenta, BASF, Du
cole crops, early shoot borer of sugarcane and thrips Pont, UPL, Rallis, Gharda,
in chilli Coromandel
Glyphosate Herbicide Used to control weeds, especially annual broadleaf Monsanto, Bayer, Syngenta,
weeds and grasses in various crops Dow, Du Pont, BASF, Zhejiang
Wynca, Sichuan Fuhua,
Cheminova, UPL, Rallis,
PI Industries
Tricyclazole Fungicide Used to control leaf blast, node blast and neck blast in Dow, Syngenta, Arysta, UPL,
rice Rallis, Biostadt, Heranba
Quizalofop Herbicide Used to control narrow leaf weeds in broad leaf crops Monsanto, Du Pont, Dhanuka,
Insecticides India
Dinotefuran Insecticide Reliable solution to effectively manage the brown BASF, Du Pont, Mitsui
plant hoppers in rice Chemicals, Biostadt, Indofil,
PI Industries
Hexaconazole Fungicide Useful for controlling powdery mildews, rusts and leaf Bayer, Cheminova,
spots in cereals, oil seeds, horticultural and plantation Coromandel, Biostadt, Rallis,
crops and also for the effective control of rice sheath UPL
blight
Chlorpyrifos Insecticide Useful in the control of fruit borers, stem borers and BASF, Bayer, Dow, Du Pont,
leaf eating caterpillars on a wide range of crops like Syngenta, UPL, Rallis, Gharda,
cotton, pulses, oilseeds, rice, etc. Insecticides India
Acephate Insecticide Particularly effective on severe infestations of sucking Bayer, Cheminova, UPL, Rallis,
and chewing insects of tobacco, sugarcane, cotton, PI Industries, Insecticides
chillies, vegetables, fruits and cereals India, Excel Crop Care
Flonicamid Insecticide Control of almost all important aphid species in Syngenta, ISK, UPL
apples, peaches, wheat, potato, vegetables
> 15

AGROCHEMICALS

AGROCHEMICALS VALUE CHAIN
R&D Technical Grade Formulation Marketing and

Manufacturing Manufacturing Distribution
Emulsifiers and other

Role played in value Research new Produce concentrated agents added to Branding and
chain molecules chemicals in bulk produce the retail Marketing
product
Huge research Product efficacy as per Strong rural sales and

Key differentiators Economies of scale
budgets local conditions distribution network
Bayer, Syngenta, DuPont, UPL, Rallis, Insecticides India

Illustrative
companies
Bharat Rasayan Dhanuka
Figure 4: Agrochemicals value chain

There are four key components in the agrochemicals value chain :

1. R&D : R&D for novel molecule discovery commands humongous investments in capital and manpower. Major global
agrochemicals MNCs spend as much as 8-10% of their revenue in this area. Most Indian companies spend only 1-2% in
R&D and are not globally competitive in this field but some companies have recently started focusing on select areas.
2. Technical Grade Manufacturing : Involves production of active ingredients used to make commercial agrochemicals.
These chemicals are often quite toxic and require strong chemistry and skilled manpower. India has ~ 125 technical
grade manufacturers. Many agrochemical companies in India have their own technicals manufacturing capability.
3. Formulation Manufacturing : They use the technicals to produce formulations which are the end-use agrochemicals
sold commercially to farmers. India has around 800 formulators. Most of the Indian agrochemical companies and MNCs
having sales and distribution presence in India produce their own formulations which they package and label under their
brand name.
4. Marketing and Distribution : They are responsible for distributing and selling commercial agrochemical products
across the country. India has over 150,000 distributors of various sizes across the country. Many of these are regional
players who have tie ups with one or more agrochemical companies for distribution and sale of their products.
16 <
B. MARKET SIZE AND MARKET GROWTH Table 4: WHO classification of hazardous pesticides
Sustained global growth riding on the need for yield
WHO CLASSIFICATION
improvement
Extremely Hazardous
The global agrochemicals market is estimated at USD 54.5 bn in
Eg. : Aldicarb, Chlormepos, Disulfoton, Hexachlorobenzene, Phorate,
2014, up from USD 43.0 bn in 2009, growing at a CAGR ~ 5% in the
Parathion, Sulfotep, Terbufos
last five years. It is expected to continue a steady growth over the
next five years to reach USD 71.3 bn by 2019. Highly Hazardous
Eg. : Acrolein, Carbofuran, Dinoterb, Famphur, Isoxathion,
%
5.5 71.3
Mecarbam, Oxamyl, Tefluthrin, Warfarin
GR
CA
R4 .9% Moderately Hazardous

CAG 54.5
Eg. : Acephate, Allethrin, Bentazone, Butamifos, Carbosulfan,
43.0 Chlorpyrifos, Cyanazine, DDT, Endosulfan, Fipronil, Imidacloprid,
Phenthoate, Quizalofop, Thiacloprid, Tricyclazole, Ziram
Slightly Hazardous
Eg. : Acetochlor, Borax, Butachlor, Chloidazon, Dicloran, Glyphosate,
Hexaconazole, Pimaricin, Spinosad, Trietazine
2009 2014 2019F
Active ingredients unlikely to present acute hazard in
Figure 5: Global market for agrochemicals (USD bn)
normal use
Source: BCC Research; Research and Markets; Syngenta; Literature review
Eg. : Aclonifen, Bromacil, Captan, Dalapon, Fenclorim, Folpet,
The key drivers contributing to the growth of the global market Isoxaben, Mancozeb, Neburon, Phthalide, Tebutam, Zineb
include decreasing arable land, increasing global population and
consequent requirement to improve crop yields. Further, new Obsolete or discontinued pesticides
demand for agricultural products would also be created by the use Eg. : Aldrin, Barban, Butam, Carbanolate, Clofop, Dieldrin, Erbon,
of agricultural products for industrial applications such as in fuel Glyphosine, Mirex, Proxan, Sesamex, Tetrasul
blending and polymer manufacturing, opening up new avenues
Pesticides subject to prior informed consent procedure
of applications for agrochemicals.
(Rotterdam Convention)
Eg. : Aldrin, DDT, Dieldrin, Fluoroacetamide, Heptachlor, Lindane,
China 15.6% Pentachlorophenol, Monocrotophos, Parathion
India 12.0% Gaseous or volatile fumigants not classified by WHO

Eg. : Aluminium phosphide, Chloropicring, 1, 2 - Dibromoethane,
UK 4.3% Ethlene oxide, Formaldehyde, Hydrogen cyanide, Methyl bromide,
Phosphine
Germany 0.7%
USA 0.7%
Global : 5.5%
Japan 0.4%
^
Figure 6: Estimated growth rates of agrochemicals 2014-19
In developed countries there are rising concerns about the

With production worth USD 5.7 bn,
environmental impact of agrochemicals. The Environment India is the fourth largest
Protection Agency (EPA) of the USA has, over time, put in place
agrochemical producer in the world
stringent laws to monitor and regulate environmental impact
of agrochemicals. Several highly toxic agrochemicals (like DDT,
Endosulfan, Toxaphene, Aldrin, Endrin, Chlordane, Captafol, etc.) Production in India is expected to grow
have been phased out from the developed countries and many
developing countries too. Agrochemical companies are now
at a CAGR of ~ 12% over 2014-19,
focusing their R&D efforts on producing newer molecules which amongst the fastest in the world
are safer for the environment.
> 17
AGROCHEMICALS

India is the fourth largest manufacturer of agrochemicals after the
The Global Glyphosate Market
USA, Japan and China. However, the Indian agricultural market
71.3
witnesses a very low agrochemical penetration (at 0.6 kg/ha)
CAGR 2014-19F compared to developed nations such as USA (7 kg/ha) and Japan
54.5
(11 kg/ha), and is as low as 20% of the global average (3 kg/ha).
62.4
Glyphosate 7.2%
This indicates the huge headroom for growth of agrochemical
48.3 Overall 5.5% penetration in India.
10.1
6.3 8.9 2%
1
2014 2019F GR
CA
Glyphosate Rest of the agrochemicals
Figure 7: Global Glyphosate market (USD bn) 12% 5.7

GR
Source: Literature review; Avendus analysis CA
Glyphosate is the largest selling herbicide in the world and 3.2

is a part of a key emerging trend. The most popular brand of
Glyphosate in the world is Roundup from Monsanto. Other major
manufacturers of Glyphosate are Syngenta, Dow AgroSciences, 2009 2014 2019F
DuPont, Nufarm and Wynca group. The global market for
Glyphosate in 2014 is estimated at USD 6.3 bn (11.5% of the total Figure 9: Indian agrochemical production (USD bn)
agrochemical market), and is expected to grow faster than the Source: Agropages; Literature review; Avendus analysis
Note : Market size does not include technical ingredients
overall market at a CAGR of 7.2% over 2014-19. Growth drivers for
Glyphosate include increasing adoption of Glyphosate tolerant The total agrochemicals production in India is estimated at USD
GM crops (Monsantos Roundup Ready seeds) and the rising 5.7 bn in 2014 growing at ~ 12% over 2009-14. With a continued
demand for no-tillage farming systems. This has the potential to growth momentum it is expected to reach USD 10.1 bn by 2019.
drastically alter the dynamics within the herbicide segment due
to the ease of cultivating Roundup Ready crops in conjunction
with Glyphosate, which may result in the the replacement of
various herbicides with Glyphosate for mass production. 2.6
0.8
Vast potential in India driven by the need for food security 5.7
and the current penetration levels
Agriculture accounts for ~ 14% of the total GDP of India, employing 3.9
3.1
almost 50% of Indias workforce. With a population of nearly 1.25
bn growing at an estimated 1.5% annually, of which 23% falls
below poverty line, India faces significant strain on achieving food
Production Exports Domestic Imports Consumption
security. An estimated 85% of Indias crop loss (worth ~ USD 20 bn)
is caused by pest infestation, disease and weeds and is avoidable Figure 10: Indian agrochemicals market in 2014 (USD bn)
by the use of agrochemicals, as per the estimates by the Crop Source: Literature review; Avendus analysis
Care Federation of India (CCFI). This exemplifies the critical role of
agrochemicals in Indias effort to achieve national food security.
China 13.0
Japan 11.0
Netherlands 9.4
USA 7.0
^
UK 5.0
India 0.6 Global Average 3.0 At 20% of the global average, India
Agrochemicals consumption (kg/ha)
has one of the lowest per hectare
Figure 8: Agrochemicals consumption (kg/ha) agrochemicals consumption rate
18 <
Focus on generics or licensed products in India Table 5: Awareness Initiatives

Indian players have a low focus on R&D and instead focus on
manufacturing generic or licensed products. R&D commands Organization : DHANUKA
substantial investments and continues to be a key focus area for Awareness Initiative :
global innovators such as Syngenta, Bayer, BASF, DuPont, Dow Dhanuka, with the help of experts called Dhanuka Doctors,
Agrochemicals and Monsanto. Indian players spend much lesser conducts a variety of programs for educating farmers on
on R&D, both in absolute and relative terms, and are focused more agrochemical usage, soil and water testing, seed treatment
on cost efficiencies and modifying existing generic or off patent facilities and new product usage ; Dhanuka has a field force
products to suit local conditions. of over 1,000 people across the country to inform the farmers
about the judicious use of pesticides through its initiative
Global Indian called Dhanuka Kheti Ki Nayi Takneek
Monsanto 10.3% Rallis 1.4%

Organization : RALLIS
Syngenta UPL
Awareness Initiative :
9.4% 1.4%
Rallis runs an Agro advisory program called Samrudha
BASF 9.0% Excel 1.2% Krishi, which makes customized recommendations to
farmers on scheduled basis for their whole crop cycle;
Insecticides
Bayer 7.9% 0.3% The program which was piloted in 2011-12 is expected to
India
Weighted average = 8.7% Weighted average = 1.3%
reach 4,000 enrolled farmers; The program includes various
DuPont 6.2% Dhanuka* 0.2%
activities like field day, crop seminar, R&D / expert visits, soil
samplings, etc.
Figure 11: R&D spend as a % of revenue for leading global
and Indian agrochemical companies Organization : INSECTICIDES (INDIA) LTD
Source: Annual reports; Avendus analysis
* FY 14 data
Awareness Initiative :
Seeing the success of the Jagrukta Abhiyaan which was
Domestic Demand An important driver of Indian piloted in Punjab, Haryana, Andhra Pradesh and Rajasthan
agrochemical industry in 2007, the company has expanded nationwide; A techno
commercial team of more than 400 agri experts create
Increasing consumption of pesticides by Indian farmers is a key awareness about the safe and judicious use of agrochemicals
reason behind the expected growth of the Indian agrochemical among farmers; The campaign has touched 1 mn farmers
market. The major factors leading to the rapid rise in domestic till date
demand of agrochemicals are :
1. Awareness levels of farmers : Indian farmers have been long Organization : DEPARTMENT OF AGRICULTURE AND
accustomed to traditional agricultural methods and processes. COOPERATION, MINISTRY OF AGRICULTURE
There have been significant efforts by local government bodies, Awareness Initiative :
state agricultural universities and agrochemical companies The department has operationalized an m-kisan portal
towards improving farmer awareness and acceptability of modern which subsumes all mobile initiatives used for providing
agriculture methods including adequate use of agrochemicals. topical and seasonal advisory to farmers in their local
language; The Kisan Call Centers which use toll free numbers
2. Improvement in rural income : Encouraged by various
to answer farmer queries have been substantially upgraded
government schemes such as minimum support prices, farmer
with dedicated lease lines, voice systems and facility of video
income has risen on an average and they are able to afford more
conference
agrochemicals. Further there is greater availability of credit from
banks and NBFCs for agriculture.
Organization : INDIAN COUNCIL OF AGRICULTURAL
3. Need to improve yields : Driven by a rising population, RESEARCH
favourable demographics and economic growth, Indias foodgrain Awareness Initiative :
consumption is expected to increase from 232 MnT in 2014 to The Council organizes a number of awareness programs for
247 MnT in 2019. Given the limited arable land, it is imperative to various farmers on diverse issues like organic farming, farmer
improve agricultural yields at a faster pace compared to the growth rights, etc.; They have recently launched a program called
in demand to be able to meet food sufficiency targets. Farmer First which enhances scientist farmer interaction in
a rural farm environment
> 19
AGROCHEMICALS

2013 rice yield comparison (tonnes/ha) 2013 wheat yield comparison (tonnes/ha) 280
New
USA 6.00 8.08 1.0
Zealand 215
0.9
European
Japan 5.00 5.59
Union
China 4.67 Mexico 5.00

0.6
European
3.89 China 4.98 0.5
Union
Mexico 3.64 Japan 3.83

2009 2014
World World
average = 3.04 tons/ha average = 3.21 tons/ha Herbicide market (USD bn) Fungicide market (USD bn)
India 2.41 India 3.15
Horticulture production (mn tonnes)
Figure 12: Yield levels by region for rice and wheat Figure 14: Herbicide and Fungicide growth relative to
Source: OECD growth of horticulture
Source: National Horticulture Board; Literature review
Herbicides in India : A small but rapidly growing segment
55% Share of Insecticides
3% 6%
16%
45% 60% 10.1
18% 0.9
CAGR 2009- 2014-
1.8 2014 2019
65%
26% Insecticides 10.2% 10.0%
60% 5.7 1.8
0.3 Fungicides 13.2% 12.0%
26% 0.9
Herbicides 15.0% 15.0%
3.2 1.0
Global Market Indian Market 0.1 5.5 Others 21.4% 21.1%
0.5
Insecticides Fungicides Herbicides Others 0.6 3.4
2.1 Overall 12.0% 12.0%
Figure 13: Global and Indian production segmentation for
agrochemicals (by value) 2009 2014 2019F
Source: Literature review; Avendus analysis Insecticides Fungicides Herbicides Others
Globally, herbicides constitute the largest part of agrochemicals
Figure 15: Segment wise market growth for agrochemicals
market, accounting for ~ 45% of the total consumption. This segment
(USD bn)
is largely driven by the significant focus on production of high value
Source: Avendus analysis; Literature review
crops in global markets, including horticulture, where the use of these
chemicals is of particular importance to prevent loss of such high Other segments : Continued growth momentum
value crops. However, the Indian market structure is very different.
While insecticides and fungicides have largely dominated the Indian
Unlike the global market, herbicides account for a mere 16% of the
agrochemical demand, herbicides have overtaken them in terms
market. Instead, the largest part of the production is constituted
of recent growth. However, in spite of the size and penetration,
by insecticides ( ~ 60% of the total market), followed by fungicides
insecticides and fungicides are expected to continue to demonstrate
(18% of the market). Historically the use of herbicides has not been
attractive growth rates (10% and 12%, respectively) over 2014-19.
necessary in India, primarily because of the availability of cheap labour,
as manual weeding effectively acts as a substitute for herbicides. The production value of insectides in India has been growing at a
However, herbicides have started demonstrating impressive growth modest pace, despite a decline in sales volumes resulting from the
with the rise in labor cost and cost efficiency of chemical against replacement of conventional insecticides by newer, high value generic
manual weeding. This trend is expected to continue going forward, insecticides which are more potent, less toxic and are required to be
with strengthening demand arising for herbicides from increased applied in lower volumes compared to their traditional counterparts.
mechanization and reduced labor intensity of agricultural practices, Fungicides are expected to grow at ~ 12% CAGR over 2014-19, almost
higher labor cost arising from urbanization and reduction in rural in line with their historical growth. The growth is slightly muted due to
population, as well as strengthening of India as a manufacturing hub better control and reduced incidence of fungal diseases in key crops
to cater to export markets (herbicides comprising a major proportion such as potato. Going forward, the demand for fungicides is expected
of the export demand in line with global consumption structure). to be driven by the growth of fruits and vegetables segment and other
^ Herbicides would be the fastest growing segment with an expected CAGR of

~ 15% over 2014-19
20 <
cash crops where return to the farmers is higher and they are willing to Indian agrochemical exports have been rapidly rising for both technical
spend more on protecting the crops. Biopesticides are other significant pesticides and generic formulations. During FY09-14, formulation and
agrochemicals they are mass-produced agents manufactured from technicals exports have experienced 19% and 18% CAGR respectively.
living micro-organisms or natural products and constitute a niche and
emerging segment. A very small market currently, comprising ~ 3% of Pesticides (Technicals) Exports
131
the total crop protection market, this segment has a bright future over
a longer term with growing environmental concerns and awareness, Export Volume CAGR (FY09-FY14) : 13% 110
103 1.15
and increasing adoption of modern agricultural practices such as 87
93
0.97
integrated pest management. 75 72
66
0.73
Export Value CAGR (FY09-FY14) : 18%
India as the exports hub for generics 0.50 0.49 0.53
0.35 0.38
India is a major exporter of generic agrochemicals, featuring among
the top 10 exporters globally, accounting for close to 5% of the global
agrochemical market. ~ 45% of domestic production of agrochemicals FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14
is exported (as of 2014) accounting for ~ USD 2.6 bn in value. Export Volume (in 000MT) Export Value (in USD bn)
Figure 18: Indian agrochemical technicals exports
Key export markets for India include the USA, France, Netherlands, Source: DGCIS
Belgium, Germany, Brazil, Colombia, China, Vietnam and Indonesia.
India qualifies as a strong supplier to developed markets in the west The main drivers of the growth of agrochemical exports from
including USA and Europe, driven by tightening environmental India include low-cost manufacturing capability and availability of
regulations in these markets and the ability of Indian manufacturers technically trained manpower. India is a manufacturing hub and
to offer low cost quality products meeting international quality and supply base for several global agrochemical giants due to attractive
regulatory standards. This provides the Indian manufacturers a clear cost of operations and technology and skill availability.
competitive advantage vis-a-vis other low cost manufacturers such as
Chinese producers in terms of quality and against manufacturers in 8.2%
7.8%
western markets in terms of cost competitiveness. 7.4% 7.1% Weighted average labor cost = 6.1%
6.1% 6.0%
10.1
CAGR 2014-19
3.6%
5.0 Domestic 10%
2.3%
5.7
Exports 14%
2.6
Overall 12% Dhanuka Excel PI Rallis Bayer UPL Insecticides Sharda
Crop Care Industries India Cropchem
5.1
3.1 Figure 19: Labour costs as a % of revenue for major
agrochemical companies in India
2014 2019F Source: Annual Reports
^
Domestic Exports
Figure 16: Indian agrochemicals market 2014 (USD bn) 45% of total Indian production
Source: Avendus analysis; Literature review
value was exported in 2014 as India
2.57
is strengthening its foothold as
a hub for manufacturing generics
1.74
1.14
1.44
Export Value CAGR (FY09-FY14): 19%
Exports are expected to grow at
1.11
0.78
1.08
14% p.a. over 2014-19
Average employee costs for an Indian
FY08 FY09 FY10 FY11 FY12 FY13 FY14(E) agrochemical manufacturer is 6.1% of its
Export Value (in USD bn) revenue highlighting the cost advantage of
Figure 17: Indian agrochemicals formulation exports operating in India
Source: Avendus analysis; DGCIS
> 21
AGROCHEMICALS

Norway 57.51 Table 6: Recent greenfield investments in
Germany 44.25 agrochemicals in india
USA 34.75
Company : INDOFIL
Japan 31.75
Year : 2014
UK 28.99
Project Overview : To set up a 4,000 tonne p.a. capacity plant
Spain 26.61 at Dahej, Gujarat to target export market
Brazil 10.00 Investment Amount : USD 108 mn
Mexico 6.82
China 1.98 Company : INDOFIL

Philippines 1.85 Year : 2012
India 1.46 Project Overview : Announced a CS2 (carbon disulfide) plant
at Dahej, Gujarat in a JV with Chinas Shanghai Baijin Chemical
Figure 20: Hourly labour costs in major geographies (2010) Group (SBC)
(USD/hour) Investment Amount : USD 25 mn
Source: The Conference Board; International Labors Comparisons Program
Low capacity utilization levels an opportunity to cater to Company : RALLIS

global markets Year : 2011
Project Overview : Set up a new pesticide plant of 5,000 MT
Indian manufacturers witness low capacity utilization levels particularly
p.a. in Dahej, Gujarat
due to the seasonal nature of domestic demand. However, this also
Investment Amount : USD 25 mn
provides the Indian players the ability to rapidly capture global market
opportunity in off seasons in the domestic market.
Company : DHANUKA
271
245
Year : 2014
47
Project Overview : Announced a new manufacturing plant in
42 204 204 Rajasthan with first phase operational in Dec 2014
189
29 67 30
34
173
56 162 Investment Amount : USD 8 mn
27 148
136 27 140 42 140 47
38 126 50 29
18
23
120 32 45 31
25 25 Company : INSECTICIDES INDIA
24 22 22 55 24 48
35 19 26 Year : 2014
19 43 35
35 36 28
26 30 34 Project Overview : Operationalised R&D facility in Rajasthan,
100 107
80 68 66 55
78 64 78 set up under a JV with OAT Agrico Co.
57 57 47 53
Investment Amount : USD 7 mn
Q1 FY13 Q2 FY13 Q3 FY13 Q4 FY13 Q1 FY14 Q2 FY14 Q3 FY14 Q4 FY14 Q1 FY15 Q2 FY15 Q3 FY15 Q4 FY15 Q1 FY16
Rallis Excel* Insecticides India Dhanuka

289
Figure 21: Quarterly agrochemical sales of major players 273
81% 82%
(USD mn) 76% 245
73% 230
Source: moneycontrol.com 62%
62% 63% 56%
*Standalone Financials 184 178
There have been investments in capacity expansion by many Indian 154 154 158 155 154
143
125 130 134
players in recent years in anticipation of domestic demand, resulting 117
in low capacity utilizations ( ~ 60%) over the last few years. Thus we can
expect Indian companies to focus on increasing exports during the off
season when the domestic demand falls.
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14
Capacity (000 MT) Production (000 MT) Capacity Utilisation
Figure 22: Indian agrochemical technicals production
^
capacity
Domestic demand is seasonal Source: Ministry of Chemicals
it is heavily dependent
on monsoons as only 40% of the
net sown area is irrigated
22 <
C. KEY SUCCESS FACTORS

Company : PI INDUSTRIES
t Ability to create brands : Unlike most other sub-segments of
Brand : Nominee Gold
specialty chemicals, agrochemicals is largely a B2C business, which
makes marketing and brand creation extremely vital for agrochemical Type : Herbicide
players. The competition in Indian agrochemicals market is intense Use : Post-emergent, broad spectrum systemic herbicide for all
as it is fairly crowded with a large number of players. The successful types of rice cultivation i.e., direct sown rice, rice nursery and
creation of strong brands differentiates winners from the rest of the transplanted rice
pack.
Company : PI INDUSTRIES
12.0% Brand : Osheen
% spend on sales & marketing
10.0%
Insecticides India Type : Insecticide
Use : Reliable solution to effectively manage the brown plant
8.0%
hoppers in rice
6.0% Bayer
Company : RALLIS
4.0% Dhanuka Rallis
Excel Crop Care UPL Brand : Contaf Plus
2.0%
PI Industries
Type : Fungicide
0.0% Use : Useful for controlling powdery mildews, rusts and leaf
0 100 200 300 400 500 600 700 800 900 10000 spots in cereals, oil seeds, horticultural and plantation crops
Revenue (in USD mn) and also for the effective control of rice sheath blight
Figure 23: Sales and marketing spend of agrochemical Company : RALLIS
companies in India
Source: Annual reports Brand : Tafaban
The marketing spend required by a player varies by its size and Type : Insecticide
maturity. Most of the larger players have mature brands, even Use : Used in control of fruit borers, stem borers and leaf
though they spend a larger absolute amount on marketing relative eating caterpillars on a wide range of crops like cotton, pulses,
to new entrants or upcoming brands, it translates to a much smaller oilseeds, rice, etc.
proportion of revenue. On a relative basis, smaller players with early
Company : RALLIS
stage brands need to invest significantly in brand creation and
marketing initiatives. In Figure 23, Rallis, PI Industries, Dhanuka, UPL Brand : Asataf
are all mature players with well established brands, with relatively Type : Insecticide
lower marketing spend as a percentage of sales. Use : Particularly effective on severe infestations of sucking and
chewing insects of tobacco, sugarcane, cotton, chillies, fruits,
Table 7: Key agrochemical brands of leading Indian
vegetables and cereals
companies
Company : UPL
Company : DHANUKA
Brand : Ulala
Brand : Targa Super
Type : Insecticide
Type : Herbicide
Use : Control of almost all important aphid species in apples,
Use : Used to control narrow leaf weeds in broad leaf crops
peaches, wheat, potato and vegetables
Company : DHANUKA
Brand : Lustre t Strength of distribution network : While brands may create
pull effect for a product, there is also a need to ensure availability
Type : Fungicide
of products at the grassroot level. Considering the fragmented
Use : Broad-spectrum systemic fungicide for control for wide nature of the end consumer in India, a strong distribution network
range of diseases in paddy and chilli crops is critical to the success of any agrochemicals player. Indian
agrochemical players typically deploy a 3-tier distribution network
Company : INSECTICIDES INDIA comprising numerous distributors, wholesalers and retailers. Most
Brand : Victor such participants are small to medium in scale and are able to
Type : Insecticide reach a small but focused set of end customers. Getting a large
number of such small participants on board is the key to extensive
Use : Used to control sucking pests in cotton, vegetables & rice
market coverage for Indian players.
> 23
AGROCHEMICALS

MNCs present in India for long have built their own sales and Strategic partnership model giving way to potential
distribution structures1. However, establishing such fragmented Inbound M&A opportunities
networks like Indian players might prove to be a tedious task for MNCs.
With a low focus on R&D due to the high capital requirements
Hence, MNCs usually rely on a few large distributors having extensive
and time to market for new molecules, many Indian players rely on
sub-distributor and retailer network. Alternatively, many global giants
strategic partnerships with American, European, Japanese or Chinese
have tie-ups with Indian distribution companies as their preferred
agrochemical giants to add to their product portfolio. In turn, global
route is co-distribution or co-marketing to leverage local distribution
agrochemical players benefit from leveraging the distribution network
networks.
and sales infrastructure of the Indian partner. Some of the key strategic
partnerships between leading Indian and global manufacturers are
On the other hand, several MNCs have entered into strategic
given in the following table.
partnerships with Indian agrochemical manufacturers and marketers
with distribution strength such as Dhanuka, PI Industries and Rallis with Table 8: International tie-ups of key agrochemical
arrangements to market and sell their products in India. Traditionally companies in India
most Japanese agrochemical companies like Hokko Chemicals,
Sumitomo Chemicals, Mitsui Chemicals and Nissan Chemicals have Indian Company : RALLIS
followed this approach.
International tie-up : Syngenta (Switzerland)
In recent times, a number of foreign players have been increasingly Comments : Entered into a cooperation agreement with
interested in establishing direct sales and marketing presence in Syngenta in February 2014 to market its fungicide
the Indian market, resulting in significant inbound M&A activity Azoxystrobin in India
particularly by Japanese agrochemical players. For instance, Nihon
Indian Company : INDOFIL
Nohyaku (Japan) recently acquired a majority stake (74%) in Hyderabad
Chemicals (in 2014); SDS Biotech acquired 65% stake in Sree Ramcides
International tie-up : Shanghai Baijin Chemical Group
(China)
(in 2013); Arysta LifeScience (Japan) acquired Devidayal Sales (in 2011).
Comments : Formed a JV with the Chinese company in 2012
t Product pipeline : Product innovation is vital in the agrochemicals to set up a carbon disulphide plant in Dahej, Gujarat to provide
industry across the world. Over time, pests develop immunity raw materials to its agrochemical business
against commonly used agrochemicals, as a result of which
Indian Company : DHANUKA
agrochemical manufacturers constantly need to focus on new
product development that can protect crops against resistant International tie-up : Nissan Chemical (Japan), Mitsui
strains of pests. Some of the leading agrochemical companies Chemicals (Japan), Sumitomo Chemical (Japan), Hokko
in India make considerable investments in maintaining a strong Chemical (Japan), Chemtura (USA), FMC (USA), DuPont (USA),
product pipeline. For instance, Dhanuka has about 5 new products Oro Agri (USA)
in pipeline to be launched over the next 2-3 years; PI Industries plans Comments : Has strategic partnerships with several American
to launch 2-3 new products every year. The regulatory environment and Japanese companies to market their patented products
in India and in most of the developed generic markets require a through its strong distribution network in India
new product to be tested for 2-3 years in local conditions before
Indian Company : INSECTICIDES INDIA
an approval is granted. In order to minimize this time, many Indian
International tie-up : OAT Agrico (Japan)
agrochemical manufacturers strengthen their product portfolio by
Comments : Has a JV with the Japanese company to set
means of obtaining licenses for globally established products or have
up an R&D facility in Chopanki, Rajasthan to develop new
collaborations with MNCs to jointly develop new products besides
agrochemical molecules
focusing on manufacturing generics. For instance, Insecticides India
has a JV with OAT Agrico (Japan) to develop new agrochemical
molecules. This has a potential to create interesting M&A situations as MNCs
are increasingly focusing on expanding footprint in India, including
D. KEY TRENDS SHAPING THE MARKET manufacturing as well as sales presence. This theme has been reflected
in the recent acquisitions of Hyderabad Chemicals by Nihon Nohyaku
Investments aimed at capacity expansion
(Japan) and of Devidayal Sales by Arysta Life Sciences (Japan).
Many Indian and global players are investing significantly in capacity Both these acquisitions highlight the growing interest of Japanese
expansion in India to meet the rising domestic demand during peak corporations to move away from a pure marketing tie up towards
agricultural season, as well as to cater to the exports demand in off- establishing a base in India.
peak seasons in India. This demonstrates the confidence amongst the
key players on potentially creating an agrochemical manufacturing 1
Companies like Bayer, BASF, DuPont and Syngenta have developed
hub in India. their own distribution networks which account for a large portion of
their total revenue
24 <
Inorganic growth : A key trend amongst leading Indian 1.6

players
The Indian agrochemical market has witnessed reasonable outbound 1.2
M&A activity in the recent years. Outbound acquisitions have largely
0.9
resulted from an interest in new market access (eg. UPLs overseas
acquisitions) or to diversify product portfolio (eg. acquisition of Zero 0.7
Waste Agro Organics by Rallis).

0.4
Consolidation of the Indian market has also been seen with 0.2
instances of acquisitions by Indian agrochemical players to gain 2015 2016 2017 2018 2019 2020
market share within India or diversify product portfolio (for instance,
Coromandel International acquired Sabero Organics in 2011; Figure 24: Agrochemicals going off-patent (USD bn)
Source: FICCI
Coromandel Agrico acquired Punjab Chemicals agro formulation
division in 2013).
E. KEY CHALLENGES FOR THE SECTOR

Opportunity in generics with the upcoming patent cliff
1. Overdependence on monsoons : In India only 40% of the net
Agrochemicals worth ~ USD 5 bn are expected to go off patent by arable area is under irrigation while the un-irrigated area is completely
2020. Globally, patented products constitute 22% share of the total dependent on monsoons. Inadequate rainfall in any year adversely
agrochemical market. This is expected to decrease to 15% by 2020 impacts the agro-input industry including agrochemicals. Poor
as a result of the patent cliff, offering a huge potential for the Indian monsoons have dampened the growth in the agrochemicals sector
agrochemical production as India emerges as a hub for generics. This several times over the past decade. Even the strongest agricultural
has a significant potential to boost Indian agricultural exports over the producers (and hence, agrochemical markets) such as Punjab, Haryana
next decade. and Andhra Pradesh get affected by poor monsoons.
Table 9: Select recent transactions involving Indian agrochemical companies
YEAR TYPE ACQUIRER TARGET COMMENTS
2014 Inbound Nihon Nohyaku (Japan) Hyderabad Chemicals (India) Acquired 74% stake to establish direct
sales network in India
2013 Domestic Coromandel Agrico Punjab Chemicals agro Acquired the formulation divison to
(India) formulation divison (India) increase its product portfolio
2012 Domestic Rallis (India) Zero Waste Agro Organics Acquired 22.8% stake to strengthen its
(India) product portfolio with organic manure and
soil conditioner products
2011 Domestic Coromandel Sabero Organics (India) Acquired 42.2% stake for USD 50 mn to
International Ltd derisk its subsidy business (fertilizers)
(India) by adding to the portfolio non-subsidy
business (pesticides)
2011 Outbound UPL (India) DAV Agro Do Brazil (Brazil) Acquired 51% stake for USD 150 mn in the
fast growing Brazilian company involved in
production, marketing and distribution of
agrochemicals
2011 Inbound Arysta LifeSciences Devidayal Sales Limited (India) Acquired majority stake to bring Arystas
(Japan) global products in to Indian through
Devidayals distribution network
> 25
AGROCHEMICALS

889
943 82% 911 901 937 PI Industries, Crystal Crop Protection, Dhanuka, Excel Crop Care and
73% 824 Insecticides India Limited.
81%
76% 878
698 62% 63% 62% The 3 year average EBITDA margin for the leading agrochemical
56%
companies in India is 14.6%, making it quite an attractive segment.
The segment enjoys high margins driven by the price premium that a
strong customer interface and strength of brand command.
FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14
June-September average rainfall (in mm) Capacity Utilisation 35% - High performance segment
3 year average EBITDA margin

Figure 25: Indian agrochemical capacity utilisation 30% -
PI Industries
(technicals) and monsoon rainfall in India
Source: Annual reports; Indian Meteorological Department 25% - Sharda Crop Chem
Insecticides India
FY11-15 CAGR (%)

20% - Indofil*
2. Introduction of GM crops may affect demand : The use of
UPL
genetically modified (GM) crops are affecting the agrochemicals 15% - Rallis
industry across the world by impacting the types and volumes Industry growth rate
10% - Bayer Dhanuka
of agrochemicals required for such crops. In India currently GM Excel Crop Care
technology is allowed only in cotton. In 2002, Bt cotton was allowed 5% -
in India and it has penetrated to 90% of the total cotton cultivated in 0% -

India. GM technology has not been permitted in food crops so far, but 0% 5% 10% 15% 20% 25%
such crops are already being accepted across the world, and it may not FY12-15 Average EBITDA margin (%)
be long before it is adopted in India to enhance food security of the
Figure 26: Competitive landscape
country. The dynamics of certain agrochemicals is already changing, Source: Annual reports, Avendus analysis
for instance, the use of Roundup Ready crops (tolerant to Roundup *Up to 14
Monsantos herbicide, Glyphosate) while providing an immense
4500 - TSR per annum
boost to the glyphosate consumption, would severely impact the
4000 -
consumption of other herbicides. PI Industries 82%
3500 -
F. COMPETITIVE LANDSCAPE AND COMPANIES TO 3000 -
WATCH OUT FOR 2500 -

BSE Sensex
2000 -
The agrochem space in India comprises several scaled up Indian and Dhanuka 49%
global companies, including significant market presence of global 1500 - Excel Crop Care 39%
Insecticides India 36%
giants such as Bayer, Syngenta, Monsanto, DuPont. 1000 - Bayer Crop Science 36%
Rallis 19%
500 -
UPL 17%
The market leader is UPL Limited (earlier known as United Phosphorous 0- BSE Sensex
Limited) which is an MNC of Indian origin. It is not only the market 1/2/2010 1/2/2011 1/2/2012 1/2/2013 1/2/2014 1/2/2015
leader in the domestic market but has a customer base in 123 countries Figure 27: Stock market performance of leading
across the globe with 14 of its 23 manufacturing sites outside India, agrochemical companies in India
having grown rapidly through organic and inorganic routes. Source: BSE; moneycontrol.com; Stock prices and BSE indexed to 100
Note: TSR per annum for period between 1/1/2010 and 31/12/2015
Bayer Crop Science (Germany) and Rallis (subsidiary of Tata Chemicals) The stock performance for most agrochemical companies in India
are the other two in the top 3 players in the Indian market. Other key has been superior to the performance of BSE Sensex. This is due to
companies are BASF (German Chemical giant), and Indian players the strong revenue growth of various agrochemical companies while
including Indofil Industries Limited (a K.K. Modi Group company), maintaining attractive profit margins through the phases of business
Coromandel International Limited (part of the Murugappa Group), cycle and economy.
26 <
Table 10: Companies to watch out for
COMPANY SEGMENT EBITDA SALES TSR FUTURE PLANS

MARGIN GROWTH (5YR
(FY12-15 (FY11-15 PERIOD)
AVERAGE) CAGR)
UPL Generic 12.3% 16.4% 18% Launching 9 patent protected products

agrochemicals over next 3 years
To develop at least 5 mega brands in
the near future
Bayer Agrochemicals 12.8% 14.9% 36% Introducing more high technology

CropScience seeds and agrochemicals products
India environmental
Bringing globally renowned Bayer
science
products to India
Rallis Agrochemicals 15.1% 13.8% 20% New growth initiatives in non

seeds and pesticides portfolio (seeds, plant
agriservices growth nutrients and agri-services)
Indofil* Agrochemicals 13.6% 18.5% NA Launching new products in other

and other specialty specialty chemicals such as leather,
chemicals coatings and textile chemicals
PI Industries Agrochemicals 17.3% 28.1% 83% Improving profitability through R&D

and custom and engineering initiatives
synthesis
Upgrading and modernising plants
and manufacturing
Dhanuka Agrochemicals, 14.7% 12.5% 52% Providing value for money high quality
formulations and products to Indian farmers
distribution
5 new products in the pipeline
Insecticides Entire Agrochemicals 10.8% 21.0% 39% Focusing on R&D with Japanese
India value chain collaboration to develop new
molecules
Increasing the product portfolio
Sharda Agrochemicals 18.4% 24.5% NA Building its own sales force in India and
Cropchem conveyor belts and abroad to become a one-stop solution
industrial chemicals provider
Expanding and strengthening its
distribution presence
Excel Agrochemical 8.5% 8.5% 42% Focus on growth of its

Crop Care formulations branded products
*Up to FY 14
Source: Avendus analysis, company reports
Total Shareholder Return per annum for the period between 1st Jan, 2010 and 31st Dec, 2015
> 27
AGROCHEMICALS

Table 11: Performance of companies to watch out for on the Key Success Factors
COMPANY BRAND CREATION DISTRIBUTION PRODUCT PIPELINE
Rallis Has more than 50 brands Has 2,300 distributors reaching out to Rallis on an average launches 3 products
40,000 retail counters covering 80% a year
of Indias districts
Dhanuka Has more than 80 brands Has 8,000 direct dealers selling to Five new products are in the pipeline and
over 75,000 retailers 2 product launches a year planned
PI Industries Has more than 30 brands Has 8,000 distributors & direct dealers Plans to launch 2-3 new products every
and more than 35,000 retail points year
Indofil Has more than 35 brands Has selling agents, C&F agents and -
distributors reaching out to more
than 50,000 retail outlets
Rallis Indofil
Rallis is a subsidiary of Tata Chemicals and is among the largest Indofil is a K. K. Modi group company operating in agrochemicals
agrochemical companies in India. Rallis focuses on its branding and and specialty and performance chemicals segments. It has a strong
marketing expertise and leverages its strong distribution network. domestic business in agrochemicals along with growing exports. It has
It has 2,300 distributors reaching out to 40,000 retail counters manufacturing plants in Thane, Maharashtra and Dahej, Gujarat.
covering 80% of Indias districts. Rallis non agrochemical portfolio 19% 227.7
includes seeds, nutrients, organic manure, agri services and contract 17%
manufacturing, resulting in a fairly diversified and well rounded 188.3
163.8
product portfolio. 136.8
303.6 12% 12%
291.1 119.6
18% 16% 11%
16% 243.0 15%
13% 15%
14%
212.5
39.1
181.0 22.5 22.1
14.8 19.6
139.4 146.4
FY 10 FY 11 FY 12 FY 13 FY 14
46.2 Revenue EBITDA EBITDA Margin

33.8 35.1 43.5
24.1 31.9
18.5 Figure 29: Financial performance of Indofil during FY10-14
FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15
(USD mn)
Source: Annual reports
Revenue EBITDA EBITDA Margin
Figure 28: Financial performance of Rallis during FY09-15 Indofils revenue has grown at a CAGR of nearly 18% over FY10-14,
(USD mn) with an EBITDA CAGR of nearly 15%. The strong growth in revenue
Source: Annual reports was supported by a capacity expansion from 18,000 MT to 30,000
MT p.a. of the fungicide Mancozeb in its Dahej plant in 2012 to meet
Over FY09-15, the revenue of Rallis has grown at a CAGR of 14% with
the growing international demand and acquisition of the European
an EBITDA CAGR of ~ 16%. Rallis has delivered a strong financial
Dithane business of Dow Agro Sciences in 2012 to gain international
performance driven by (a) its strong distribution network continuing
market share. In FY14 Indofil achieved a significant revenue growth
to capture the domestic demand growth and (b) its agility in
(23% over FY13) and EBITDA margin expansion (17% compared with
responding to market conditions with new product launches (average
12% in the previous year).
3 new products per year). It also leverages its brand to strengthen its
contract manufacturing (CRAM) and non pesticide business. The recent
PI Industries
capacity expansion in 2011 through a new plant in Gujarat (additional
capacity 5,000 MT ) is expected to aid growth in international business PI has demonstrated a strong focus on partnering with global
segment. innovators for in-licensing their innovative products and marketing
them in the domestic market. It has also established a high barrier
custom synthesis and manufacturing services business catering
28 <
to global innovators to commercialise their novel molecules. The Dhanuka achieved a revenue CAGR of ~ 15% over FY09-15 and
capability to partner at an early stage of development allows it to reap EBITDA CAGR of ~ 17%. Dhanuka has a unique business model, having
benefits throughout the lifecycle of commercialisation of the molecule. created an asset light model of producing formulations only and not
PI was among the first companies in India to enter this business in the technicals (which it sources from international partners), as it focuses
mid-1990s, and is now enjoying a significant first mover advantage. on marketing and distribution. It has tie-ups with several leading
agrochemical companies in the USA and Japan which provides it with
323.4
a strong product portfolio and a robust product pipeline, with plans
265.9
19%
to launch 2 new products every year over the next three years. It has
17%
16% 16% 16% 18% been able to create a strong rural visibility and brand on the back of
14% 191.9 its advertising and marketing efforts and strong farmer engagement
146.5 programmes.
120.0
77.2
90.4
G. FUTURE OUTLOOK
62.1
48.2
14.5 20.7 23.9 30.1 Marketing and product portfolio management as the key
10.8
differentiators
FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15
Revenue EBITDA EBITDA Margin The Indian domestic agrochemicals market provides long term growth
opportunities. Indian pesticide penetration is a mere 20% of the global
Figure 30: Financial performance of PI Industries during
average. Since 2005, when India amended its patent laws to provide
FY09-15 (USD mn)
greater protection to international agrochemical patents, several new
Source: Annual reports, Avendus analysis
agrochemical products have been introduced by foreign companies
It has witnessed a revenue CAGR of 27% over FY09-14 and EBITDA directly or through Indian partners. The major obstacle to domestic
CAGR of 34%. The financial performance is supported by a robust growth remains overdependence on monsoon, resulting in high
pipeline of novel in-licensed molecules with exclusive marketing rights seasonality.
as well as a strong order book for its custom synthesis business. Both
these segments contribute to strong revenue growth and margins, India is also emerging as a major exporter of generic agrochemicals
due to the major focus on high value and high margin products. which is likely to further strengthen with a significant number of
agrochemicals worth ~ USD 5 bn going off patent over 2015 to 2020.
Dhanuka ~ 45% of the Indian agrochemical production is currently exported.
Dhanuka is the second largest Indian agrochemical formulation However, growing at a faster pace, exports are expected to overtake
company in terms of domestic brand sales. It has a robust product the domestic market by 2020. The seasonal nature of the Indian
portfolio with over 80 brands. It also has one of the largest rural domestic market (and the resultant excess capacity) and availability
distribution networks in India with over 8,000 direct dealers, selling to of low cost skilled manpower are the key drivers of growth in exports.
over 75,000 retailers and reaching to over 10 mn farmers across India.
The Indian agrochemical market is fairly crowded with a large number
131.7 of scaled up players necessitating differentiation by innovative
123.2
16% marketing strategies. Some players like Rallis have developed a strong
97.6 brand over time. Players such as Insecticides India and Dhanuka are
88.2 15% spending significantly on marketing efforts. Such marketing and
82.2
14% 68.1 15% brand creation activities will continue to be of prime importance as
56.1 14% 14% growth drivers of agrochemical players in India.
13%
20.9 In addition to marketing pull, strong distribution networks would
14.2 18.7
8.0 9.6 11.4 11.8 continue to be a key area of focus. The ability to reach the masses will
continue to define the winners in this market.
FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15
To summarize, the key differentiators with which we can identify
Figure 31: Financial performance of PI Industries during winners in this segment include the ability to create brands, robustness
FY09-15 (USD mn) of distribution network and strategic partnerships that provide a
Source: Annual reports, Avendus analysis strong product portfolio and a robust product pipeline.
> 29

FLAVOURS AND
FRAGRANCES
Indian Market Size
Profitability
Market Growth Rate
30 <

t Global market size of USD 25.6 bn; to grow at 5.6% over 2014-19. Key growth drivers include evolving
dietary preferences and adoption of fragrances as an essential part of daily personal care
t Indian market size of USD 0.7 bn; to grow at 15% over 2014-19. This would be largely driven by increased
penetration of personal care products in rural markets, premiumisation of personal care and cosmetic
products and demand for processed food products
KEY SUCCESS FACTORS

t For ingredient manufacturers : Securing raw material availability and price, strong customer relationships
t For blenders : R&D capabilities and IP creation

t Increasing acceptance of natural flavours and fragrance ingredients globally; This is beneficial for Indian
players as India is one of the leading suppliers of natural ingredients (caters to ~ 60% of global spice
oleoresin demand and ~ 80% of global mint extracts)
t Synthetic ingredients continue to dominate the Indian market, though green processes and natural like
products are increasing in popularity
t Indian market dominated by global F&F houses, who are further strengthening presence in India; Indian
players are less likely to displace them in near future

t The blending segment is dominated by MNCs, with global F&F houses constituting over 60% of the Indian
market and exports contributing to most of their revenue
t Aroma chemical manufacturers face competition from Chinese aroma chemical players
t Companies to watch out for - Privi Organics, Synthite Industries
CHALLENGES FOR INDIAN PLAYERS

t Moving up the value chain for escaping stiff price competition : blenders have a higher product
specialization and better bargaining power compared to ingredient manufacturers
t Low technology barriers for ingredients manufacturer
t Raw material price fluctuation and uncertainty of availability
t High dependence on exports implies high impact of REACH implementation, as a result of which players
need to incur additional cost of becoming REACH compliant
FUTURE OUTLOOK

t Global market will continue to grow with a shift towards natural products
t Indian players have an advantage of natural feedstock availability; However, they will need to optimize costs,
build scale and invest in product development in order to succeed
t Smaller players can find their niche by focusing on segments such as nutraceuticals ; Large players will have
to cater to the entire value chain (from farm to fork) including value addition at consumer level
> 31

Flavours and Fragrances
(F&F)
Differentiated segment driven by consumption - led demand;
Opportunity in naturals
A. INTRODUCTION TO F&F : AN IMPORTANT oleoresin demand and 80% of the global mint extracts demand.
CONTRIBUTOR TO SENSORIAL CONNECT Currently 85% of the domestic production of F&F ingredients
is exported, with exports demonstrating a double digit growth
Flavours and fragrances are small but significant constituents of
of 11% during FY09-14. The growth in exports market is led by
food & beverage and FMCG products respectively. They are directly
natural ingredients, supported by the strong raw material base
involved in creating a sensorial connection between the product
and sourcing advantage in natural ingredients that India offers.
and its consumer, often contributing to a strong brand recall.
For instance, in eight ingredients (including mint, ginger, chilly
The Indian F&F market is dominated by the large global F&F and pepper, spices, anise, fennel and coriander, lemongrass oil,
houses, which contribute over 60% of the Indian production of nutmeg, mace and cardamom, eucalyptus oil), India is among the
flavour and fragrance blends. These players are strengthening top 3 producers in the world. As natural and natural like products
their manufacturing base in India to cater to the growth in Indian gain global appeal, the opportunity starts getting more interesting.
demand. For instance, Synthite, Kancor and Plant Lipids spice oleoresins
can be found in processed food in most parts of the world. Access
All F&F blends use a large number of ingredients, which can to raw material supplies, capital investments, process controls,
be either natural or synthetic, depending on the source and certifications and consumer relations are some of the factors that
manufacturing process. It is important to distinguish between the can create differentiation within the segment. Scaled up players in
F&F market and the F&F ingredients market as for the remainder natural ingredients space have the opportunity to truly break away
of the section, we would be touching upon these two markets in and create differentiation and scale.
parallel, often referring to very similar data points for both these
markets. With a large and growing demand and the resultant opportunities
for Indian manufacturers, the market for F&F and ingredients is set
India is strongly positioned as a leading natural F&F ingredients to serve up a spicy fare.
supplier to the global market, catering to 60% of the global spice
Figure 32: Value chain in Indian flavours and fragrances market; Illustrative players in parenthesis
Ingredient
Raw Material Blenders End-users
Manufacturers
Natural Sources Mint and essential Global F&F houses Major FMCG players
t Fragrance products oils (Givaudan, Firmenich) (P&G, HUL)
Mint, spices and other (Sharp Global) Indian blenders Major F&B players
herbs (farms in UP, Spice oleoresins (S.H. Kelkar, Aarav) (KFC, PepsiCo)
Bihar and Kerala) (Synthite)
t Non fragrance Product examples Smaller FMCG
products Aroma chemicals TasteEssentials players
Terpene oil (Hindustan (Privi Organics) vanilla, Clearwood (Agarbatti
Mint and Agro) Product examples manufacturers,
Peppermint oil, rectified unorganised sector)
Synthetic
Petrochemical basil oil, citronellal Product examples
derivatives (Atul) Dove, Colgate, Fiama
di Wills, Lays, Maggi
Product examples
Mint, basil, p-cresol,
p-anisyl nitrile
^ The global market for flavours and fragrances is USD 25.6 bn while the
F&F ingredients market is USD 9.0 bn
32 <
Flavors and fragrances can be derived from a variety of sources F&F Landscape
of raw material. Essential oils are distilled from various herbs
and spices like mint, rosemary, eucalyptus and others, whereas
25.6
aroma chemicals are derivatives of organic or inorganic aromatic
compounds, which are in turn derived from petrochemicals
or from natural sources. The ability to secure a consistent raw
material supply is a key advantage for Indian players using natural
ingredients, the only challenges being seasonality and variation
in yields of natural raw material. Sourcing would continue to
be challenging for Indian players depending on synthetic raw 9.0
material sources (especially petrochemical derivatives), since such
feedstock is relatively scarce in India, is controlled by a few players 2.7
and F&F constitutes a small share of downstream applications. Global F&F Global F&F Indian F&F
Many players diversify sourcing by importing such feedstock. market ingredient market ingredient market
(production)
The finished and blended flavours and fragrances space is Figure 33: F&F market in 2014(USD bn)
dominated by global F&F houses (such as Givaudan, IFF, etc.), and
sees participation from very few scaled up Indian blenders (such
Based on their source and processes, flavour and fragrance
as S. H. Kelkar). These players use aroma ingredients (natural or
ingredients can be broadly classified into
synthetic) to create their own distinct blends. Unique blends
may be protected by intellectual property rights, thus creating (a) Essential oils : Concentrated liquids containing aroma
differentiation. Some Indian blenders (e.g. S H Kelkar) also have compounds extracted from natural sources
integrated ingredient manufacturing capability, just as some of the (b) Aroma chemicals : Chemical compounds with a distinct smell
large global F&F houses do (such as Firmenich). produced synthetically through a chemical process, derived from
natural or synthetic feedstock.
The global F&F houses and some of the scaled up Indian players
are directly aligned to the major FMCG players, and supply specific
Fragrances are an important part of FMCG products. Despite
fragrance or flavour blends for specific products. Few FMCG players
constituting less than 1% of a products volume and under 10% of
also have blending capability for some blends, for which they
its total cost of production, fragrances are instrumental in creating
source ingredients directly from ingredient manufacturers.
a distinct product association with the consumers.
Indian ingredients manufacturers supplying to the global F&F
India is also characterized by a large unorganised F&F blending
houses are very closely aligned with them. It is common for
market, estimated to be larger than the organised market, but
F&F houses to develop new flavours or fragrances jointly with
difficult to quantify. The unorganised market largely caters to
their ingredient suppliers. F&F houses also inspect and formally
tobacco, incense (agarbatti) and other such end products with
approve their suppliers and require them to maintain international
thriving unorganized markets by themselves.
standards.
Flavours vs Fragrances
The major difference is that the former is edible and imparts taste whereas the latter affects
olfaction. However, there might be some overlap, for instance, Vanillin, an extract of the vanilla
bean, imparts both flavour and fragrance. A fragrance ingredient is any substance that is listed
in the Research Institute for Fragrance Materials (RIFM) database; and one that is not banned
by the International Fragrance Association (IFRA). Similarly the Food and Extracts Manufacturers
Association (FEMA) has a list of permitted flavour ingredients.
> 33
FLAVOURS AND FRAGRANCES

B. MARKET SIZE AND MARKET GROWTH
A growing global market The global market for flavours and fragrances was estimated at USD
25.6 bn in 2014 while the market for ingredients was estimated at
% 33.6 USD 9.0 bn. The F&F market is expected to grow at 5.6%, reaching
5.6
GR USD 33.6 bn by 2019. The ingredient market is expected to reach
CA
% USD 12.0 bn by 2019, growing at a similar CAGR of 5.9%.
R 5.1 25.6
CAG
20.0
The growth is driven by the following major factors
1. Strong growth in low-fat and low-carbohydrate foods
and beverages in North America : These require greater added
flavours to enhance the taste. Over 35% of USAs population is
obese. There has been an increasing demand for low-calorie food
2009 2014 2019F due to changing lifestyle, increasing health consciousness and
Figure 34: Global market for flavours and fragrances growing consumer confidence in these products. North America
(USD bn) and Europe are the two largest markets.
Source: BCC Research 2. Increased production of processed foods in developing
Huabao
countries causing a spurt in the demand for flavours :
2% Developing countries have witnessed growth of 13% in this
Others category compared to the global growth of 4%. Large global
T. Hasegawa 19%
2% players traditionally from developed countries are now targeting
Robertet
these geographies and expanding the market.
2% 3. Higher consumer willingness to experiment with new
Sensient Givaudan flavours and fragrances : This trend has led to additional sales
3% 19% in developed markets where consumers have higher disposable
Frutarom incomes, and thus are willing to spend on non-essential
3% sophisticated products across food categories. For instance, in
Mane chocolates, dark chocolate and unusual flavour combinations,
4% such as chili chocolate, are increasingly being accepted.
Firmenich
Wild Flavours 14% 4. A shift in perception of fragrance from being a non-
(part of ADM)
5% essential attribute to an indispensable part of personal care :
Fragrance was considered to be a discretionary attribute in several
Takasago
5% IFF mass market products in developing countries, including China
12% and India. However, with the increased penetration of scented
Symrise
11% personal care products in developing nations, fragrance is now
perceived as more of a necessity than a luxury.
Figure 35: Global market share of major F&F houses
Note: Kerry Ingredients has not been included since F&F financials are not available but has
estimated sales of USD 900 mn Global market growth is primarily driven by Asian markets. These
Source: Literature review, Avendus analysis markets are expected to grow at 6.5% over the next 5 years,
constituting ~ 30% of the global market by 2019.
% 12.0
5.9
GR
CA
R4 .5%
CAG 9.0
7.2
2009 2014 2019F
Figure 36: Global market for flavour and fragrance

ingredients (USD bn)
Source: BCC Research
34 <
4 .7% CAGR 2009-14 2014-19

CAGR 8.6
Domestic 12.0% 10.8%
5.4% 2.8
6.8 CAGR
Export 11.0% 12.0%
.2%
2.1 CAGR 5 8.8
Total 11.1% 11.9%
6.8 CAGR 5.6% 0.7
0.5 CAGR 6.5%
8.4 11.5
40%
CAGR 6.6% Indias share of world market
0.9 1.3
2014 2019F
Africa Asia Middle East North America 30% 4.8
South America Europe
Figure 37: Global F&F market by geography 23%

(USD bn)
Source: Literature review; Avendus analysis 2.7
4.1
India accounts for 30% of the worlds production of F&F
ingredients, exports ~ 85% of domestic production 1.6
2.3
1.3 1.4
0.4 0.7
0.2
%
2009 2014 2019F

15
GR
Export Domestic
CA
Figure 39: Indian production for flavours and fragrances

% 0.7
ingredients (USD bn)
16
GR Source: IFEAT, Industry Interviews and Analysis
CA
0.3
Domestic growth has three major drivers :
1. Increasing demand for processed food : Processed food
2009 2014 2019F requires a lot of flavouring. The increasing use of new flavour
concepts and flavour blends will drive growth. Indias processed
Figure 38: Indian market for flavours and fragrances
food industry was worth USD 45 bn in 2014 and expected to grow
(USD bn)
Source: FICCI, Avendus Analysis
at 11% CAGR over the next 5 years.
The Indian domestic consumption market for flavours 2. Rural Penetration of FMCG : Marketing by FMCG companies
and fragrances was USD 0.7 bn in 2014. The domestic has created demand for categories like deodorants, room
ingredients market is estimated at USD 0.4 bn in FY14. The fresheners and perfumed soaps in rural markets. This has
2014 exports of ingredients stood at USD 2.3 bn, taking opened up a new opportunity for the currently underpenetrated
the total ingredients production in India to USD 2.7 bn. This fragrance market (penetrated only to an extent of 0.5% of the
represents a 30% share of the global market for flavours and potential market). Growth of aspirational products and growth of
fragrances ingredients. The F&F ingredients production value the rural retail sector will also help in driving demand.
in India is expected to reach USD 4.8 bn by 2019, growing at
~ 12% CAGR for the next 5 years, increasing its share to 40% of 3. Premiumisation : As Indian consumers graduate from using
the global market. basic soaps and detergents to higher end products such as skin
creams, lotions, hair gels and other specialised cosmetics products,
the quality and value of the flavours and fragrances used in these
products is expected to increase. Products like room fresheners
and car perfumes are seeing increased penetration, bolstering the
40% demand of flavours and fragrances. The air care market in India is
^
23% expected to grow at 40% p.a. In the beverage space, fruit-based
30%
India exports ~ 85% of its ingredients drinks (expected to grow at 30% p.a.) are becoming popular and
consumers are demanding unique flavours. These require high
produced
value flavouring ingredients.
> 35

Fragrance producer of chilli, pepper, ginger, turmeric and cardamom where it
is a dominant player in the global market.
Others
8%
CAGR 2009-14 2014-19
Personal wash
Haircare 33%
12% Aroma chemicals 13% 15%
Mint 7% 7%
Personal care
8% Spice and oleoresins 14% 14%
Overall 11% 12%

Fabric care
19% Household 4.8
20%
0.8
Source: IFEAT
0.9
2.7
Flavours 0.4
0.4 1.6
1.6
Dairy Savory 0.2
13% 15% 0.2 1.2
0.8 1.5
0.4 0.7
Pharma
10% 2009 2014 2019F
Beverage
Aroma chemicals Mint Spice and oleoresins Others
22% Tobacco
3% Figure 41: Breakup of Indian flavours and fragrances
ingredients production (USD bn)
Source: IFEAT, Avendus Analysis
Sweet goods In the aroma chemicals space, some large Indian players are Privi
37%
Organics with FY14 turnover of USD 86 mn and Eternis (formerly
Hindustan Polyamides and Fibres Ltd., HPFL) with FY14 turnover
Figure 40: Breakup of Indian F&F market by end usage of USD 78 mn. For both these players, the majority of the revenue
Source: IFEAT is contributed by exports. This is common across most scaled up
Indian players.
Exports are expected to grow at 12% CAGR over the next 5 years,
driven by the increasing use of natural ingredients by global The Indian market for flavour and fragrance is consolidated, with
F&F houses as part of the global shift from synthetic to natural the top 4 players (the global F&F houses - Givaudan, IFF,
ingredients.
A dominant position in spice oleoresins
85% of the ingredients produced in India are exported to the
global market. India is a global leader in multiple product classes. 80.0
It is the worlds largest producer of mint, contributing to ~ 80% of
59.2
the global supply. In spices and oleoresins as well, India is a major
^
133.3
442.8
India has a 30% share in the

global ingredient market 170.3
(including mint and spice oleoresins)

Synthite Plant Lipids Kancor Other Indian Indian spice
players oleoresin
Three companies based in Kerala control industry
~ 80% of Indias USD 0.5 bn spice oleoresin Figure 42: Indian spice oleoresin industry
(USD mn)
production Source: Avendus Analysis
36 <
Blenders :
India controls the supply of 60% of the USD 0.7 bn
t R&D and IP : Blenders add value by creating unique scents.
global spice oleoresins market. Three companies
These are created by unique combinations of numerous
based in Kerala control ~ 80% of this Kancor, Synthite
aroma ingredients and additives to produce balanced blends.
and Plant Lipids. 85% of the Indian production is
There is usually considerable IP involved in creation of scents.
exported.
Blenders have to be able to keep innovating, creating unique
fragrances and flavours as the market demands. The global
In order to meet added demand, Indian companies
F&F houses spend an average of 9% on R&D. There is a lot
have also started sourcing from China, another major
of collaborative development involving end-users as well
producer of paprika. For instance, to expand its
as ingredient manufacturers.
sourcing base, Synthite has acquired a firm in Korla,
China for paprika and other natural ingredients. Synthite
D. TRENDS SHAPING THE MARKET
aims to almost triple its turnover to USD 0.5 bn by
2020, for which it would need to add an additional Global flavours and fragrances market to be driven by growth
~ 25,000 MT capacity of naturals
Naturals
account for 28% 9.8
of the market
Firmenich and Symrise) constituting more than two-thirds
of the market. The rest is shared among more than 1,000
players. Major Indian players include S.H. Kelkar and Ultra 3.3
International. The global F&F houses also use India as a 25.6
base to service some of the South East Asian markets. 8.3

4.2
Ingredient manufacturers :
Natural Synthetic Natural Synthetic Global F&F
Flavour Flavour Fragrance Fragrance Market
t 3BX NBUFSJBM TPVSDJOH Access to a steady supply of raw
material with minimal price fluctuation is one of the most
Figure 43: Natural and synthetic segments of the global F&F
important factors for an ingredient manufacturer. This is
market (USD bn)
especially true in the case of essential oil and spice oleoresin Source: Businesswire
manufacturers due to the seasonal nature of the harvest.
Companies like Sharp Global, Synthite and Kancor have
contract farms which ensure they have a steady supply of
raw material for them to process. In the case of aroma
chemical manufacturers as well, petrochemical derivatives
have limited availability in the country and their prices
fluctuate in line with oil prices. The ability to secure
prices by means of alternate sources of feedstock is a
key success factor.
^
t $VTUPNFS SFMBUJPOTIJQT Given the abstract nature of
fragrance and flavors and their impact on consumer perception The global market for natural
of the end product, it is very tough to build new relationships
flavour ingredients is expected
and start supplying to the top F&F houses. These firms have
strong brands and are wary of experimenting with their
to grow at a CAGR of 6.2% over the next
composition. A supplier to the large F&F houses has to 5 years as compared to only
generate consistent aroma or flavour in each batch, with <1% CAGR for synthetic ingredients
consistent purity levels. It takes a minimum of 3 years and may
even take 7-10 years to break into the vendor rosters of the The USD 0.7 bn global spice oleoresins
large F&F houses. market is primarily catered to by Indian
manufacturers (60% share)
> 37

The USD 25.6 bn flavours and fragrances market is largely based Synthetic ingredients continue to dominate Indian market
on synthetic chemical ingredients. Natural flavours and fragrances
Currently the Indian consumption of naturals is very small due
make up only 28% of the market. However, that share is increasing.
to price sensitivity of the Indian consumer. Natural ingredients
In the flavours segment, naturals accounted for 30% of the market
may cost anywhere between 10-100 times that of their synthetic
in 2009 and increased its share to 34% in 2014. It is expected to
counterparts. Due to consumer demand for more healthy products,
reach ~ 40% by 2019.
some natural-like products (refer to the next section for details) are
entering the market. However, we expect synthetics to continue to
CAGR 2009-14 2014-19 dominate the segment in the near future.
Synthetic 0.3% 0.01% Green processes and natural-like products increasing in

popularity
Natural 5.9% 6.2%
Natural-like products are semi-natural, semi-synthetic products,
manufactured differently from synthetic products. The raw
14.0 materials for these chemicals are derived from non-petrochemical
12.5
sources, and the processes followed in manufacturing these do
11.4 not use acids and other harsh chemicals. They use natural solvents
such as resins which are less toxic while manufacturing.
8.3
8.3
Most of the companies in India manufacturing bulk aroma
8.2
chemicals compete on price as these are standard chemicals with
very little differentiation. However, by manufacturing natural-like
products and using green processes, players are able to create
5.7
3.2
4.2 differentiation. Asian customers are price sensitive and are less
willing to pay a premium for these products; however, in Europe
2009 2014 2019F and other developed markets, it has the ability to command a
Synthetic Natural premium.
Increasing adoption of natural ingredients to benefit Indian

Figure 44: Global flavours market (USD bn)
Source: Markets & markets
players
India has a strong position in natural ingredients. There is support
from Government of India for the development of agro-processing
The shift towards naturals can be attributed to consumer
industry. It has been declared as a sunrise sector and receives many
awareness towards healthy foods and government regulations2
incentives in terms of income tax, excise and customs relief 3.
prohibiting the use of certain synthetic flavours in food
production.
The global F&F houses have also been taking steps to

strengthen their natural products portfolio. For example, in 2014,
Firmenich entered into a joint venture with Jasmine Concrete
in India, a leader in Indian floral extracts specializing in the
extraction of Indian flowers, such as jasmine and tuberose.
Similarly in 2014, Mane acquired Kancor, a Kerala based
2
For instance, Aspartame and MSG are a few of the artificial flavours
which citizens are asking their governments in USA and Europe to ban.
manufacturer of spice oleoresins.
Many supermarket chains have removed products containing these
chemicals from their shelves.
3
The Finance Minister has announced setting up of a Special Fund of
USD 0.3 bn in NABARD to make available affordable credit to agro-
^
processing units being designated as Food Parks. A loan of up to 95% of
the project outlay may be availed. All goods related to food processing,
India is the largest producer of mint, imported as part of the project, irrespective of their tariff classification,
chilly, pepper, ginger and spices in the would be entitled to uniform assessment at a concessional customs
world providing a strong sourcing base duty of 5%. In addition to this, against a standard excise duty of 12%,
processed fruits and vegetables carry a merit rate of 2% (Without
for natural ingredients CENVAT (Central VAT) or 6% with CENVAT)
38 <
Table 12: Production of natural ingredient in India
INGREDIENT GLOBAL RANKING PRODUCTION COMMENTS
Mint 1 32,000 MT India produces 80% of the worlds mint oil
Ginger 1 703,000 MT Indian dry ginger, known in the global market as Cochin
Ginger, is considered the best in the world
Chilly and Pepper 1 1,299,940 MT The worlds hottest chili Naga Jolokia is cultivated in
the hills of Assam in north-east India
Spices 1 1,496,990 MT India contributes 70% of the global spice production
Anise, Fennel and 1 537,330 MT The essential oil from star anise is used to flavour soft
Corinder drinks, bakery products and liquors
Lemongrass oil 1 1,000 MT This oil is used in imparting scent to soaps, detergents
and insect repellent preparations
Nutmeg, Mace and 3 18,070 MT Cardamom is the world's third-most expensive spice
Cardamom after saffron and vanilla
Eucalyptus oil 3 1,000 MT It is used in small quantities to impart a fresh and clean
aroma in soaps, detergents, lotions and perfumes
Source: UN
Major F&F houses have been collaborating with Indian natural which cater to the demand of other small / unorganized FMCG
players in an effort to strengthen their natural fragrance and players. However, the top F&F houses develop their proprietary
flavours portfolio. blends, often using proprietary constituent ingredients. Only few
Indian players such as S.H. Kelkar have demonstrated the capability
Scale to become increasingly important to create unique blends. However, the global F&F houses are far
Scale is extremely important for flavour and fragrance ingredient ahead and protect their markets by :
manufacturers as well as blenders to be able to secure better t Improving fragrance delivery systems using techniques like
bargaining power with their customers F&F houses (for ingredient encapsulation, sustained release
manufacturers) or FMCG players (for blenders). In addition, scale
t Developing captive aroma chemical ingredients through R&D
helps improve raw material sourcing efficiency and pricing, as well
(eg. Bigaryl developed by Givaudan)
as improves cost structures by means of manufacturing efficiencies.
t Long term purchase arrangements with global FMCG players
Indian players less likely to displace global F&F houses
F&F houses strengthening India presence
The ability to create unique and creative fragrances, often involving
significant research and perfumery skills, is a major differentiation India is an attractive destination for global F&F houses to cater
attained by top F&F houses. There are many small players in the to the large, growing Asia Pacific market. The top 10 global F&F
Indian market who merely blend a combination of aroma chemicals houses have their presence in the country with others looking to
and other fragrance ingredients to create standard fragrances enter. Eight of the top ten have a manufacturing presence in India.
> 39

Table 13: Presence of Global F&F houses in India
COMPANY HQ (GLOBAL) GLOBAL SALES INDIA SALES HQ (INDIA) YEAR ENTERED PLANT LOCATIONS
(USD MN) (USD MN) INTO INDIA
Givaudan Vernier, 4,716 135.6 Mumbai 1994 Daman, Bangalore

Switzerland
Firmenich Meyrin, 3,186 84.4 Mumbai 1971 Daman

Switzerland
IFF New York City, 2,953 112.4 Chennai 1931 Chennai, Jammu,
USA Gurgaon
Symrise Holzminden, 2,431 NA Chennai 1994 Chennai

Germany
Takasago Tokyo, Japan 1,345 16.7 Chennai 2012 Chennai
Wild Flavors Zurich, 1,189 NA Mumbai 2011 Tarapur

Switzerland
Mane* Le-Bar-sur-Loup, 961 16.7* Mumbai 1999 Hyderabad

France Ernakulum (Kancor)
Sensient Milwaukee, 736 61.9 Mumbai 2001 No manufacturing

Wisconsin, USA facility
Robertet Grasse, France 517 16.7 Mumbai 2001 No manufacturing

facility
Kerry Tralee, Ireland 6,479 NA Bangalore 2007 Bawal, Bangalore

* Does not include financials of Kancor
T. Hasegawa and Robertet are major global F&F houses which much higher profitability. Moving up the value chain may not be
do not have a significant presence in India yet. These companies an urgent imperative for Indian ingredient manufacturers, but may
are present in other developing markets and are keen to enter be a key differentiator in the long term.
India. Frutarom recently entered India by means of acquisition of
Sonarome. 2. Building barriers to entry : There are no significant
technology barriers in the space. However, established players
There has been a strong interest amongst most global F&F have a critical advantage in terms of client relationships.
houses to acquire or partner in India, especially amongst flavour Global F&F houses derive most of their revenue from mature
and fragrance blenders, and this space is likely to see significant FMCG players. Competition among the larger players is often
partnerships and M&A activity. price based, which is the consequence of limited product
differentiation. Companies that are able to create product
E. CHALLENGES AND CONCOMITANT OPPORTUNITIES differentiation would be in a position to build better margins and
FOR INDIAN PLAYERS protect themselves.
1. Moving up the value chain : Most of the Indian ingredient 3. Cost and availability of agricultural raw material : Spices
providers are suppliers of oleoresins or aroma chemicals to the F&F and other plants have cost and availability fluctuations during and
houses in India or exporters of the same. Many of the synthetic across years. There have been times when the players have faced
aroma chemicals are not differentiated and as a result there is shortages and had to import from neighbouring countires. This
stiff price competition in this space. Some natural extracts and impacts their cost structure quite adversely (raw materials make
oleoresins may command a premium; however, they are seasonal up 60-70% of the total cost). Companies are looking to hedge
in nature and are beginning to face price competition from the these risks by engaging with contract farmers, and planting better
Chinese. As a result, manufacturers of bulk aroma chemicals or yield varieties which lower their raw material costs. Players who
oleoresins typically experience relatively low margins (15-25% can manage their sourcing effectively can create a sustainable
gross margins) compared to the global F&F houses which have advantage for themselves.
40 <
4. Impact of REACH on synthetic players : Indian aroma 93% Median 81%

89%
chemicals manufacturers will be impacted by implementation 82% 81%
of REACH. Those Indian companies which significantly cater to 74%
69%
the Europe market are registering for REACH. However, overall
REACH registration costs are prohibitive for smaller companies,
and this would create a significant barrier between leaders and
marginal players.
32%
F. COMPETITIVE LANDSCAPE AND COMPANIES TO

WATCH OUT FOR
Camphor Kancor Privi Sharp Synthite HPFL KV
In the F&F industry, we can broadly categorise the Indian players Aromatics
into the following buckets Figure 46: Exports as a percentage of total revenue of
Indian ingredients players
A. Ingredients Manufacturers Source: MCA; Industry Interviews and Analysis
1. Mint extracts and menthol producers : Some of the leading For most organized and indigenous aroma ingredient
players are Sharp Global, Hindustan Mint and Agro and K.V. manufacturers, exports contribute majority of the revenue.
Aromatics. Thus, the real competition among them is not for a share of
2. Spice oleoresin manufacturers : For instance, Synthite, the domestic market but for international customers global
Kancor and Plant Lipids. F&F houses. Camphor and Allied Products is an exception
since it also produces ingredients for captive consumption for
3. Aroma chemical manufacturers : Privi Organics, Camphor blends.
and Allied Products and Eternis are the large producers in
India. This segment also faces competition from Chinese aroma Companies to watch out for
chemical manufacturers particularly on pricing. While the
From a financial and business model standpoint, Privi and Synthite
quality of ingredients offered by Chinese manufacturers is
appear to be ahead of the peers.
fairly accepted, continuity of supply and tightening environmental
norms are the key risks faced by their customers.
Table 14: Performance on companies to watch out for on
key success factors
B. Blenders
This space is largely dominated by MNCs; most of the global RAW MATERIAL CUSTOMER
F&F houses have manufacturing and / or sales presence in SOURCING RELATIONSHIPS
India, and constitute over 60% of the Indian market. Some Successful backward Privi is a major exporter
of the key Indian players include Oriental Aromatics (parent integration gives them of aroma chemicals,
of Camphor and Allied Products), S.H. Kelkar, Goldfield Privi a steady supply of raw exporting ~ 70% of their
Fragrances, Aarav Fragrances, Sachee Aromatics, Ultra Organics material, which earlier produce, supplying F&F
International. had to be imported. houses across the world
This protects them from
price volatility
25% Has contract farms Close relationship
which ensure they with most of the large
Synthite receive a steady supply F&F houses. Works in
20%
Kancor Industries of raw material of the collaboration with F&F
Growth (CAGR FY11-14)
Synthite desired quality houses to develop new

15%
Industry growth rate
flavours
Camphor*
Eternis
10% Privi
Sharp Global
5%
0%
0% 2% 4% 6% 8% 10% 12% 14% 16% 18%
EBITDA Margin (average of FY12-14)
Figure 45: Competitive landscape

Source: MCA; Industry Interviews and Analysis *Up to FY15
> 41

Synthite Industries 86.3
14%
Since its inception in 1972, Synthite has grown from a regional 11% 71.6
64.0 11%
player in spice trade to a global incumbent, accounting for 11% 60.5 11%
over 20% of the global oleoresin market. It has strong
43.8
relationships with all the leading global F&F houses. Also, it
secures raw material supply by means of tie-ups with farmers.
With the commissioning of a new plant in China and plans
for another in Indonesia, Synthite appears to be preparing for 8.4 7.0 7.9 9.5
4.8
rapid growth. The companys stated goal is to grow
its revenue to 3X its current size, from ~ USD 167 mn FY 10 FY 11 FY 12 FY 13 FY 14
currently to ~ USD 500 mn by 2020. To achieve this Synthite Revenue EBITDA EBITDA Margin
needs to grow annually at 20% year on year. The decline in Figure 48: Financial performance of Privi over FY10-14
EBITDA margins due to rising raw material costs, however, might (USD mn)
be a temporary cause for concern. Source: MCA; Industry Interviews and Analysis
17% 170.4 G. FUTURE OUTLOOK

151.8
15% 144.0 The global market for F&F ingredients continues to grow steadily,
13%
15%
13%
with a continued shift towards natural products. India is already
in a strong position in terms of raw material availability and can
96.1
continue to build on this advantage.
67.6
Within the Indian market for flavours and fragrances, there has not
been a huge shift towards naturals yet, though it is expected to
24.2 22.2
14.9
21.7 grow in line with Indias FMCG growth and changing consumer
9.1
preferences. Major FMCG players still use artificial ingredients
FY 10 FY 11 FY 12 FY 13 FY 14 though some niche players are focusing on natural products.
Revenue EBITDA EBITDA Margin We do not see a dramatic shift in domestic consumption
Figure 47: Financial performance of Synthite over FY10-14 patterns as yet. However, growth of the F&F segment is likely
(USD mn) to be driven by product categories such as deodorants,
Source: MCA; Industry Interviews and Analysis perfumes and air fresheners which have a very low penetration,
especially among the rural segment. There is a lot of room for
Synthite has also forayed into the seasoning space through its growth for these products and concomitantly for fragrances
subsidiary Symega. Symega, which is a joint venture with Austria- constituting them.
based Omega food technology, makes seasonings and savoury
ingredients used in snack foods, processed cheese, convenience This is good news for Indias aroma chemical manufacturers, who
foods and processed meats. have had the majority of their revenue coming from exports. They
already possess the capabilities to supply world class ingredients
Synthites major export destinations include Europe, USA and for flavours and fragrances and are in a position to take advantage
Japan. With its new plant in China, it is attempting to target the of Indias growth story.
Chinese market. It is also focusing on the Middle East and North
Africa as new target markets. Indian players in the natural ingredients market will continue
to have an advantage in terms of their proximity to the raw
Privi Organics material supply. However, they have to optimize costs, build
scale and invest in product development in order to capture the
Privi, founded in 1992, is one of the largest manufacturers of aroma
current market opportunity. Leaders like Synthite are already
chemicals in India. It leveraged its size to its advantage to enjoy
planning ahead and building plants specifically for their global
economies of scale, and is able to manufacture these ingredients
markets.
in a cost competitive manner. It has also integrated backward to
manufacture its raw material to secure raw material supply and Smaller players can find their niche by supplying to a certain
improve margins, providing it an edge over competition. Privi industry like nutraceuticals or concentrate on a certain flavour
has also made sizeable investments in developing green like turmeric. Large Indian players have to look at the entire value
manufacturing processes. This ensures it is able to create chain from farm to fork and think about how they can add value
differentiation in its product offerings particularly in western even at the end consumer level. Some of the larger players are
markets where such products and technologies find greater therefore looking to acquire companies that will help them move
recognition. in this direction.
42 <
Table 15: M&A and JVs in the Indian market
2015
Frutarom Industries, an Israel based Flavors manufacturer, acquired a controlling stake (60%) in Sonarome; Frutarom has expanded
its marketing presence in Indian and African markets with this acquisition, in addition to manufacturing presence in India
2014
t Mane, a French F&F house, entered into a joint venture with Kancor, a Kerala based oleoresin manufacturer; This helps Mane
control their natural ingredient supply and is a way for Kancor to move up the value chain
t Firmenich entered into a joint venture with Jasmine Concrete in India, a family-owned enterprise and the leader in Indian floral
extracts specializing in the extraction of Indian Flowers, such as jasmine tuberose
t Agilex Fragrances, an American perfume and fragrance manufacturer acquired the North American assets of Oriental Aromatics,
an Indian aroma chemicals manufacturer
2008
Oriental Aromatics, a manufacturer of aroma chemicals, acquired a majority stake in Camphor and Allied Products, a manufacturer
of terpene chemicals and other specialty aroma chemicals
2007
Anthea Aromatics, a Mumbai based manufacturer of perfumery chemicals entered into a joint venture with Les Derives Resiniques
et Terpeniques (DRT), a French MNC engaged in the research, development and manufacture of resin and terpene derivatives
2006
Synthite, a spice oleoresin manufacturer entered into a joint venture with Austria-based Omega Food Technology to form Symega
Savoury Technology
Apart from the above, the Switzerland based Wild Flavors (now part of Archer Daniels Midland) gained access to the Indian market
through its acquisition of the US based natural oils and ingredients manufacturer A.M. Todd in 2011, which was already
operational in India.
Likewise, the Swiss F&F major Givaudan consolidated its global market share by acquisition of Quest International in 2006 and in
the process also strengthened its India market share from 13% to 19%.
> 43

DYES AND
PIGMENTS
Indian Market Size
Profitability
Market Growth Rate
44 <

t Global market size of USD 27.8 bn; to grow at 4.0% over 2014-19 driven by growth in end-user industries,
increase in demand for high performance pigments and increase in environmental consciousness
t Indian market size (production) of USD 4.9 bn; to grow at 11.4% over 2014-19. Growth to be driven by
growth in textile industry, increase in exports particularly due to shift of supply from China to India as a
result of shutdown of many Chinese plants due to implementation of stringent environmental laws
KEY SUCCESS FACTORS

t Compliance with international quality and environmental norms is necessary for supplying to the large
European market
t Portfolio comprising high value added and performance colorants for niche applications in high growth end
industries is key to preserving profitability

t Environmental pressures and cost considerations are resulting in a shift of production from Europe to Asia
t Stringent regulatory steps in China have been favourable to Indian players as they have been able to capture
the resultant opportunity

t Indian market has the presence of MNCs, large Indian players and a large number of SMEs. MNCs offer
relatively more specialised products than most Indian players
t Companies to watch out for - Aarti Industries, Sudarshan Chemicals, Neelikon Food Dyes and Chemicals
FUTURE OUTLOOK

t A medium term boom for Indian dyes and pigment industry is expected due to shut down of Chinese plants
t Overall the market will continue to thrive on volume play; However, differentiated offerings will witness
faster and more sustainable growth
t REACH compliance will particularly impact this segment as European players import from India and China,
and a large volume of Indian production is exported
> 45

Dyes and Pigments
Product specialization and the ability to cater to niche end markets
key to success in a otherwise volume driven market
A. INTRODUCTION TO THE MARKET

Introduction to Dyes and Pigments Value Chain
The Indian dyes and pigments market has grown at CAGR Raw Material Sources
~ 9.7% over 200914, reasonable but not exceptional by Indian Manufacturers

of petrochemicals End-use
manufacturing industry benchmarks. There is significant (Benzene, Aniline) industries
Dye/Pigment
overcapacity in the Indian industry. China produces three times Bulk chemical
manufacturer
Textile, Paper,
manufacturers Paint, Printing inks,
(Aarti,
as much as India by volume. So far, this seems to be a story similar (Sulphuric acid,
Sudarshan)
Plastics, Cosmetics,
Nitric acid) Food, Polymers
to many other manufacturing sectors. Intermediate
Mining companies
(Rutile - Titanium manufacturer
ore) (Bodal)
But this scenario has been changing rapidly. Environmental
regulations have forced many western players to look eastward. The
Chinese players, traditionally supported by the Government, are Figure 49: Value chain for the dyes and pigments industry
now beginning to face repercussions of using polluting processes,
as a result of the increasing environmental consciousness of Petrochemical derivatives such as benzene and naphthalene
Chinese policymakers. This has given a sudden boost to Indian are key raw materials for this industry. In addition, many
industry as spare capacity has come in as an opportunity to capture reagents and inorganic chemicals are also used, including
the shift in demand. However, this cannot be generalized for the sulphuric acid, oleum, nitric acid, chlorine, bromine, caustic
entire universe of manufacturers. Additional cost of becoming soda, caustic potash, etc. Heavy metals (copper, chromium,
regulatory compliant has been a deterrent to the growth of sub- mercury, nickel, and zinc) are used as catalysts in the
scaled players, thereby creating a significant entry barrier and synthesis of dyes and dye intermediates. Some ores like
providing scaled up Indian players with an explosive growth rutile (a mineral composed primarily of titanium dioxide)
opportunity. Some players have capitalized on the opportunity to and iron oxide are also used in inorganic pigments.
demonstrate dramatic growth and margin expansion in a span of
one year. Many Indian manufacturers produce intermediates which
are then exported to Europe where the final production of
On the face of it, this may seem to be environmental arbitrage. colorants is carried out by global or local European players.
However, many Indian players have used this opportunity to
create a global presence on the back of internationally accepted The final products, dyes and pigments, find applications
product quality, scale and improving their processes to manage in multiple industries including textiles, paint, adhesives,
environment well within industry norms, and to create a niche polymers, printing inks, plastics and cosmetics.
for themselves through differentiated offerings. Many scaled
up players are using this market opportunity to strengthen their
competitive position and move up the value chain.
Applications of dyes and pigments

The most common application of dyes is as colorants for textiles.
They are also used in a variety of end applications including but
not limited to paper, adhesives, art supplies, food and beverages,
ceramics, construction, cosmetics, glass, paints, plastics and soap.
Pigments predominantly find application in paints and coatings,
^
automotive finishes, emulsion paints and distempers. They are also
used in printing inks, polyester textiles and plastics like PVC, rubber
The global market for dyes and
and synthetic polymers and nylons, cosmetics and paper.
pigments is USD 27.8 bn and is
The key differences between dyes and pigments are their size and projected to grow at a CAGR of 4%
solubility - dyes are soluble while pigments form a suspension over the next 5 years
this results in a difference in applications and process of application.
46 <
Classification of dyes and pigments Pigments are classified as -

Dyes can be classified as 1. Organic Pigments
t Azo Dyes : They are insoluble and typically toxic. These dyes t Optical Whitening Agents : These pigments absorb light in
are used in printing inks and pigments. the ultraviolet and violet region of the electromagnetic spectrum,
and re-emit light in the blue region. In this manner, they make
t Acid Direct Dyes : Dyeing with acid direct dyes is normally
fabric and paper appear whiter.
carried out in a neutral or slightly alkaline dye bath, at or near
boiling point, with the addition of either sodium chloride (NaCl) t Organic Pigments : These are molecules that are made of
or sodium sulphate (Na2SO4) or sodium carbonate (Na2CO3). Direct carbon atoms along with hydrogen, nitrogen or oxygen atoms.
dyes are used on cotton, paper, leather, wool, silk and nylon. They may be natural or synthetic. These pigments are generally
very bright, but fade away quite quickly on exposure to light.
t Disperse Dyes : These are water-soluble dyes. The dye bath
may require high temperature. These are typically used to dye t Pigment Emulsion : A mixture of water and pigment causes
synthetic fibres like polyester. a dispersed suspension of pigments which is termed pigment
emulsion. This is used in plastic, textile, leather and paper industries.
t Ingrain Dyes : Ingrain dyes are those which are synthesized
directly on the fabric. Ingrain dyeing is particularly suitable for
2. Inorganic Pigments
cotton fabric. Vat
1% t Carbon black : Carbon black is a material produced by the
Sulphur
5% Others incomplete combustion of heavy petroleum products such as FCC
0% tar, coal tar and ethylene cracking tar. Carbon black is mainly used
Azo as reinforcing filler in tires and other rubber products. In plastics,
2% paints and inks carbon black is used as a colour pigment.
Acid Direct
6% t Titanium Dioxide : Titanium dioxide is sourced from the
Disperse minerals ilmenite, rutile and anatase. When used as a pigment,
20% it is called titanium white. It has a wide range of applications,
Ingrain from paint to sunscreen to food colouring.
Reactive 0%
64% Solvent
2% Pigment Emulsion
10%
Optical
Figure 50: Split between types of dyes produced (by volume) Whitening Agents
in 2013-14 30%
Source: Ministry of Chemicals
t Solvent Dyes : These are dyes soluble in organic solvents.

Solvent dyes are used to colour organic solvents, hydrocarbon
fuels, waxes, lubricants, plastics and other hydrocarbon-based
nonpolar materials.
Organic Pigments
t Reactive Dyes : These dyes utilize a chromophore capable 60%
of reacting directly with the substrate. They are among the most
permanent of dyes. Reactive dyes are used in dyeing cotton and
other cellulose fibres.
Figure 51: Split between types of organic pigments
t Sulphur Dyes : These are two-part dyes used on cottons to produced (by volume) in 2013-14
impart dark colours. The initial bath imparts a yellow colour. This [Inorganic pigments form ~ 85% of the total pigment production by volume (Carbon
is then treated with a sulphur compound to produce a dark black black ~ 75% and titanium oxide ~ 10%), the balance ~ 15% is organic pigments]
colour. Source: Ministry of Chemicals
t Vat Dyes : These are insoluble in water but soluble in alkaline

liquor. These dyes are used for dyeing cotton, cellulosic and
blended fibre.
> 47
DYES AND PIGMENTS

B. MARKET SIZE AND MARKET GROWTH 2. Demand for high performance pigments (HPP) : These
are highly durable pigments, resistant to UV radiation, heat
Global market growing steadily; APAC region leading the
and chemicals. Other properties of some of the HPPs include
growth
fluorescence, luminescence, thermo-chromatic and certain other
R 4.0
%
33.9 effects not provided by ordinary pigments. Due to the weather-
CAG
fastness property, their growth is largely driven by the automotive
R4.0%
CAG 27.8 sector (particularly glossy and / or sparkling finishes) and
23.0 outdoor housing coatings and paints for outdoor signs.
These are relatively high value pigments and are used in
specialized and less price sensitive applications such as
automotive and inkjet printing (unlike regular printing inks
where azo dyes are preferred). In this context, high performance
pigments are projected to grow at a CAGR of 5% over the next
five years.
2009 2014 2019F
Figure 52: Global market for dyes and pigments (colorants) 3. Environmental consciousness : The use of eco-friendly
(USD bn) colorants such as low impact dyes is emerging, with features
Source: Markets and Markets such as low water requirement to rinse off residues during
dyeing and rinsing process, low dye runs off in water creating
The global market for dyes and pigments is estimated at USD 27.8
lower pollution, reclaimability from run-off water which
bn for 2014. It is projected to grow at a CAGR of 4.0% over the next
can then be recycled, non-requirement of toxic mordants
5 years to reach USD 33.9 bn by 2019. This growth is expected to
or heavy metals, high absorption rate requiring less quantities
be driven by Asia-Pacific economies as their manufacturing bases
of dyestuff resulting in lighter fabric, etc.
expand.
Indian production of colorants
The major growth drivers of the global colorants
market are :
1. Growth in end-user industries : Dyes and pigments are used CAGR 2009-14 2014-19
in a large number of applications. Paints and coatings industry,
one of the major users, is expected to grow steadily due to Total 9.7% 11.4%
investments in infrastructure and construction (estimated CAGR of
5% during 2014-19). Growth of printing ink, another major end- Domestic 6.0% 7.5%
use, is expected to be boosted with technological developments
including digital inks (estimated CAGR ~ 8% over the next five
years), development of eco-friendly inks and steadfast products Net Exports 11.9% 13.2%
with better resistance to solvents and cleaners.
8.4
^
2.3
In 2014, India produced dyes
and pigments worth USD 4.9 bn
4.9
Indian production caters to ~ 18% of 3.1

1.6
the global dyes and pigments market 1.2

7.5
by value 3.8
2.1
Indian production is expected to grow at a -0.2

-0.5 -1.4
CAGR of 11.4% over 2014-19, largely driven 2009 2014 2019F
by exports, expected to grow at a CAGR of Imports Exports Domestic
~ 15% over the next 5 years Figure 53: Indian colorants market (USD bn)
Source: Ministry of Chemicals, Literature review; Industry Interviews and Analysis
48 <
The Indian production of dyes and pigments is estimated to be Reactive dyes is a large market, has been growing fast over
USD 4.9 bn for 2014. It is expected to grow at 11.4% CAGR till 2019 FY09-14 (CAGR of 17%) and also has an above average capacity
driven by the following : utilization of ~ 61%. The growth of Azo and Ingrain dyes has
been slowing down due to their polluting effect, and these
1. Due to strict environmental laws, many Chinese players have
segments are facing low capacity utilizations. Most Indian players
discontinued operations, as a result of which Indian players have
have a presence across multiple segments of dyes.
gained from redirected business. This is set to continue in the near
term and will cause a spike in growth for Indian players The capacity utilization of pigment manufacturers has been
2. The textile industry in India, which is the major consumer of relatively better than that of dyes. With an installed capacity of
dyes, is projected to grow at over 10% CAGR over the next 5 years 104,410 MT, and production at 77,630 MT the capacity utilization
of organic pigments stood at 74% in 2013-14. The capacity
3. This is an export focused industry and Indian players
utilization of inorganic pigments (carbon black and titanium
are focusing on high performance pigments for value added
applications, largely catering to international markets oxide) stood at 67% in the same period.
Over 80% of the countrys colorant production capacity is

Others located in Maharashtra and Gujarat. This is driven by a number of
12% reasons such as proximity to feedstock (largely petrochemicals),
Leather concentration of end-user industries such as textiles, paints, etc. in
5% the area and proximity to ports, a conducive factor for exports.
Paper
5% 6,07,000
Food
8%
4,06,410
Textiles
70%
61,580 46,550 76,050

Figure 54: Breakup of Indian dye market by end-use 37,300 23,740 52,780
5,530 7,340
Source: Industry Interviews and Analysis
Optical Organic Pigment Carbon Titanium
Whitening Pigments Emulsion Black Dioxide
Other Agents
9% Paints and Coatings Installed Produced
24% Figure 56: Production of pigments in India in 2013-14
Textiles
10% (in MT)
Source: Ministry of Chemicals
C. KEY SUCCESS FACTORS -

Plastics t Compliance with international quality and
10%
environmental norms
Printing Inks
47% In order to be able to supply to the large European market,
companies need to comply with REACH regulations. While scaled
up players are already REACH compliant or are in the process of
becoming so, the cost and effort required in the process may
Figure 55: Breakup of Indian organic pigment market
discourage mid to small scale players from entering and catering
by end-use
to the European market. Likewise, other environmental and quality
Source: Meghmani Quarterly Report
standards expected by customers in western markets imply a clear
Indian dyes and pigments production advantage to players with well established processes and quality
The total installed capacity for manufacturing dyes in India is control systems.
^
277,640 MT. In 2013-14, 158,480 MT of dyes were produced
implying a capacity utilization of 57%. Reactive dyes account for
most of the installed capacity, followed by acid direct and disperse
~ 70% of the dyes produced in
dyes. Overcapacity means that Indian facilities could rapidly absorb India find application in the textile
any extra demand arising from stringent norms in China and the industry
resultant limited production there.
> 49
DYES AND PIGMENTS

t Portfolio comprising high value added and performance
colorants for niche applications in high growth end 1999 :
industries Shut one of Europes last two plants for manufacturing indigo
textile dyes, at Ellesmere Port, Northwest England
The colorants segment has witnessed high degree of
commoditization. Margins are generally low except for specialized Shut its dyestuffs plant at Rensselaer, NY as a result of
offerings. However, specialized products such as performance competition from Asian dyestuff manufacturers and the
colorants resistant to degradation, eco-friendly pigments, etc. are resultant erosion in pricing and margin
currently in high demand and command premium pricing. Catering
to end-use industries where purity is important may also be a way CLARIANT
to differentiate them. Consumer driven segments such as personal
2010 :
care and food & beverages demand strict quality control. Players
catering to such applications are able to enjoy higher margins. Discontinued production of textile dyes and chemicals
production at its home site at Muttenz, Switzerland
Opportunities to move up the value chain
There is significant technology and process know-how involved 2009 :
in certain specialty dyes and pigments, which potentially offers Clariants sites at Huningue in France, Pontypridd in the UK
a differentiated and relatively more profitable opportunity to and at CIVAC in Cuernavaca, Mexico, along with parts of
manufacturers. For instance, Clariants global pigment operation two plants at sites in Gendorf and Frankfurt, Germany, were
is one of its most profitable businesses with EBITDA margins of discontinued
over 20%. Clariant is also focusing its R&D efforts on developing
alternative pigments which use renewable raw materials. competition with low cost Asian players, has forced some of
BASF, another leading player in high end printing ink the large players to discontinue operations at their European
pigments, has been continuing to focus its R&D on performance plants and to transfer capacities to countries such as India,
pigments. China and South Korea through greenfield expansion.
D. KEY TRENDS SHAPING THE MARKET The current strategy of most European pigment producers is to
The shift from Europe to Asia use their local facilities for high-end performance colorants for
new and niche markets and source non differentiated dye,
BASF and Clariant are among the largest dye and pigment pigments and intermediates from low-cost facilities based in
manufacturers in the world, and both these companies are China and India.
headquartered in Europe. Stringent environmental regulations in
Europe and other developed countries, coupled with Foreign players have traditionally adopted three strategies for
sourcing from India :
Table 16: Plant shutdowns at or relocation from 1. Establishing their own production facilities (For instance,
Europe and Americas BASF has facilities at Mangalore - the largest BASF site in
South Asia, at Ankleswar and Dahej for colorants and related
businesses)
BASF
2. Entering into JVs with local manufacturers
2013 :
3. Toll manufacturing or sourcing intermediates from SMEs or
Discontinued a pigment production plant in Paisley,
unorganized players
Scotland.
2011 :
Shut down the production facility of basazol dyes at
Ludwigshafen, Germany
^
2010 :
India exported close to 70% of the
Discontinued optical brighteners production operations in
Grenzach, Germany
dyes and pigments it produced
in 2014 worth USD 3.8 bn
50 <
players to command a premium on prices. Indian players with

We are often faced with the strange situation that excess capacity and compliant with international quality and
we purchase raw material in China, ship it to Europe, environmental standards are well positioned to benefit from this
manufacture our products at significantly higher situation.
costs, and then ship them back to Asia, where our
Reduction in support by the Chinese government in terms of
customers are. Obviously this is against any economic
tighter pollution control norms, reduction in export duties and
logic and severely harms our competitiveness in these subsidies as well as appreciation of CNY have been favourable for
areas. Hence there is no value-creating alternative but the Indian chemical manufacturers, as evident in Indias export
transferring our production to Asia. realization improvement.
- Hariolf Kottmann, CEO Clariant
Indias net exports have been growing steadily at a CAGR of ~ 12%
over 2009-14. This has been contributed largely by the growth
If you are not established or positioned in the Asian of export realizations driven by the ability to supply quality
market, particularly India and China, you will have products, movement towards value added colorants, and to
a difficult time running a successful business going some extent, displacement of Chinas production by Indian players
due to regulatory dynamics at China.
forward, because our most important customers have
migrated over the past decade from Western Europe The segments which registered the maximum growth were
and North America to the East. Acid Direct Dyes (119%), Reactive Dyes (70%), Disperse Dyes
- Paul Hulme, President of Huntsmans Textile Effects division (70%) and Azo Dyes (55%).
China, Bangladesh, India, Vietnam, and Thailand are major E. COMPETITIVE LANDSCAPE AND PLAYERS TO
consumption centres for the dyeing industry due to a large textile WATCH OUT FOR
industry in these geographies.
25%
Regulatory changes in China have been favourable to Aarti*
Indian players 20%

Kiri Atul
Growth (CAGR 2011-15)
Sweeping changes have been made to Chinas national

15% Bodal
Environmental Protection Law rendering greater powers to
Industry growth rate Sudarshan
environmental authorities and resulting in potentially harsher
10%
punishments to non-compliant manufacturers.
5% Meghmani Ultramarine
Under the new law, the penalty for non compliance has
been hiked, including higher monetary fine and potential
0%
imprisonment. At the same time, a compulsory disclosure 0% 5.0% 10.0% 15.0% 20.0 25.0%
element implies the supply chain partners will have to be EBITDA Margin (average of FY12-15)
chosen carefully. There has been stringent implementation
Figure 57: Competitive landscape: Indian players
since the law formally came into force (Jan15), with over Source: Annual Reports; Avendus Analysis
375 polluting facilities have been shut down in 2014 itself Note: * Dyes and pigment
across various manufacturing segments, including dyes and
textiles. For instance, Ningxia Mingsheng Dye Chemical MNCs as well as Indian players operate in the Indian
Company was forced to shut down operations due to the extent colorants market; however, MNCs have a slightly better pricing
of water pollution caused by the facility. power than domestic players, combined with relatively more
specialized offerings compared to most medium and small
The higher cost of complying with regulations will also force Indian manufacturer.
many small dye manufacturers in China out of business.
Also, global players would be wary of sourcing from such Many large Indian players in this segment have benefited from
companies. As a result, customers are increasingly expected to the increased Chinese regulation, with median revenue
turn towards the next largest manufacturing region, India. growth ~ 26% in FY13-14. For instance, Bodal registered
However, in short term till new capacity is commissioned, global 82% revenue growth in FY13-14, by capturing market share
supply would remain constrained and would enable existing from Chinese players.
> 51
DYES AND PIGMENTS

Solid stock market performance Gujarat and Maharashtra. It focuses on exports and plans to
2000 TSR per annum further expand its capacity to cater to the export potential
Atul 61% of specialty chemicals. Also it plans to backward integrate to
cater to feedstock requirements (such as Nitro Toulenes and
1500
derivatives) of dyestuff as well as other specialty chemicals in
its portfolio.
Aarti 48%
1000
22% 40.0
Bodal 39% 36.9
20%
BSE Sensex
500 Ultramarine 23% 19% 19% 29.3 18%
Sudarshan 21%
Meghmani 8%
BSE Sensex 22.5
0 Kiri -26% 20.5
1/2/2010 1/2/2011 1/2/2012 1/2/2013 1/2/2014 1/2/2015
Figure 58: Stock market performance of Indian players along

with total shareholder returns (TSR) 6.5 6.8 7.9
Source: NSE; moneycontrol.com; Stock prices and BSE indexed to 100 3.8 4.4
Note: TSR per annum for period between 1/1/2010 and 31/12/2015
With the exception of Kiri and Ultramarine, the stocks of Indian FY 11 FY 12 FY 13 FY 14 FY 15
dye and pigment companies have outperformed the BSE Sensex Revenue EBITDA EBITDA Margin
over the past 6 years. During this time period, BSE Sensex gave Figure 59: Aarti Industries Specialty Chemicals
an annual return of 20%, whereas Atul demonstrated a return of Divison (USD mn)
Source: MCA; Industry Interviews and analysis
~ 60%, about 3.0 times the former. Sudarshan and Aarti achieved
significantly high returns of ~ 40%.
Sudarshan Chemicals
Companies to watch out for
Sudarshan Chemicals is the largest pigment producer in
Aarti Industries India. Apart from producing general purpose pigments, it
Aarti was founded in 1975 manufacturing a single product specialises in effect pigments for cosmetics and personal
Dimentyl sulphate. Today Aarti is a leading supplier to care coloration (such as pearlescent pigments) it is the only
global manufacturers of dyes, pigments, agrochemicals, Indian manufacture in this segment, which is otherwise largely
pharmaceuticals and rubber chemicals. Aarti is amongst the dominated by European players. Also, its focus on customization
largest producers of benzene based basic and intermediate and technical support offers a partnership approach to its
chemicals in India. It has 16 manufacturing units spread across customers.
Table 17: Performance of Companies to watch for on Key Success Factors
COMPLIANCE WITH INTERNATIONAL QUALITY AND

PRODUCT PORTFOLIO AND END INDUSTRIES
ENVIRONMENTAL NORMS :
AARTI The Company has two Zero Discharge units and is Though a major supplier of dye and pigment
reviewing the viability for converting other units into intermediates, Aarti now supplies chromium free dyes
Zero discharge. It has recently received ISO14001:2004 in powder and liquid form for swimming pool and
and OHSAS 18001:1999 from SGS for its Vapi unit. spa applications as well as liquid dyes in eco friendly
REACH compliant since 2011. packaging.
SUDARSHAN First chemical company in India to be awarded the Specializes in effect pigments for cosmetics and personal
ISO 9001 certificate in 1993. Also accredited with ISO care coloration.
14001, OHSAS 18001 and ISO 17025 international
quality standards. In process of achieving REACH
compliance.
NEELIKON Neelikon is an ISO 9001:2008, ISO 22000:2005, GMP Engaged in the manufacturing of food, pharmaceuticals
and REACH compliant company. Further, its product and cosmetic colours.
portfolio of colours is - Halal, Kosher, ISI and non-GMO
certified.
52 <
168.1
177.3 F. FUTURE OUTLOOK
20%
There is significant re-organisation taking place in the dye
130.7 and pigment industry globally. This is due to the supply chain
16% 120.1
15%
16% 106.8 disruptions caused to European companies by the effect of REACH
14% 14%
81.8
13% regulation and increased environmental standards in China.
67.6 Many European companies depend on supplies from India and
China; some are setting up their own plants in those countries or
23.2 26.3 establishing JVs with large local players.
16.1 16.6 16.5 16.6
10.5
A short to medium term boom for the Indian dye and pigment
FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15
industry is expected as Indian companies fill in shortages caused
by Chinese plant shut downs. The benefits would largely be
Figure 60: Sudarshan Chemicals (USD mn)
reaped by scaled up players who are compliant with international
Source: MCA; Industry Interviews and analysis
environmental and quality standards. Companies like Bodal
Neelikon Food Dyes & Chemicals have benefited from these trends - this opportunity may also be
captured by other players in the colorant industry.
Founded in 1983, Neelikon produces high quality food dyes
with exports contributing to over 80% of its revenue. Neelikon is The overall commoditized market thriving on volume play has
looking at backward integration to manufacture its raw materials gained due to supply side dynamics originating in China, and will
naphthalene, aniline, sulphuric acid. It also plans to diversify continue to do so in the immediate future. However, those focused
within the dye industry. The Company plans to achieve this by on differentiated offerings catering to niche applications such as
way of acquiring niche companies with a focus on maintaining in personal care, F&B, healthcare, etc. will witness faster and more
environmental compliance. sustainable growth over the long run.
26.4
22%
19% 20%
19%
17% 18.9
12% 15.8
12.6
10.0
9.0
5.8
3.8
3.0
1.9 2.1
1.1
FY 09 FY 10 FY 11 FY 12 FY 13 FY 14
Figure 61: Neelikon Food Dyes & Chemicals (USD mn)
Source: MCA; Industry Interviews and Analysis
> 53

SURFACTANTS
Indian Market Size
Profitability
Market Growth Rate
54 <

t Global market size of USD 30.4 bn; to grow at 5% over 2014-19. Growth to be driven by end-user industries
growth and increasing demand for eco-friendly (bio based) surfactants
t Indian market size (production) of USD 2.6 bn; to grow at 13% over 2014-19. Growth largely driven by
personal care applications
KEY SUCCESS FACTORS

t Scale : Price competition implies that scale and process efficiencies are key to succeed
t Specialization : Differentiated players catering to niche applications are less likely to suffer from margin
pressures

t Ideal time for MNCs to expand in India and consolidate the market to build scale

t Few Indian players in this sector are Godrej Industries, Aarti Industries, Venus Ethoxyethers, Viswaat
Chemicals, Advance Surfactants and Unitop Chemicals
FUTURE OUTLOOK

t Segment to witness growth, however, profitability would remain challenged in the medium term
t For Indian players the opportunity lies in moving towards surfactants for niche applications
> 55

Surfactants
A market ready for consolidation
A. INTRODUCTION TO THE MARKET Unlike most other segments mentioned in this report, surfactants
are not aligned to any particular end-user industry. They find
Surfactants or surface active agents are organic compounds
application across a wide array of industries, including home and
that lower surface tension between two liquids or between
personal care (HPC), textile, water treatment, agrochemicals and
a liquid and a solid. Functionally, they are used to improve
flavours and fragrances. Surfactants are used most ubiquitously
cleaning efficiency, emulsifying, wetting or dispersing actions,
as basic cleaning agents in consumer products such as detergents
solvency, foaming/de-foaming and lubricity of cleaning agents
for washing clothes, dishes, floors, as well as shampoos, body
and other products.
washes and toothpastes. Hence, HPC represents the largest end-
user consumer for surfactants, consuming ~ 80% of the surfactants
produced globally.
Value Chain
Feedstock Suppliers Ingredient Applications Consumer Product

Manufacturers Specialist Manufacturers
LAB - Linear Sulphonation Surfactants for Soaps

Alkylbenzene Ethoxylation Cosmetics, Lubricants, Detergents
EO - Ethylene Oxide Quaternization Agriculture & Cleaning Shampoos
Alcohols
Aarti, Khurana Oleo Croda P&G, Henkel
Reliance, Shell Chemicals
Figure 62: Value chain of the surfactants industry
Surfactant manufacturers mostly use petrochemicals (and sometimes oleochemicals) as their feedstock. The feedstock is a set of
chemicals like ethylene oxide, linear alkyl benzene and linear alpha olefins which are crude derivatives. Typical suppliers include
large petrochemical companies like Reliance or Shell.
Surfactant manufacturers like Aarti convert feedstock into surfactant by sulphonation or other processes. This, however, has to be
modified according to the final application. Such conversion is carried out by application specialists such as Croda. Most of these
application specialists are also backward integrated.
The final surfactant is used by FMCG players such as P&G and Henkel who manufacture detergent and other cleansing products.
They are able to exert pricing pressure on surfactant manufacturers to some extent.
At the same time, surfactant manufacturers have limited bargaining power with their suppliers since the price of the feedstock
is driven by crude oil price. Application specialists may have some bargaining power with the converters and their margins are
slightly higher.
Some niche surfactant applications include emulsifying / wetting agents, etc. in agrochemicals, oil field chemicals, pharmaceuticals,
etc. Such applications command higher margins than the conventional home care applications for surfactants.
^ The global market for surfactants is USD 30.4 bn and is projected to grow at a CAGR of
5.0% over 2014-19
56 <
B. MARKET SIZE AND MARKET GROWTH Others

11%
Global market driven by end industry growth; Eco-friendly Industrial cleaners
surfactants trending globally 9%
5.0% 38.8
GR Body
CA care and
% cosmetics Household
R 4.3 30.4 9%
CAG cleaning and
detergents
24.4 71%
2009 2014 2019F

Figure 64: Global usage of surfactants
Figure 63: Global market for surfactants in USD bn Source: Cerasana
Source: Markets and Markets, Avendus Analysis
The global market for surfactants was estimated at USD 30.4 bn in Anionic surfactants dominate the global market
2014. It is expected to grow at 5% CAGR over the next 5 years and
Amphoteric
reach USD 38.8 bn by 2019. 3%
In addition to the growth in end-user industries, increasing demand
of eco-friendly (bio-based) surfactants, specifically from European
and North American regions is being witnessed; Regulations in Non ionic Anionic
36% 40%
these regions are also favouring bio-based surfactants 5.
The systemic shift to eco-friendly products is happening as some

of the traditional surfactants are known to be toxic to animals,
ecosystems and humans, and can increase the diffusion of other
environmental contaminants. As a result, there are proposed or
existing restrictions on use of some synthetic surfactants. However, Cationic
bio-based surfactants are costlier than synthetic surfactants 21%
because their raw materials are priced higher than conventional
Figure 65: Breakup of global market by volume, based on
synthetic feedstock.
surfactant type
Home and Personal Care industry is the largest consumer Source: Markets and Markets
for surfactants A surfactant owes its properties to its chemical structure, which
Household cleaning products and detergents are by far the biggest comprises a hydrophilic head and a tadpole shaped hydrophobic
users of surfactants globally, accounting for ~ 70% of the total tail. Surfactants are also often classified by the composition of their
surfactant usage. Body care, cosmetics and industrial cleaners are head anionic, non-ionic, cationic and amphoteric.
two other major users of surfactants. An important thing to note
is that usually the same surfactant fulfils multiple roles. The same Anionic surfactants dominate the market, followed by non-ionic
surfactant compound is used across detergents, industrial cleaners surfactants. Non-ionic surfactants are expected to grow the fastest
as well as in cosmetics. The difference across applications, however, because of their inherent bio-friendly properties and degradability.
lies in the concentration and purity requirements.
^
5
For instance, the persistence, toxicity, and widespread occurrence
in the blood of general populations and wildlife, of surfactants such
Globally household cleaning and as perfluorooctanesulfonic acid (PFOS), perfluorooctanoic acid
detergents is the largest consumer (PFOA), and perfluorononanoic acid (PFNA) has led to PFOS being
declared a persistent organic pollutant by the Stockholm Convention.
of surfactants accounting for ~ 70% of Additionally, PFOA has been subject to a voluntary agreement by the
total consumption U.S. Environmental Protection Agency and eight chemical companies
to reduce and eliminate emissions of the chemical and its precursors.
> 57
SURFACTANTS

Table 18: Types of surfactants The Indian market for surfactants is estimated at USD 2.6 bn in 2014
(8.5% of the global market). It is expected to grow at a CAGR of 13%
Type : ANIONIC SURFACTANTS over 2014-19, more than twice the global rate to reach USD 4.8 bn
by 2019. The personal care segment of the surfactants market is
Characteristics : High foam and dirt removal properties
estimated at USD 0.3 bn in 2014 and is growing the fastest. It is
Uses : Shampoos, toothpastes, body wash formulations, expected to reach USD 0.6 bn by 2019, growing at a 16% CAGR.
laundry detergents and dishwashing products
Type : NONIONIC SURFACTANTS t Scale : In India, competition is largely price driven and based
Characteristics : Can be used with high salinity or hard only to a small extent on product attributes. Bio-surfactants are
water; compatible with other types, excellent candidates for expensive and would provide higher margins but the Indian market
complex mixtures; low toxicity levels has not yet reached a point where consumers would be willing
Uses : Cosmetics, personal care products like shampoos, to pay a higher price for similar functionality. Understandably,
bath and shower products, home care products like liquid for synthetic products, scale and process efficiencies are key to
detergents being profitable. Price based competition and accompanying
commoditization has driven down margins in many product
categories. Also, in many cases, scaled up Chinese players with
Type : CATIONIC SURFACTANTS
favourable costs structures are affecting the competitiveness
Characteristics : Helps in conditioning due to substantiality of Indian players. In order to survive and succeed in such an
to hair and antimicrobial properties environment, scale is necessary to lower unit costs.
Uses : Hair conditioners and fabric softeners
t Specialization : Differentiated players offering specialty
Type : AMPHOTERIC SURFACTANTS surfactants to niche applications such as that in personal care,
agrochemicals, paints, textile, oil drilling, etc. are less likely to
Characteristics : Dermatological properties and reduction of
suffer from margin pressures arising from commoditisation. Such
skin irritation
products may offer unique properties such as anti-foam, adhesion,
Uses : Personal care and household cleaning products antistatic, corrosion inhibition, leveling, etc. or application specific
properties.
Strong growth in Indian market; Personal care is growing at D. TRENDS SHAPING THE MARKET
the fastest rate
Ideal time for MNCs to expand presence in India
1.2
Though the industry faces certain challenges, this is an ideal time
%
15
for MNCs to acquire Indian players and expand their presence in

GR
0.6
CA
%
16 the Indian market driven by the following factors
GR
CA 1 2%
GR
14%
0.6 CA 1. Demand is expected to grow rapidly : Demand for
GR 0.3
CA 14% surfactants in India is expected to grow at more than twice the
R 3.0
CAG
0.3 % global rate. MNCs already present in India (BASF, Croda, Solvay)
R 14
0.2 CAG 1.7
are focused on consolidating their position, whereas other large
0.9
global players would look at entering a high-growth market.
2009 2014 2019F
Home Care Personal Care Industrial & Other
Figure 66: Indian market for surfactants in USD bn

(production)
Source: Emkay, Frost and Sullivan, Avendus Analysis
^ The Indian market for surfactants is USD 2.6 billion and is projected to grow at a CAGR
of 13% over 2014-19
Personal care surfactants is the fastest growing segment of the Indian market,
projected to grow at a CAGR of 16% over 2014-19
58 <
2. MNCs have the ability to consolidate and build scale : 35% High performance segment
Most Indian players are struggling since they are not sizeable 30%
enough to take advantage of the economies of scale. MNCs may be
Viswaat*
Growth (CAGR FY11-15)

able to acquire few medium sized Indian players and have a large 25%
enough scale to operate profitably. 20%

Aarti (Home &
Personal Care)
Median EBITDA margin

Building scale and backward integration are capital intensive 15% Sunshield
Industry growth rate
solutions. Currently most Indian players are not in a position to 10%
make such investments. However, MNCs may be able to make the
5% Godrej
best of this opportunity. (Chemicals)
0%
0% 2% 4% 6% 8% 10% 12%
E. COMPETITIVE LANDSCAPE EBITDA Margins (average of FY12-15)
The average industry EBITDA margin stands at ~ 7.4%. The margins Figure 68: Competitive landscape of surfactants in India
are expected to stay at these levels, despite reduction in price of Source: Annual Reports, MCA
crude oil, as most of the benefits are passed on to the customers. *Up to FY14
Table 19: M&A activity and capital expansion A few Indian players are Godrej Industries, Aarti Industries, Advance
Surfactants, Unitop Chemicals, Venus Ethoxyethers, Sterling
Auxiliaries and Viswaat Chemicals.
2013 :
Godrej commissioned a new oleo-chemicals facility at F. FUTURE OUTLOOK
Ambernath with an investment of ~ USD 50 mn
The segment is expected to witness solid growth, however,
profitability would continue to remain challenged in the near term.
2012 : This is expected due to the following :
t Solvay, a Belgian chemical company, acquired Sunshield
Chemicals, an Indian surfactants manufacturer 1. Surfactant manufacturers have little bargaining power with
raw material suppliers who are much larger than them.
t BASF invested USD 167 mn to setup a new production
facility in Dahej, Gujarat; This would produce surfactants to 2. Customers (FMCG giants) compete on price and in turn
cater to home and personal care segments squeeze suppliers including surfactant manufacturers.
3. Price competition with Chinese imports is a threat to the
2011 : domestic industry.
Huntsman acquired the chemicals business of Laffans
Petrochemicals taking ownership of their 60 KT ethylene For Indian players the opportunity lies in the movement towards
oxide derivatives facility in Ankleshwar, Gujarat; This added specialized surfactants. This is also an opportunity for MNCs with
specialty intermediates for use in agrochemicals, household capabilities in specialty surfactants to enter the market. With a high
growth rate and better margins than conventional surfactants,
and personal care products, oil and gas applications and
specialty surfactant presents a ripe opportunity in the Indian
automotive lubricants and brake fluids to its portfolio
surfactants space.
10.0% 10.0%
8.2% Median 7.4%
6.2% 6.5%
5.9%
Sunshield* Aarti Viswaat Godrej Venus Sterling

(Surfactants)
Figure 67: EBITDA margins of some Indian players (FY12-15)

Source: Annual Reports, MCA
*FY15 data not included due exceptional events; Viswaat Up to FY14;
Venus and Sterling Management estimates
> 59

POLYMER
ADDITIVES
Indian Market Size
Profitability
Market Growth Rate
60<
60 <

t Global market size of USD 43.4 bn; to grow at ~ 5% over 2014-19. Growth to be driven by shift towards
environmentally safe and high performance polymer additives
t Indian market size of USD 0.4 bn; to grow at 10% over 2014-19. Growth to be driven by growth in
automobiles and white goods
KEY SUCCESS FACTORS

t Product differentiation to prevent the otherwise common commoditization in the segment
t Diversification of product portfolio and applications / customer base

t Environmental regulations are tightening, resulting in a shift towards environmentally safe, high value
products

t Indian polymer additive market is dominated by MNCs; BASF is the market leader in high margin segments
like flame retardants, light stabilizers and antioxidants
t The plasticizers segment has a large number of unorganized players, leading to intense price competition
and margin pressure
FUTURE OUTLOOK

t Differentiated players will capitalize on the segment growth
> 61

Polymer Additives
Sector dominated by global majors, with few differentiated Indian
players
A. INTRODUCTION TO THE MARKET The Indian polymer additives industry is small but is growing
rapidly, driven by increase in usage by end-use industries
Polymer additives are substances added to plastic resins to form
such as automobiles and white goods. Globally, there is
process ready polymer compounds or to modify or impart specific
untapped potential in construction industry.
changes to their property. The result of introducing an additive
into a compound can vary from enhancing its properties to merely
A major challenge faced by plastics segment is environmental
changing its colour.
impact a lot of effort is concerted globally on recycling.
Addition of fillers and certain colorants may adversely impact
Additives can also be used to improve the characteristics of
the recyclability of plastics. Certain additives, however, help
polymers such as strength, lustre, durability or heat sensitivity.
retain properties of the plastics during recycling process.
Polymer additives comprise less than 1% of the total weight of
Recycling of plastics, however, is still at a nascent stage
the end product (additionally, fillers may comprise a much higher
in India.
percentage by weight, however, they are bulk materials and are
not covered in this report).
Value Chain
Plastic
Plastic
Raw material Plastic resin Plastic Plastic product
end-of-life
manufacturer manufacturers compounders converters distributors/
businesses
users
Role played in Supply Polymerize Prepare plastic Convert OEMs, Waste
value chain petrochemicals, monomers to formulations the plastic retailers, etc. management
chemical form polymers; by mixing or/ resins and companies,
feedstock and may combine and blending compounds recyclers
additives multiple polymers and into finished and energy-
polymers additives into products from-waste
process ready operators
pellets
Figure 69: Value chain of plastics
Types of polymer additives
1. Plasticizers : These are additives that improve the ease of processing of intermediates to plastic compounds. They increase
fluidity (reducing viscosity), and impart greater flexibility and durability (plasticity) to the end material (plastics). Applications
includes PVC products, particularly the ones used for cables and wires.
2. Heat stabilisers : These protect plastics from the degrading effects of heat. The major application includes PVC products used
in construction such as window profiles, pipes and cable ducts.
3. Antioxidants : These prevent oxidative degradation (across manufacturing, processing and end-use stages) of polymers /
plastics in order to minimize changes in colour, physical and mechanical properties such that they are within acceptable limits.
4. Others : Other significant additives are light stabilisers and flame retardants. Light stabilisers protect polymers (especially
polypropylene and polyethylene) from the long term degradation from ultraviolet component of light. Flame retardants inhibit,
suppress or delay development of flames to prevent spread of fire.
^ The global market for polymer additives was USD 43.4 bn in 2014
This market is expected to grow at 4.9% p.a. over the next five years
62 <
Table 20: Polymer additives application by segment The global market size of polymer additives market was USD 43.4
bn in 2014. Over 2009-14 the market has grown from USD 37.4
Segment : PLASTICIZERS bn at a CAGR of 3.0%. Over the next five years the growth rate is
Key manufacturers : Clariant, KLJ Group, Amines Plasticizers expected to accelerate to 4.9% p.a. and the market is to reach USD
Limited, Payal Group, Adeka India, Makwell Plasticizers 55.2 bn in 2019.
Applications : Wire and cable insulation, construction, The increase in growth rate is expected due to the shift towards
flooring and carpets, automotive, household, medical environmentally safe, high performance polymer additives. Rise
in environmental awareness and interventions by governments
Segment : HEAT STABILISERS to promote non-toxic polymer additives are encouraging global
Key manufacturers : Baerlocher India, Adeka India, Suvarana companies to concentrate R&D efforts towards development
Additives of environmentally safe additives. Certain segments, such as
phthalate-based plasticizers, are facing stringent regulations in
Applications : Wires and cables, engineering plastics, white
developed nations (especially in the European Union) due to their
goods
adverse health impacts.
Segment : ANTIOXIDANTS Key global players include BASF (Germany), Chemtura (USA),
Key manufacturers : BASF, HPL Additives, Adeka India Exxon Mobil (USA), Bayer (Germany), Clariant (Switzerland), Kaneka
Applications : Engineering plastics, automobile, water (Japan), Lanxess (Germany), Zeon Chemicals (USA), Axel Plastics
treatment, corrosion inhibitors Research Laboratories (USA) and Dow Plastic Additives (USA).
Globally the major end-use industries for plastics and polymers

Segment : OTHERS utilising specialty polymer additives include construction,
Key manufacturers : Clariant, BASF, Adeka India, Pluss automobile and white goods.
Polymers
Applications : Construction, automobile, white goods, Small base, but sustained growth in the Indian market
adhesives, engineering plastics
0.7
0 %
G R1
B. MARKET SIZE AND MARKET GROWTH CA
Modest growth in global demand 10% 0.4

GR
CA
.9%
R4 55.2
CAG 0.3
3.0%
CAGR 43.4
37.4
2009 2014 2019F
Figure 71: Indian market for polymer additives (USD bn)

Source: FICCI; Literature review
^
2009 2014 2019F
Indian market was USD 0.4 bn in 2014,
Figure 70: Global market for polymer additives (USD bn)
Source: BCC Research; Allied Market Research; Literature review quite small by global standards
It is expected to grow at ~ 10% p.a.

over 2014-19
> 63
POLYMER ADDITIVES

Pegged at USD 0.43 bn in 2014, the Indian market for polymer End-use applications are growing
additives is very small compared to the global market. The market
PVC accounts for ~ 40% of application of additives in India,
has grown at a 10% CAGR over 2009-14 (USD 0.27 bn in 2009).
followed by poly-olefins which constitute ~ 20%. The consumption
Over the next 5 years the market is expected to continue growing
of PVC in India has grown rapidly in the last decade due to its
at the same rate to reach a market size of USD 0.7 bn in 2019, still
end-applications in pipes, conduits, wires and cables, medical
constituting only 1.3% of the world market.
packaging, doors, partitions and windows.
The demand for plastics is increasing in India leading to growth
Poly-olefins find application in industries such as packaging, film
in demand for polymer additives. In India the largest consumer
and sheet, automobiles, white goods, construction, etc. India is also
of plastics include automobile and white goods. Construction is
among the fastest growing markets in the world for polyethylene
an emerging opportunity, with the use of performance products
and polypropylene.
such as Wood Plastic Composite (WPC) and Aluminium Composite
Panel (ACP) increasing steadily. Other applications include synthetic adhesives, thermal stabilisers
for wires and cables, engineering plastics, etc.
One of the high growth segments in polymer additives in India
is flame retardants which finds applications in white goods, 707
automobiles and construction sector. The Bureau of Indian CAGR 2014-19
Standards has introduced mandatory norms advocating the use of
262 PVC 12.5%
flame retardant materials in various industries to promote safety
against fire hazard. Implementation so far, however, leaves a lot to 439
Polyolefins 8.0%
be desired. 129
176
Others 8.3%
Low per capita consumption of plastic in India, significant 88
headroom for growth 317 Overall 10.0%
176
USA 109 2014 2019F

PVC Poly-olefins Others
China 45
Figure 73: Indian polymer additives consumption by
application (USD mn)
Brazil 32 Source: FICCI; Plastindia Foundation; Platts; Avendus Analysis
Global average = 45 kg per capita Commoditization in the plasticizers segment

India 10
Figure 72: Per capita consumption of plastic (kg per capita) Others
Source: Statista; Plastindia Foundation; Literature review 27%
The per capita consumption of plastic in India is less than one-

fourth of that of the world average, with some developed markets Plasticizers
42%
consuming over ten times the per capita consumption of India.
Antioxidant
This exemplifies the headroom for growth in this area.
9%
Heat
^
stabilisers
22%
Worldwide the biggest consumer
industries for polymer additives Figure 74: Indian polymer additives market segmentation
include construction, automobile and Source: FICCI; Literature review
white goods
42% of the Indian market comprises of plasticizers. However, this
Low penetration of plastics in India, with segment is witnessing commoditization and price competition
per capita consumption of less than from unorganised sources, resulting in margin pressures. Major
Indian players and MNCs are focusing on value added segments
one-fourth of the global average
such as heat stabilisers (22% share) and antioxidants (9% share) or
64 <
specialized applications such as plastics or polymers for automotive Table 21: Polymer additive MNCs in India
coatings, food grade packaging, medical devices / packaging, etc.
CLARIANT CHEMICALS (SWITZERLAND)
Current Indian operations : Produces polymer additives like
t 1SPEVDUEJFSFOUJBUJPO antioxidants, processing/ light stabilisers, flame retardants
Certain polymer additives tend to become commoditised resulting and antistatic agents in India
in squeezed margins over time. Plasticizers as a category has India strategy : Focusing on flame retardants for automobiles
witnessed fall in margins as product differentiation has faded and white goods
away. Players such as HPL additives have stayed ahead of the peers
by focusing on alternate, differentiated products.
BASF (GERMANY)
t %JWFSTJFEQPSUGPMJP Current Indian operations : Present in antioxidants, light
stabilisers and flame retardants in India
Polymer additive manufacturers with a concentrated customer
India strategy : Expecting increase in light stabilisers due
base or application focus have seen their profitability getting hit
to increase in demand from major polymer producers and
over time. With increasing competition in end industries such as
increasing use of plastic in packaging sector
automobiles, wire and cables resulting in cost optimization efforts,
many polymer additive players have been adversely affected
by price wars. However, niche end-use segments like medical LANXESS (GERMANY)
packaging and construction have been highly attractive and Current Indian operations : Manufactures antioxidants,
profitable. Players with a broad set of customers across diverse flame retardants and plasticizers for PVC; Has a plant for
industries perform better than those with customer and / or end polymers and intermediates in Jhagadia, Gujarat
industry concentration. India Strategy : Expects growth opportunities in automotive
sector for innovative polymer products
D. KEY TRENDS SHAPING THE MARKET
Environmental regulations are tightening BAERLOCHER (GERMANY)
With the tightening of environmental norms both globally and in Current Indian operations : Has polymer additive production
India, the polymer additives market is shifting to environmentally capacity of 17,000 MTPA in India and its plant is located in
safe, higher value products. Dewas, Madhya Pradesh; Their main focus is in heat stabilisers
in India
The European Union legislation, REACH exempts polymers supplied
India Strategy : Bullish about the Indian market and has
to European nations from registration. However, all monomers
recently doubled the capacity of its Dewas plant producing
and other ingredients present in the polymer (constituting over
solid and liquid PVC stabilisers; Expects huge potential in
2%) need to be registered. Thus European manufacturers as well
PVC for construction
as importers of polymers need to register all such raw materials.
This would impact several polymer additives as well, potentially
increasing the cost of manufacturing. Some Indian companies like HPL Additives and Pluss Polymers
are focussing on bringing niche innovative products in the value
E. COMPETITIVE LANDSCAPE AND COMPANIES TO added segments. For instance, one of the innovative products
WATCH OUT FOR of Pluss Polymers is a compatibilizer, which works with different
There are 30+ organised players in the Indian polymer additives polymers and is useful in mixed plastic recycling.
market. The organised market is dominated by MNCs such as
For many polymer additive businesses raw materials constitute 60-
Clariant Chemicals, BASF, Lanxess, Baerlocher, Akzo Nobel, Adeka
65% of their total sales, and labour is 10-15%. Gross margins are
and Dow Chemicals. Some of the organised Indian players are KLJ
generally 20-30% while EBITDA margins are in the 10-15% range.
Group, Fine Organics, HPL Additives and Pluss Polymers.
However, EBITDA margin for commoditised products such as
BASF, after its acquisition of Ciba, is the market leader in higher plasticizers is low, usually under 10%.
margin segments such as flame retardants, light stabilisers and
antioxidants. In plasticizers category, there are a large number of
unorganised players, leading to intense price competition and
resultant margin pressure. Most Indian companies offer plasticizers,
however, some large players are moving towards differentiated
high value segments.
> 65
POLYMER ADDITIVES

Companies to watch out for F. FUTURE OUTLOOK
Differentiated players will capitalise on the segment growth
HPL ADDITIVES
The Indian polymer additives market accounts for only ~ 1% of the
Product Differentiation : Offers specialty polymer additives
global market, and the growth opportunity has not materialised in
such as anti-oxidants, blowing agents, clarifying agents, etc.
full. The model of usage and application of polymers in developed
Diversified Portfolio : Wide product range across the countries suggests that there is a huge market potential in India
additives segment for similar applications. This is further driven by opportunities
Diversified customer base across domestic market and access in growing end industries such as automobiles, white goods,
to export geographies packaging, construction, medical supplies, etc.
The polymer additives segment is fairly capital intensive and

HPL Additives commands significant investments. R&D and new product
HPL Additives (formerly known as High Polymer Labs Limited) is an development is largely the domain of global giants. As a product
Indian polymer additives provider, also operating in other related matures it tends to get commoditised and its margins fall, thus to
specialty chemicals such as hydrazine derivatives, water treatment succeed in this segment it is important to stay ahead and focus on
chemicals, etc. It has over 50 years of experience in this space, launching innovative products.
with indigenous technology in specialty additives chemicals. It
has a widespread geographic access, both in domestic and export Most of the global polymer additive companies are already
markets (supplies across ~ 50 countries). Exports to Europe and US present in India with their product range largely focused on
account for ~ 50% of its turnover. The key differentiators for the high margin segments. Most of the Indian companies face price
business are its product portfolio and market access, resulting in competition in less differentiated segments. However, there are
a well established market position it is the market leader in the a few players focussing on differentiated segments by investing
polymer additives space with a large majority of domestic market in product innovation. As the traditional segments mature and
share. stagnate with declining profitability, it would be important for
them to make a move towards newer opportunities.
50.9
16%
41.3 13%
14% 12% 39.9
36.6
31.5 31.8
9%
8%
4.3 5.0 4.4 5.2 4.7

3.1
FY 09 FY 10 FY 11 FY 12 FY 13 FY 14
Figure 75: HPL Additives (USD mn)
Source: MCA; Avendus analysis
66 <
> 67

PERSONAL CARE
INGREDIENTS
Indian Market Size
Profitability
Market Growth Rate
68 <

t Global market size of USD 2.7 bn; to grow at 5.7% over 2014-19. Growth to be driven by emerging markets in
Asia Pacific and shift towards natural ingredients
t Indian market size of USD 0.3 bn; to grow at 15% over 2014-19. Growth to be driven by increasing
penetration of personal care products particularly in rural India and trend towards premiumisation
KEY SUCCESS FACTORS

t Product innovation and differentiation is critical to maintaining profitability
t Strong relationship with clients for business continuity, price protection and enabling customization as a part
of product development

t Product differentiation and R&D is the key to profitability
t Premiumisation trend in personal care products is driving demand
t Shift towards natural active ingredients for personal care products in global markets

t The personal care ingredients market in India is dominated by MNCs including Merck, DuPont, DSM, BASF, etc
t Many Indian players, especially small and midsized companies, are largely present in inactive ingredients as
compared to active ingredients; Actives players include Kumar Organic Products, Vivimed Labs, Sami Labs
t Companies to watch out for - Kumar Organic Products
FUTURE OUTLOOK

t Strong margins will persist coupled with huge growth opportunities
> 69

Personal Care Ingredients
Market dominated by MNCs; Innovation is key to success

A. INTRODUCTION TO THE MARKET This section focuses on active ingredients. Few key inactive
ingredients are covered within the sections on surfactants and
Personal care products cover a diverse array of products we use
polymer additives.
in our daily life, including skin care, hair care, cosmetics and oral
hygiene products. It represents a large market, dominated by
Types of personal care ingredients
MNCs with some of the most recognizable brands globally.
Personal care specialty ingredients are classified into active and
While brands are known to all, there is less awareness of the inactive ingredients based on their role in the product.
chemistry behind these products or the ingredients constituting
them. Inactive ingredients alter physical properties of personal care
formulations. These include surfactants, preservatives, colorants
Ingredients used for personal care products can either be and polymer ingredients.
undifferentiated bulk chemicals (waxes, solvents, etc.) or specialty
chemicals. Active ingredients add functionality to products, offering specific
benefits to the end-user. Active ingredients include anti-ageing
Specialty personal care ingredients constitute ~ 30% of the overall agents, exfoliants, conditioning agents and UV protecting agents.
personal care ingredients market and are further sub-divided into
active or inactive ingredients.
Table 21: Illustrative composition of a conditioning shampoo : Actives constitute a small part by weight of end product
INGREDIENT WEIGHT (%) FUNCTION CATEGORY

Deionized water 68.7% Diluent -
Carbomer 0.5% Rheology modifier Inactive specialty ingredient
Sodium Hydroxide 0.4% Neutralizer Bulk chemicals
Glycerin 1.2% Humectant Bulk chemicals
Sodium Trideceth Sulfate 13.9% Surfactant Inactive specialty ingredient
Cocamidopropyl Betaine 8.0% Surfactant Inactive specialty ingredient
Polyquatermium -22 1.0% Conditioner Active specialty ingredient
Citric Acid 0.2% pH Adjuster Bulk chemicals
Ethylexyl Methoxycinnamate 1.0% UV Filter Active specialty ingredient
Glycol Disterate 0.8% Pearlescent Agent Inactive specialty ingredient
Glyceryl Stearate 1.5% Pearlescent Agent Inactive specialty ingredient
PEG-120 Methyl Glucose Trioleate 0.7% Thickener Inactive specialty ingredient
Benzyl Alcohol 0.2% Preservative Inactive specialty ingredient
Source: Lubrizol website
^ Personal care specialty ingredients comprises active and

inactive products
70 <
Table 22: Common active ingredients and their uses
INGREDIENT NAME USED AS USED IN

Triclosan Anti fungal agent Shampoos and soaps
Hexylresorcinol Anesthetic, antiseptic and anthelmintic Skin care products including anti ageing
agent creams
Saccharomyces ferment lysate filtrate Skin conditioning agent Anti ageing creams and moisturizing
creams
Pro-Cysteine Anti ageing, skin whitening and Anti ageing creams and skin whitening
depigmentation agent creams
Zinc pyrithione Anti fungal and anti bacterial agent Anti dandruff shampoos
Piroctone olamine Anti fungal agent Anti dandruff shampoos
Minoxidil Vasodilator Hair loss prevention products
Aminexil Vasodilator Hair loss prevention products
Ciclopirox olamine Anti fungal agent Shampoos and nail paints
Hyaluronic Acid Anti ageing agent Anti ageing products
Ethylhexyl triazone UV agent Sunscreen
Natural active ingredients are usually the raw materials for natural ingredients, modified by
physical and biological processes. Natural ingredients tend to be
Specialty active ingredients can be further classified as
much more expensive than synthetic ingredients due to the high
synthetic or natural, based on the feedstock and the conversion
raw material cost and greater complexity of the manufacturing
process. Synthetic ingredients are made of chemical feedstock
process employed.
and the process involves chemical reactions. Plant extracts
Value Chain of personal care products
Basic feed Ingredients FMCG

Retailer Consumer
stock Manufacturer Manufacturer
t Dow Corning t Vivimed Labs t Unilever t Big Bazaar

t BASF t Kumar Organic t P&G t Spencers
t DSM t Merck t LOreal t Body Shop
t BASF
t DSM
The personal care products value chain starts with the basic feed Personal care ingredients manufacturers are usually at risk of
stock producer and moves to the ingredients manufacturer, being squeezed between suppliers and customers as both
FMCG manufacturer, retailer and finally the consumer. The groups have strong bargaining powers - suppliers are mostly
basic feed stock can be petrochemical derivatives or natural the large petrochemical companies while customers are FMCG
products such as palm oil, palm kernel oil, coconut oil, giants. Therefore innovation and differentiation is a critical
soy bean oil, rapeseed oil, etc. factor for ingredient manufacturers to maintain their market
position and financial performance.
> 71
PERSONAL CARE INGREDIENTS

B. MARKET SIZE AND MARKET GROWTH 3.6
CAGR 2014-19
0.7
Continued growth in the global market 2.7 Skin care 4.7%
0.4
0.5 Hair care 5.0%
% 3.6 0.4
5.7
GR 0.3
CA Cosmetics 4.8%
0.3 0.6
R 4.5% 2.7 0.5 Fragrances 4.4%
CAG 0.4
0.3
2.2 Oral care 6.0%
0.9 1.1
Overall 5.7%
2014 2019F
Skin care Hair care Cosmetics Fragrances
Oral care Other toiletries
2009 2014 2019F
Figure 78: Global market growth for personal care active
Figure 76: Global market for personal care active ingredients
ingredients by product class (USD bn)
(USD bn)
Source: Kline Group; Literature review
Skin care is the largest segment, constituting 32% share of the
The global market for personal care active ingredients in 2014
overall market and is expected to grow at ~ 4.7% over the next
is estimated to be around USD 2.7 bn. Over 2009-14 the global
5 years. With a CAGR of 6%, oral care is expected to be one of the
personal care active ingredients market has experienced a CAGR
fastest growing segments in the 2014-19 period. Growth drivers of
of 4.5%. Over the next 5 years it is estimated to grow at 5.7% CAGR
oral care ingredients vary by geography in developing countries
resulting in an USD 3.6 bn market by 2019.
it is driven by the growing affluence and purchasing power of
3.6 consumers, while in developed countries it is the increasing
0.2 CAGR 2014-19
sophistication in oral hygiene routines that is driving growth.
0.5 Europe 4.2%
2.7
0.2 0.3 North The personal care ingredients industry is dominated by a few large
4.3%
0.3 0.4 America
MNCs which together account for over 50% of the total market.
0.3
0.2 0.3 Japan 2.0% Some of the large MNCs operating in this sector include BASF,
0.3 China 11.0% Cognis, Dow Corning, DSM, ISP and Merck.
0.7
0.5 Brazil 3.1%
India 15.0% Indian market growing on the back of domestic demand
1.2
1.0 and export opportunities
Overall 5.7%
2014 2019F
Europe North America Japan China Brazil 0.5
India Others
%
Figure 77: Global market growth for personal care active

15
GR
CA
ingredients by regions (USD bn)

12% 0.3
Europe is the largest market accounting for 35% of total demand. GR
CA
North America is the second largest market with 20% share. Other
0.1
large markets include Japan, China, Brazil and India.
The growth in the global demand for personal care products is

2009 2014 2019F
driven primarily by emerging markets in the Asia-Pacific region,
Figure 79: Indian market for personal care active ingredients
particularly China and India which are expected to grow at 11%
(USD bn)
and 15% respectively in 2014-19F. USA and Europe are expected
to grow at 4.3% and 4.2% respectively primarily driven by the shift
towards natural active ingredients.
^ In 2014, the global personal care active ingredients market was worth USD 2.7 bn and
is expected to grow at 5.7% p.a. over the next five years
72 <
The Indian market for personal care active ingredients grew at 12% 33%
CAGR over the last five years, from USD 0.1 bn in 2009 to USD 0.3
bn in 2014. Over the next five years the industry is expected to
grow at 15% to reach USD 0.5 bn by 2019.
Increasing growth in the 2014-19 period is primarily driven by the 30%

following factors :
a) Better market outlook : Improvement in economic
environment and increasing purchasing power of the Indian Fabric Softener Handwash
population
Figure 82: 2009-14 Growth rates of some premium
b) Increasing penetration : Penetration of personal care home & personal care products
products in India has been (and still is) very small compared to Source: IMRB
developed or even other developing economies; We expect a rapid
increase in the adoption of personal care products, especially in Traditionally this market has been dominated by global
rural markets majors such as BASF, DSM, Merck, etc. Some of the prominent
Indian players in personal care ingredients are Kumar Organic
Products Limited, Vivimed Labs and Sami Labs. Some of these
Japan 24.7
players (eg. Kumar Organic) focus exclusively on synthetic active
ingredients while players such as Sami Labs focus on natural
Europe 20.8
active ingredients.
USA 16.8
Table 23: Exports and expansion scenario
Brazil 16.0 COMPANY EXPORTS FOCUS NEW INVESTMENTS/
CAPACITY EXPANSION
China 12.2
Vivimed US, Canada, Expanding Alathur (Tamil
Labs Europe, CIS Nadu) plant acquired in
India 0.6 countries, SE Asia 2014 to meet requirements
from Europe, Canada and
CIS customers
Figure 80: Per capita monthly spend on personal care
products (in USD) Kumar US and Europe 25 acre manufacturing
Source: Euromonitor Organic facility in SEZ at Hasan,
Products Karnataka
c) Premiumisation : India is also witnessing increasing
consumption of higher end, discretionary and prestige products, Sami Labs US Expanding existing plants
which typically use higher value active ingredients driving growth Merck India Sri Lanka, Nepal, None
in the ingredients market. For instance, nearly 50% of the total new Lebanon, Kenya,
launches in the personal care space were premium brands driven Libya
by increase in disposable income, rising young working population
and growth in organized retail.
36%
Active
ingredients
34%
40%
33%
30%
Inactive
ingredients
60%
2009 2014
Soaps Shampoos
Figure 81: Share of spend on premium brands Figure 83: Personal care ingredients segmentation
Source: IMRB Source: FICCI ; Literature review
> 73

Segmentation 509
CAGR 2014-19
Personal care specialty ingredients can be segmented into active Conditioning

7%
192 agents
and inactive ingredients. In India active ingredients account for
UV
40% of the market by value, while the balance 60% is inactive 48 8%
253 ingredients
ingredients.
83 82 Anti-ageing
32%
18 ingredients
Active ingredients Market 20 81
56 Exfoliants 22%
106 Overall 15%
Others Conditioning 76
33% agents
30% 2014 2019F
Conditioning agents UV ingredients Anti-ageing ingredients
Exfoliants Other
Figure 85: Indian market growth for personal care active

ingredients by segment (USD mn)
Exfoliant
7% C. KEY SUCCESS FACTORS
UV ingredients
Anti-ageing 22% t Product innovation
8%
Innovation and differentiation is critical for players to maintain
profitability and prevent commoditization of ingredients.
Inactive ingredients Market
Regulatory environment is another driver of innovation, as
Colourants a number of synthetic active ingredients have been banned
5% across the globe due to potential health hazards. Ingredient
Polymer manufacturers have to focus on R&D to develop safer natural or
Preservatives
5% ingredients synthetic ingredients to replace such products.
51%
Innovation and differentiation has been the focus for Indian players
such as Kumar Organic Products, Vivimed Labs and Sami Labs.
Surfactants For instance, Kumar Organic is constantly looking out for newer
39% requirements from the USA and European markets and focuses its
R&D efforts accordingly.
t Relationship with clients

Strong relationship with clients based on differentiated product
offering is critical for players to be able to prevent squeezing of
Figure 84: Indian personal care ingredients market prices by customers and thus to maintain financial profile. Further,
segmentation (by value) collaboration with customers is essential to develop customized
Source: FICCI Industry Reports; Literature review
ingredients for their current portfolio and product pipeline.
Active ingredients comprise of conditioning agents, UV ingredients,
anti-ageing ingredients, exfoliants and others. Currently the largest
segment within actives is conditioning agents with a 30% share. Differentiation is key to profitability
This is followed by UV ingredients, with a 22% share. However,
these categories are now reaching saturation, and are expected 55%
to witness steady, single digit growth rate. Both anti-ageing 100% 5%
ingredients and exfoliants have ~ 8% share each, but are expected 5% 12-15%
to grow at a much more rapid pace. 20-23%
35%
^ The Indian personal care active

ingredients market in 2014 was worth
USD 0.3 bn and is expected to grow at
Total
Revenue
Raw
Materials
Labour Power and
Fuel
Gross
Margin
Figure 86 : Illustrative cost structure of an ingredient

manufacturer (average of key Indian players over
Other
Expenses
EBITDA
15% p.a. till 2019 FY13 and FY14)

Source: MCA; Annual reports; Avendus analysis
74 <
Raw materials on an average constitute 50-55% of the revenue for Stricter regulatory norms to impact competitiveness of
a personal care ingredients manufacturer. As recently as 10 years small companies
ago many of the raw materials used in manufacturing personal care
Indian companies exporting to developed countries, particularly to
ingredients were not available in India and had to be imported.
USA or European Union, have to comply with various international
This has changed, but most manufacturers still use a combination
regulations. For exports to USA, some categories of personal care
of local and global sourcing.
ingredients require FDA approval6. For European Union personal
care ingredients will fall under the purview of REACH from 2018.
For synthetic ingredients one of the major raw materials used is
Such regulations impose additional costs on Indian manufacturers
phenols. There are very few domestic manufacturers of phenols
but are necessary for establishing product acceptance for exports.
and much of this is sourced from global chemical giants like Dow
Corning and BASF. Typically such large chemical giants hold huge
Back to nature?
bargaining power over ingredients manufacturers and govern
price trends. There is a global shift towards natural ingredients for personal
care products. In the USA and Europe, several synthetic
Manufacturers of natural ingredients use plant extracts as raw ingredients have been banned or highlighted as potentially
materials. Some players have integrated backwards towards unsafe in the recent past due to their adverse health effects. For
contract farming (within and outside of India, as required) to instance, DEA (Diethanolamine), MEA (Monoethanolamine), TEA
ensure steady supply of raw materials. For instance, Bangalore (Triethanolamine) are commonly used in shampoos, soaps, bubble
based Sami Labs does contract farming in Tamil Nadu and Andhra baths and facial cleansers around the world, including in the USA.
Pradesh and also in Uganda and Kenya to secure access to key raw But research indicates that these three are hormone-disrupting
material. chemicals that are suspected to be carcinogenic and have been
banned in Europe. Such cases have led to greater demand for
Premiumisation in personal care products natural ingredients for personal care products.
Indian urban personal care market, especially in the metros, is
Several Indian companies are targeting export market and
witnessing a premiumisation trend. Consumers are demanding
domestic premium personal care product market for natural
premium personal care products. This opens up a larger domestic
ingredients. Certain nutraceutical players like Sami Labs have also
market for high margin active ingredients. Some Indian players
diversified into natural personal care ingredients with sourcing
already had premium active ingredients in their product portfolio
and process related synergies.
which they had been exporting to the western markets. Now such
players can increasingly target the domestic market with their
However, since natural active ingredients are estimated to be
premium products as well.
priced much higher than their synthetic counterparts, the latter
is expected to continue to dominate the market in the near term.
R&D is crucial for margin enhancement
Thus the segment is witnessing greater R&D efforts to launch new
Like many specialty chemical segments, R&D capability and focus and safer synthetic active ingredients with relatively low focus on
on innovation is a key differentiator in this industry, especially for natural ingredients.
active ingredients. Major global active ingredients players focus a
lot on R&D and hold product and process patents for several active Perhaps as a compromise, there is a trend towards natural like
ingredients. Indian players have traditionally manufactured off- products. Such products are derived from a combination of natural
patent actives. However, increasing number of Indian players are and synthetic ingredients or intermediates and are usually priced
realising the importance of innovation and expanding the scale of at a small premium over the corresponding synthetic ingredients.
their research efforts to develop new active ingredients.
^ R&D capabilities are a key

differentiator in the global market
The two fastest growing segments in the 6
FDA defines cleansing and beautification products such as
Indian market over 2014-19 are anti- moisturizers, lipsticks, fingernail polishes, shampoos, deodorants,
etc. as cosmetics not requiring FDA pre-market approval. Products
ageing ingredients (CAGR : 30%) and affecting structure or function of the body are classified as drugs,
exfoliants (CAGR : 20%) such as anti-dandruff shampoos, acne creams, sunscreen products,
antiperspirants and require FDA approval
> 75

E. COMPETITIVE LANDSCAPE AND COMPANIES TO Many Indian players, especially the small and midsized companies,
WATCH OUT FOR are largely present in inactive ingredients which have lower
margins compared to active ingredients. Active ingredients require
For players in this space, the risk of being squeezed between large extensive R&D and are mostly produced by MNCs who typically
vendors on one side and global MNCs on the other side is not a import them into India. However, a few Indian players like Kumar
desirable option. Most companies are working to enhance scale, Organic and Vivimed Labs do produce synthetic active ingredients
improve their differentiation, and enhance their bargaining power. and sell them to both MNCs and Indian majors.
Personal care ingredients market in India is dominated by MNCs 23%

including Merck, DuPont, DSM, BASF and Croda. The major Indian
companies producing active ingredients are Vivimed Labs, Kumar
Organic and Sami Labs.
20%
Kumar Organic Vivimed Labs (Specialty Chemicals)
Figure 88: 3 year average EBITDA margins of key personal

care active ingredient manufacturers in India
Source: Annual reports; Avendus analysis
Personal care active ingredients have very attractive margins.

Differentiated and pure-play personal care ingredient
Vadodara manufacturers such as Kumar Organic and Vivimed Labs have
20%+ EBITDA margin. This is due to the paucity of other large
domestic active ingredient manufacturers and the effort these
Hyderabad companies put on product innovation and building relationships
Bidar with clients.
Goa Vivimed Labs
Kumar Organic Companies to watch out for
Bengaluru
Sami Labs PRODUCT RELATIONSHIP
COMPANY
Merck India INNOVATION WITH CLIENTS
Kumar Spends ~ 2% of Has long term

Figure 87: Personal care ingredients manufacturing facilities Organic revenue on R&D; relationships
All technology with several major
development is in FMCG companies
house; Continuous in India and abroad
product innovation such as Unilever and
to produce products P&G
^
compliant with
European regulations
Active ingredient manufacturers in
India have attractive double digit
EBITDA margins Kumar Organic Products
Kumar Organic Products Ltd. is an Indian synthetic active
Small Indian companies are facing a ingredients company headquartered in Bengaluru. It also produces
ingredients for food and paint industry. Almost 65% of its revenue
regulatory squeeze in the export market come from exports which are primarily to the US and Europe.
due to increasing cost of meeting In India it supplies to multiple FMCG companies (both Indian
compliance norms per European
regulations
76 <
and MNCs) operating in the personal care products segment. To power vis-a-vis buyers), scale (getting monopolistic power) and
capture the high margin exports market Kumar Organic focuses backward integration (reducing the power of suppliers). The
its R&D efforts on new product development to meet even niche growth in demand, coupled with the increased move to naturals
demands. and high end synthetics will provide significant opportunities for
31.8 these companies.
29.1
21% 20%
21%
25.1 The domestic personal care market presents an interesting
18% 18%
22.0 17% opportunity area for active ingredient manufactures. The increase
in penetration of rural market will drive the growth of personal care
16.4
14.7 products in the near future. In the urban market premiumisation
trend is evident which provide greater market opportunity for high
6.1 6.5 margin active ingredients.
4.6 4.3
2.7 3.0
The global trend of shifting towards naturals will still take
FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 some time to become a factor in India due to cost
Revenue EBITDA EBITDA Margin considerations. Natural ingredients are priced significantly higher,
thus find it challenging to be able to become mainstream in
Figure 89: Kumar Organic (USD mn)
Source: MCA ; Avendus analysis
India (or even globally) in near future. However, they present
an interesting niche in the domestic market and offer export
F. FUTURE OUTLOOK
opportunities.
Strong margins; huge growth opportunities
Players that have focussed on R&D have developed a strong
Personal care ingredients manufacturers are often caught between product portfolio to cater to both the domestic as well as the
large suppliers (petrochemical players) and strong customers export market. To succeed in this segment companies need
(FMCG giants). They have been able to solve for this problem to develop a strong product portfolio and build lasting
through a few strategies product differentiation (increasing relationships with personal care product manufacturers.
> 77

CONSTRUCTION
CHEMICALS
Indian Market Size
Profitability
Market Growth Rate
78 <

t Global market size of USD 17.5 bn; to grow at 6.5% over 2014-19. Growth to be driven by increase in
construction projects across emerging markets
t Indian market size of USD 0.6 bn; to grow at 15% over 2014-19. Growth to be driven by housing projects,
infra projects and rising focus on quality of construction
KEY SUCCESS FACTORS

t Branding and Marketing are key differentiators for success in the B2C segment
t Technical expertise and good references are the key for success in B2B segment

t Globalisation of the value chain; Manufacturing capability is expected to remain in China, North America and
Europe while consumption would grow in emerging markets
CHALLENGES FACING THE MARKET

t Lack of trained workforce which is able to handle and apply construction chemicals
t Tendency of Indian construction companies to trade long term benefits of construction chemicals with short
term reduction in construction costs

t Largely an organized market however, with low margins
t MNCs dominate B2B market due to references in large construction projects. Indian players dominate B2C
segment due to a better understanding of local distribution channels
t Companies to watch out for - Pidilite
FUTURE OUTLOOK

t Indian market is still in a nascent stage with significant growth opportunities ahead in both B2B and
B2C segments
> 79

Construction Chemicals
Fragmented industry with strong macro drivers

A. INTRODUCTION TO THE MARKET Construction chemicals follow both B2B and B2C model for
marketing. These models have different products, players and key
Construction chemicals are specialty chemicals used in
success factors :
construction projects (residential, industrial and infrastructure) to
increase the structural life or strength, impart additional protection
1. B2B : In this model, construction chemical manufacturers
against environmental conditions, or to reduce the quantity of raw
cater to various industrial, residential or infrastructure construction
material required.
projects. In this space, the past track-record of the construction
chemical company and ability to meet technical specifications of
The global construction chemicals market has witnessed the
the project are important factors. In India, this segment is largely
emergence of China as a leading consumer over the last decade.
dominated by MNCs such as FOSROC, Sika, BASF and SWC-Chryso.
China currently accounts for about a fourth of the global market.
2. B2C : In this model, chemicals are sold through retail outlets
The Indian construction chemicals market has quite a few
directly to consumers or small contractors. Branding and marketing
domestic companies, but only a handful have been able to create
are the most important drivers for this segment. Indian companies
strong consumer brands of scale. Many global companies have
dominate this segment with Pidilite as the market leader. This is
also entered India, both organically as well as inorganically, and
largely a result of the fragmented nature of distribution network in
dominate the institutional (B2B) market.
India, which is better understood by local players.
Construction chemicals globally constitute less than 5% of the cost
Type of products
of a construction project. However, the Indian construction industry
is very price sensitive and has not been an active consumer of The major product categories in construction chemicals market
construction chemicals. With the adoption of global construction are :
techniques, the use of construction chemicals is expected to rise
1. Concrete admixtures : These are ingredients in concrete
rapidly.
other than cement, water and aggregate that are added to the
mix immediately before or during mixing. Normally, admixtures
constitue less than 5% the mass of cement in the mixture. These
Raw material are added to provide the mixture certain characteristics such as
manufacturer extra strength, protection against corrosion, reduction of water in
the mix, coloration for aesthetics, etc.
2. Waterproofing chemicals : These enhance the shelf life of

Construction chemical concrete, in turn providing longer durability to a structure while
manufacturer reducing maintenance costs. They reduce water damage to the
structure, thereby preventing metal corrosion, electric hazards,
rotting of timber structures and finishes, swelling of plasterboards
B2C B2B
and growth of fungus.
Construction
Retail market
contractor
Consumer
Infrastructure/
industrial/housing
project
^ The global construction chemicals
market was USD 17.5 bn in 2014
The global market is expected to
grow at 6.5% p.a., driven by growth of the
emerging markets
Figure 90: Value chain
80 <
3. Adhesives and sealants : Adhesives are substances which on rise in construction projects across emerging markets and
application between two surfaces, binds them together and resists increased adoption of construction chemicals for improvement in
separation. Sealants are substances that block the passage of gases quality of projects.
or liquids through the surface, joints or openings in materials.
These products have a variety of applications in construction.
Rest of the World China
4. Flooring chemicals : These chemicals are used in flooring 26% 26%
and are particularly important for industrial construction. Some of
the most commonly used flooring chemicals are epoxy and floor
hardners, polyurethane coatings and polyurea based flooring
chemicals.
Japan
North America
12% 14%
5. Repair and rehabilatation chemicals : These chemicals are
used for repair and strenghtening of structures. They are used
Western Europe
in maintenance of historical structures, industrial building and 22%
infrastructure.
Figure 92: Construction chemicals consumption by
6. Others : One of the major construction chemical in this region, 2011
segment is grout. It is a construction material used to embed Source: FICCI
rebars in masonry walls, connect sections of pre-cast concrete, fill
Currently China is the biggest market for construction chemicals
voids and seal joints (such as those between tiles).
globally followed by North America. Other major global markets
for construction chemicals are Western Europe and Japan.
China dominates the global market India 15.0%
24.0
% China 12.0%
.5
G R6
CA
South Africa 7.8%
% 17.5
6.4
GR Brazil 7.0%
CA
12.8 5.0% Global: 6.5%

Germany
USA 2.4%
Figure 93: Growth rate forecasts (2014-19)

2009 2014 2019F
The global growth is driven by emerging markets such as China,
Figure 91: Global market for construction chemicals India, Brazil and South Africa. Despite the large size, the Chinese
(USD bn) market is expected to witness continued growth due to rising
Source: MarketsandMarkets; Literature review urbanisation and investments in infrastructure. Other emerging
markets are also growing on back of similar drivers.
The global market for construction chemicals in 2014 is estimated
^
to be worth USD 17.5 bn. In the last five years, global construction
chemicals market has witnessed a robust 6.4% p.a. growth, rising China accounts for 26% of the
from USD 12.8 bn in 2009. Over the next five years, the market is global market and is expected to
expected to grow faster at 6.5% p.a. to reach a market size of ~ USD grow at a CAGR of ~ 12%
24.0 bn by 2019. The key driver behind this growth is the expected
> 81
CONSTRUCTION CHEMICALS

The European and North American markets are growing Most small and medium construction projects in India trade-
moderately. Their growth is primarily driven by renovation of older off long term benefits for reduction of short term construction
structures. Germany is the largest market in Europe and also the costs. This is a major challenge, as construction chemicals
fastest growing. Its growth is expected from growth in residential typically constitute 2-5% of the total cost of a construction project
and commercial applications, driven by the growth of the German but their benefits far outweigh the cost, though they are seen in
economy. a longer term.
Huge growth opportunity in India In case of infrastructure projects, there are frequent situations
where a builder is responsible for operating the project.
1.2 Consequently, the acceptance of construction chemicals is higher
in such cases.
%
15
GR
CA
2% 0.6 t#SBOEJOH JO#$TFHNFOU
R1
CAG
In the retail segment, branding and marketing are the key
0.4
differentiators in construction chemicals. For instance, strong
marketing efforts have helped Pidilite establish its brand and
2009 2014 2019F emerge as a market leader in this segment. Other players like
CICO and Chembond are also concentrating on marketing and
Figure 94: Indian market for construction chemicals
have managed to establish regional brands (CICO in northern and
(USD bn)
Chembond in western parts of the country).
Source: Literature review; Industry Interviews and analysis
The Indian market for construction chemicals is still small at USD 0.6 t5FDIOJDBMFYQFSUJTF JO##TFHNFOU
bn (4% of global market). However, it has experienced a significant In the B2B segment, technical expertise and references constitute
growth of 12% p.a. between 2009-14.
the most important elements in winning a bid for a major
construction project, whether industrial or infrastructure. The
The Indian construction industry is expected to continue to grow
leaders in this segment are MNCs such as FOSROC, Sika, BASF and
over the next five years, driven by housing and infrastructure
SWC-Chryso who capitalise on their global experience to capture
projects, as well as increased penetration of construction chemicals
in such projects. The construction chemicals market is expected to projects in the Indian market.
grow at a CAGR of ~15% over the next five years, to reach USD 1.2
bn by 2019.
As global standards of construction are gradually adopted in Indian market dominated by concrete admixtures
India, the market for construction chemicals will continue to 6%
grow. Government policies promoting more environment friendly 28%
26%
buildings and push towards constructing green buildings will also
18%
impact usage patterns.
40% 14%
In India, the key challenge is lack of awareness about construction
42%
chemicals. Most construction chemicals manufacturers in India 26%
need to employ technically trained business development teams
to educate end-users and build the market. Global Market Indian Market
Concrete admixtures Protective/Waterproofing chemicals
The spending on concrete admixtures per square foot of Adhesives & Sealants Others
construction in India is half that of in China, and less than one Figure 95: Global and Indian market segmentation for
fourth that of the USA. This highlights the untapped potential for construction chemicals
construction chemicals in India. Source: Literature review; Avendus analysis
^ Globally construction chemicals constitute less than 5% of the total cost

of a construction project
82 <
Construction chemicals can be segmented into concrete manufacturing capabilities are expected to continue to remain
admixtures, protective / waterproofing chemicals, adhesives & in China, North America and Western Europe, while consumption
sealants and other construction chemicals. Protective chemicals are would grow in emerging nations.
the largest segment globally, constituting 40% of the total market
due to widespread use in USA and Europe against environmental E. COMPETITIVE LANDSCAPE
conditions such as cold weather.
An organised market, but with low margins
In India, the market is segmented differently, with concrete There are ~ 300 players in the Indian construction chemicals space.
admixtures constituting the largest part (42% share) of the market. 85% of the Indian market is organized. Some of the prominent
It is followed by adhesives and sealants at 18% and water proofing names in this segment include FOSROC, Sika, BASF, Pidilite, SWC-
chemicals at 14%. Other construction chemicals (including flooring Chryso, Chembond , CICO Technologies and Sunanda Specialty
chemicals) constitute the remaining 26%. Coatings.
The difference in structures of the Indian and the global markets

highlights the lack of awareness about the long term benefits of
specialized construction chemicals. Only products such as concrete Chrysos acquisition of SWC
admixtures that provide immediate tangible benefits (such as
Chryso is a leading French company specialising in
reduction of the amount of concrete and/or water used thus
construction systems. In 2013, Chryso acquired a 100%
savings costs) are popularly employed. Products such as protective
stake in 83 year old Indian construction chemical company
chemicals that provide protection against adverse environmental
Structural Waterproofing Company (SWC). Earlier in 2006,
conditions and increase the overall life of structures are less
Chryso had formed a partnership with SWC when it had
commonly used.
acquired a limited stake in the company.
Another major challenge is the widespread use of unskilled or
Chryso-SWC has manufacturing facilities located in West
semi-skilled labour at construction sites. The application of most
Bengal, Gujarat, Tamil Nadu and Rajasthan. It also has a state-
construction chemicals (other than concrete admixtures) requires
of-the-art R&D centre in Navi Mumbai. Its products include
a certain level of expertise at the workforce level, while most
concrete admixtures, cement grinding aids & activators and
projects in India lack trained workforce.
waterproofing chemicals. Its target customers are in the
1.2 CAGR 2014-19 B2B and infrastructure segments.
0.2
Concrete
12%
0.2 admixtures
Protective/ MNCs and large Indian companies target construction projects
0.2 Water-
20% in which they are typically able to charge premium prices (to
0.6 proofing
0.1 0.2 chemicals achieve gross margins in 20-30% range). However, the low cost
0.1 Adhesives
17% construction chemicals segment has relatively lower entry barriers
0.1 and Sealants
resulting in presence of many small and unorganised players.
0.1 Flooring
15%
0.5 chemicals
0.3 MNCs have traditionally been more successful in the B2B segment
Overall 15%
2014 2019F (particularly infrastructure) than Indian companies due to a
Concrete admixtures Protective/Waterproofing chemicals stronger product portfolio and international experience in large
Adhesives and Sealants Flooring chemicals Other industrial and infrastructure projects. The larger Indian companies
Figure 96: Segment wise growth for construction chemicals tend to be more successful in the B2C segment due to their better
Source: Literature review; Avendus analysis reach and branding efforts. Pidilite is the biggest Indian company
in construction chemicals and largely focuses on the B2C segment.
Globalisation of the value chain Other Indian companies targeting B2C segment include CICO
Traditionally North America and Western Europe have constituted Technologies and Chembond.
the largest markets as well as production hubs for construction
^
chemicals. These regions possess well established construction
chemical value chains. However, with the rapid rise of the Chinese Protective / waterproofing
construction industry, the construction chemical value chain chemicals constitute the largest
developed in China as well. Now, with the growth in construction segment of the global market,
market in other emerging nations and others such as Australia, with ~ 40% share
a more globalised model is being increasingly adopted. While
> 83
CONSTRUCTION CHEMICALS

21% Construction chemicals constituted 20% of Pidilites overall
revenue in FY15. While its overall revenue have grown at a CAGR
of ~ 17% over the past five years, construction chemicals have
Average = 13%
clocked nearly ~ 20% CAGR over the same period.
13%
10% F. FUTURE OUTLOOK

Indian market is still at a nascent stage; significant
6%
opportunities lie in the future
India remains a largely untapped market for construction chemicals
Pidilite Chembond CICO* Sika (Global)*
(Specialty Chemical) due to lack of awareness and a focus on short term costs. With
Figure 97: EBITDA margins of key companies in Indian and penetration levels being a fraction of global comparables, India
global construction chemicals market (FY12-15) represents barely ~ 4% of the world consumption of construction
Source: Annual reports; MCA; Industry Interviews and analysis chemicals. With growth tempering in China, the attention has
*Note: Up to FY14 shifted to other emerging markets and India is among those
Indian construction chemical players operate at relatively lower growing the fastest.
margins vis-a-vis their MNC counterparts. With the exception of
Pidilite, other Indian companies typically operate at a ~ 10% (or The most significant challenge faced by Indian construction
lesser) margin. chemical players is the pressure on profitability. Small scale
construction projects are highly price-sensitive as the builders
Companies to watch out for involved in such projects are focussed on short term returns rather
than long term sustenance. B2B (especially infrastructure) segment
Pidilite
offers better profitability but requires specific products matching
Pidilite is the largest adhesive manufacturer in India. It is also present global standards.
in other segments such as construction chemicals, art materials
and other industrial chemicals. Although it has some presence in Significant opportunities are expected in India going forward,
B2B segment through industrial adhesives, but it dominates the as both B2C and B2B markets are still underpenetrated. In B2C
retail segment in construction chemicals. It has several strong segment, more manufacturers need to focus on their marketing
brands such as Fevicol (adhesive), Dr. Fixit (waterproofing) and efforts and build successful brands.
M-seal (sealant). It is the largest Indian company in the construction
chemicals space. In B2B segment, opportunities lie in infrastructure segment,
where many projects are expected over the next few years.
Total revenue CAGR : 17% Several global players are already present in Indian market and
Construction chemicals CAGR : 20% 733.0 are vying for this opportunity. Indian players often miss out due to
19% 20% 20% 646.4
20%
their limited experience and technical expertise. The need of the
18% 555.3
17% 19% Indian manufacturers is to tie up with global players to build their
469.4
394.5
expertise in this segment as well.
293.5 322.0
FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15
Total revenue (USD mn) Construction chemical revenue %
Figure 98: Pidilites financial performance
Source: Annual reports
84 <
> 85

WATER CHEMICALS
Indian Market Size
Profitability
Market Growth Rate
86 <

t Global market size of USD 25.1 bn; to grow at 5.8% over 2014-19. Growth to be driven by strengthening
environmental regulations and rising water quality standards
t Indian market size of USD 0.4 bn; to grow at 15% over 2014-19. Growth to be driven by industrial and
municipal water treatment sectors in the short and long term respectively
KEY SUCCESS FACTORS

t Integrated value chain with ability to provide end to end water solutions

t Industrial water market is driven by power and energy segments while municipal water market is driven by
urbanization
t Integrated play on a rise with companies adopting solutions approach; either by offering end to end
solutions themselves or by tying up with other companies

t Organised players dominate the market for water chemicals with a 80% share
t The sector has the presence of both MNC and large Indian players
> 87

Water Chemicals
Largely an integrated water solutions play in India
A. INTRODUCTION TO THE MARKET foam in industrial liquids. Foam can hamper the operation of
industrial processes and affect the quality of the finished product.
The Indian water chemicals market is currently just 1.5% of the
If not controlled, foam can reduce efficiency of equipment and
global market. However, it is among the fastest growing markets
increase the duration of the industrial process, resulting in higher
and presents an interesting opportunity for both global and Indian
operating and maintenance costs.
companies.
4. pH adjusters : They are chemicals used to adjust the pH
Water treatment chemicals are used to add some specific
(acidity or alkalinity) of water in industrial and municipal water
properties to water or alter the physical or chemical properties
treatment. For instance, municipal water plants use pH adjusters
of water for domestic, commercial and industrial applications.
to maintain the pH of the water supply in the range of 7.0 7.5 to
In some developing countries, chemical water purification is
prevent corrosion of pipes and dissolution of toxic chemicals into
conducted at household level to provide safe drinking water. In
water.
developed countries and urban centres of developing countries,
this is generally done at the municipal level by civic authorities or
5. Boiler water chemicals : A boiler is used for generating steam
by water management organizations.
and is used in various industrial processes. Boiler water chemicals
are mainly used to prevent corrosion and scale formation in boilers.
The industrial applications of water treatment chemicals largely
This helps in improving the efficiency and useful life of the boiler.
entail waste water management, and enhancing efficiency of
industrial equipment by minimizing corrosive and other adverse
impacts of water. This section of the report is focused on industrial
and municipal market for water chemicals. Emerging markets driving global growth
%
Types of water chemicals 5.8 33.3
GR
CA
Based on their action, water chemicals are further classified 6%
R 5. 25.1
into coagulants, flocculants, biocides, disinfectants, algaecides, CAG
defoamers, neutralizing agents, oxidants, oxygen scavengers, 19.1

pH adjusters, boiler water chemicals, resin cleaners and scale
inhibitors.
The major categories are :

1. Coagulants and flocculants : They are chemicals that aid
2009 2014 2019F
the formation of floc or aggregates of suspended particles in a
solution. They are a key component of any wastewater treatment Figure 99: Global market for water chemicals (USD bn)
Source: Markets and Markets; Literature review
process as they aid the removal of suspended solids.
The global demand for water chemicals in 2014 is estimated at USD
2. Biocides and disinfectants : They are used to kill unwanted 25.1 bn. In the past five years the market has grown from USD 19.1
microorganisms present in water for wastewater and industrial bn at a CAGR of 5.6%. In the next five years the market is estimated
water treatment. The common applications of biocides include to grow at 5.8% p.a to reach USD 33.3 bn in 2019.
the use of chlorine for disinfection of water, and to prevent algae
growth in industrial water handling equipment. The major global players include Nalco-Ecolab (USA), Kemira
(Finland), Solenis (USA), Kurita (Japan), BASF (Germany), Air
3. Defoamers or antifoams : They prevent the formation of Products and Chemicals Inc. (USA), AkzoNobel (Netherlands), Dow
^ The global demand for water chemicals is estimated to be USD 25.1 bn

Over 2014-19 global demand is expected to grow at 5.8% p.a., driven
primarily by emerging economies
88 <
Chemical Company (USA), BWA Water Additives (UK), GE Water & In India, the market has grown from USD 0.2 bn in
Process Technologies (USA) and Lonza Group (Switzerland). Many 2009 to its present size at a CAGR of 12% over 2009-14.
of these are present in India. In the next five years this growth rate is expected to
further accelerate to ~ 15% p.a., leading to a market size of
The Asia-Pacific region accounts for 36% of the global demand. USD 0.8 bn by 2019.
North America and Europe together constitute 49% of the market.
The industrial and municipal water treatment sectors are driving
Global growth is majorly driven by emerging economies such as
the growth of water chemicals in the short term and long term
Brazil, China and India.
respectively.
The developed countries in North America and Europe are The short term growth in demand for water chemicals would
relatively stagnant as the market for water chemicals is already be largely fuelled by the stricter industrial effluent discharge
well established and mature. Their growth mainly results from norms being enforced by the Central Pollution Control Board.
strengthening environmental regulations and rising water quality Power and energy sectors are the largest industrial consumers
standards for municipal consumption. Preference for lower dose, of water chemicals (constituting ~ 88% of the total industrial
higher value water chemicals is another opportunity area in these water consumption in India). Power plants require cooling and
markets. boiler chemicals for controlling corrosion and boiler treatment,
respectively. India has a huge power deficit, and the Government
The Asia-Pacific market is growing at a CAGR of ~ 8% driven by has been planning several power projects since past few years
rising standards of industrial water quality, adoption of complex which are expected to be commissioned soon, further boosting
manufacturing processes and strong economic growth resulting demand for the water chemicals industry. Other major industrial
in greater municipal and industrial spending in water treatment uses are engineering, pulp and paper, textiles, steel, sugar and
efforts. Growth is also driven by increase in environmental concerns fertilisers.
and greater efforts to modernise municipal water treatment
The long term growth for water chemicals will also be driven by
facilities.
municipal water consumption. The growing urban population
is adding to the demand for water purification and waste water
Within Asia-Pacific, India and China are expected to grow the
management across India. In the long run there may be a huge
fastest over the next five years (expected CAGR ~ 15% and 10%
demand from implementation of the governments vision of 100
respectively). The Chinese market is estimated to be worth USD
new smart cities.
2 bn (8% of global market and 22% of Asia-Pacific market) while
Indian market is estimated to be worth USD 0.4 bn (1.5% of global
market and 4% of Asia-Pacific market). Others
6%
Vast untapped potential for water chemicals in India Household
11%
0.8 Industrial
7%
%
15
GR
Irrigation
CA
76%
12% 0.4
GR
CA
0.2 Figure 101: Sector wise water consumption in India

Source: Literature review
2009 2014
Figure 100: Indian market for water chemicals

(USD bn)
2019F
^ Asia-Pacific accounts for 36% of

global demand and is the fastest
growing with ~ 8% annual growth
> 89
WATER CHEMICALS

Irrigation has traditionally been the largest consumer of water (76% of the total water consumption in India). The segments employing
water treatment chemicals, municipal and industrial segments, together constitute ~ 18% of the water consumption in India. Most
industrial water treatment companies produce a variety of products used commonly across these end industries.
End industries are growing
t Power plant boilers

t Power plant cooling t Municipal wastewater
towers treatment
Others Coagulants and
t Water utilities 31% flocculants t Industrial effluent
38% treatment (Oil & Gas,
Sugar, Paper, Textile, etc.)
t Power plant boilers
t Cosmetics
t Personal care
products pH adjusters
5% t Textiles
t Municipal water
plants t Food industry
Biocides and t Personal care products
Defoamers
disinfectants
t Pulp and paper 7% 19% t Hospitals
t Oil & Gas
t Municipal wastewater
t Paints
treatment
t Detergents
t Pharmaceuticals
t Industrial effluent
treatment
Figure 102: Indian water chemicals market segmentation, 2013

In terms of application, coagulants and flocculants constitute the The growth of these segments is driven by their end-use
largest segment, ~ 38% of the total market, followed by biocides applications. Coagulants and flocculants are used for waste water
and disinfectants, constituting ~ 19% of the market. Other large management and are replacing traditional products such as alum.
segments are defoamers (7% share) and pH adjusters (5% share). Driven by high growth industrial and municipal water treatment,
coagulants and flocculants are expected to grow at ~ 17%.
0.8
CAGR 2014-19 Biocide and disinfectant market in India is expected to grow at
0.24 Coagulants 15% driven by demand from oil and gas (eg. application in drilling
and 17% fluids, where the drilling efficiency increases greatly by eliminating
0.03 flocculants
0.04 microbial growth), hygiene and industrial preservative industries.
0.4
0.15
Biocides and
15%
The other segments including defoamers and pH adjusters are
0.12 disinfectants small, but growing segments. Defoamers find application in the
0.02 Defoamers 9% pulp and paper, and oil & gas industries and are expected to grow
0.03
0.08 0.33 at 9%. pH adjusters are expected to grow at 12%, driven by their
pH adjusters 12%
0.15 application in the rapidly growing soil treatment market in India.
Overall 15%
2014 2019F C. KEY SUCCESS FACTORS
Coagulants and flocculants Biocides and disinfectants
Defoamers pH adjusters Other t Integrated value chain : In the water chemicals market,
Figure 103: Segment wise growth for water chemicals in most players are integrated end to end water solutions providers
India (USD bn) or are in process of expanding in the value chain. This also
Source: Literature review; Avendus analysis implies that most water projects players have their own water
^ Indian market is worth USD 0.4 bn and though a small part of, but the
fastest growing region within APAC, with ~ 15% growth p.a.
90 <
chemical manufacturing capabilities as well. Complete water

Year : 2014
solution providers like Thermax or Ion Exchange provide
solutions ranging from designing and building a water Industry : Power
treatment plant to running and maintaining it, including Client : Coastal Gujarat Power Limited, a Tata Power group
providing water chemicals. This also provides a captive market company
and competitive advantage. Water solution provider : Aquatech
D. TRENDS SHAPING THE MARKET Project outline : Ordered a seawater reverse osmosis plant
for Indias first 4,000 MW ultra mega power project
Short term growth driven by industrial water market
Year : 2012
On the industrial side, the largest end-use sector is power and
energy. Given the power deficit faced by India and the upcoming Industry : Power
power projects, this sector will continue to drive growth. The Client : Aravali Power Company
tightening of environmental norms on industrial effluents and their Water solution provider : Triveni Group
strict implementation is also fuelling growth in water chemicals.
Project outline : Ordered effluent recycling system to recycle
wastewater streams of the power plant for cooling towers
Table 24: Some recent industrial water treatment projects
in India Year : 2012
Industry : Oil & Gas
Year : 2014
Client : GAIL
Industry : Oil & Gas
Water solution provider : Triveni Group
Client : HPCL-Mittal Energy Ltd.
Project outline : Ordered a demineralised water plant and
Water solution provider : Aquatech condensate polishing unit to meet expanded plant capacity
Project outline : Ordered a high efficiency reverse osmosis requirement
plant for a refinery in Bathinda, Punjab
Long term growth driven by municipal water market
Year : 2014 Municipal usage of water chemicals is rising due to increasing
Industry : Chemicals urbanisation. As per the 2011 census, more than 30% of the Indian
Client : Chemplast Sanmar Limited population lived in urban areas and this is expected to grow to
Water solution provider : Aquatech nearly 40% over the next decade. This would result in a greater
need of providing clean water to urban areas, and effectively
Project outline : Ordered a wastewater treatment plant for
dealing with wastewater. Newer, innovative and cost effective
their manufacturing plant in Mettur, Tamil Nadu
water solutions are being proposed and implemented across India
to meet this challenge.
> 91
WATER CHEMICALS

Table 25: Some recent municipal water treatment projects in India
Year : 2013 Year : 2013

Location : Delhi Location : Vishakhapatnam, Andhra Pradesh
Water solution provider : VA Tech Wabag Water solution provider : Thermax
Project outline : 45 mn gallons per day Kondli sewage Project outline : Sewage treatment plant announced for
treatment plant commissioned for Delhi Jal Board Greater Vishakhapatnam Municipal Corporation
inaugurated in 2013 Status : Planned
Status : Commissioned
Year : 2013 Year : 2012

Location : Rajasthan Location : Gurgaon, Haryana
Water solution provider : L&T Water solution provider : Triveni Group
Project outline : USD 170 mn project announced in Project outline : USD 100 mn project to set up a 100
September 2013 to supply drinking water to 650 villages in mn liters per day sewage treatment plant announced by
rural Rajasthan Haryana Urban Development Authority (HUDA)
Status : Planned Status : Planned
Largely an integrated play
Raw material Water chemical Water solution Onsite service

manufacturer manufacturer provider provider
Role played in value Feedstock (minerals Producing a wide range Providing customised Regular maintenance
chain and petrochemicals) of water chemicals water treatment and operational
for producing water solutions and project support
chemicals management services
(including construction/
EPC)
Chembond VA Tech Wabag

Vasu Chemicals Siemens Water
BASF
Key companies Dow
Themax
Ion Exchange
Nalco (Ecolab)
The value chain for water chemicals consists of four participants: from constructing the treatment plant to its operations and
raw material manufacturers, water chemical manufacturers, maintenance to manufacturing and supplying the required water
water solution providers and onsite service providers. The basic chemicals.
feedstock for producing water chemicals is provided by chemical
giants such as BASF and Dow which are vertically integrated into Water treatment companies such as VA Tech Wabag and Siemens
water chemicals as well. do not operate in chemical manufacturing segment, but focus on
construction and maintenance of water treatment plants.
Players such as Thermax, Ion Exchange and Nalco (Ecolab) are
end-to-end water solution providers and are present across the There are a few midscale players such as Vasu Chemicals
value chain. They have their own water chemical manufacturing and Chembond which are pureplay chemical manufacturers
capability, provide complete water projects on a turnkey basis operating in this segment. Some of these are planning
(including EPC) and provide onsite service support as well. These integration into project management to leverage on the existing
companies are involved in all stages of a water treatment project: customer base.
92 <
E. COMPETITIVE LANDSCAPE Some of the key companies are Nalco (Ecolab), GE Water and
Process Technologies, Thermax, Ion Exchange, Chembond and
A large share of the Indian market is with organised players Vasu Chemicals. Several of the larger water treatment companies
possess water chemical manufacturing capabilities (eg. Thermax
Unorganised
and Ion Exchange) or have tie-ups with other manufacturers
20% (eg. Dows JV with Voltas for water treatment) to provide complete
water treatment solutions.
Indian
(Organised) 16.5%
15.9%
50%
Average = 12.2%
12.7%
MNC
30%
3.7%
Figure 104: Water chemicals market structure
Source: Industry Interviews and analysis
Nalco* Ion Exchange Chembond - Specialty Thermax -
(Chemicals) Chemicals Environmental
It is estimated that 80% of market share for water chemicals in India Figure 105: Revenue CAGR (FY09-15) of leading water
belongs to the organised sector. Several large companies, both chemical companies
Indian and MNC, are present and many of the Indian companies Source: MCA; Annual reports; Avendus analysis
have a global footprint as well. * Up to FY14
Table 26: India presence and strategy of MNCs in water chemicals
WATER CHEMICAL MNC GLOBAL STRATEGY CURRENT INDIA OPERATIONS INDIA STRATEGY
Nalco-Ecolab (USA) Focusing on innovations, Has an Indian subsidiary Nalco Focusing on providing
service, social responsibility and Water India with offices in Pune, localised solutions to various
sustainability Mumbai, Vadodra, Kolkata, Delhi geographical area in India as per
and Chennai local needs
Kemira (Finland) Focusing on pulp and paper, oil Has an Indian subsidiary Kemira Aiming to setup another
and gas and mining industry by Chemicals India in Hyderabad and coagulant plant in India to
developing innovative chemical entered into a JV with IVRCL in capture industrial and municipal
products suited to their needs 2010 to set up Kemira-Indus which water treatment market in India
has a coagulant plant in Vizag
(became operational in 2012)
Solenis (USA) Pursuing new opportunities Has a JV with Chembond Increasing focus on industries
and developing new products (Chembond Solenis) and like steel, power, fertilisers,
that will deliver better value to produces water chemicals for refineries, petrochemicals,
customers and result in steady industrial and municipal water mining, sugar, textile and also
growth and improved margins treatment municipal segment
Dow Chemical (USA) Focusing on developing new Established a JV with Voltas Targeting the untapped
game-changing innovative (Voltas Water Solutions) in potential in Indian water
products for developing February 2014 treatment and waste water
markets which are cost effective treatment market
GE Water & Process Leveraging GE scale and GE Water & Process Technologies Providing water and wastewater
Technologies (USA) technology leadership to solve India produces water treatment treatment solutions to increase
water scarcity and quality solutions for both industrial and productivity, reduce costs
problems in developing municipal use and help customers meet
markets environmental regulations
> 93
WATER CHEMICALS

Water chemicals have attractive margins F. FUTURE OUTLOOK
An interesting opportunity area
30% At present, water chemical segment constitutes a small part of
the overall specialty chemicals sector in India. Even compared to
20%
the global water chemicals market, the Indian market is still very
100% small and accounts for just 1.5% of the overall market. However, as
15% one of the fastest growing markets of the world, the Indian water
treatment chemicals segment presents an interesting opportunity
35% area going forward.
Water chemicals for both industrial and municipal usage are

Gross Factory Labour RM Revenue from
Margin Overheads operations expected to grow rapidly. The industrial segment in India is
expected to drive the growth in the short term driven by demand
Figure 106: Illustrative cost structure of a water chemical from power sector and implementation of stricter effluent norms.
manufacturer The municipal segment is expected to provide a huge growth
Source: MCA; Avendus analysis
opportunity in the long run. With growing urbanisation, the
demand for both water treatment of municipal water supply and
industrial wastewater treatment is expected to rise.
Raw materials are the major cost for most water chemical
manufacturers constituting 30-55% of their total revenue. Some of Most global players in the water chemicals space are already
the high value raw materials have to be imported. The other major present in India. Indian companies in the space have also grown
cost is labour which constitutes 15-20% of total revenue. Gross and are exporting innovative solutions across the world. Unlike
margins are fairly attractive for most water chemical manufactures some other specialty chemical segments in India, water-chemicals
and are generally in the 30-40% range. is a largely organised market with integrated players. Since most
water projects and solutions providers have established in-
house water chemical manufacturing capabilities, the pure-play
companies will either need to integrate forward or develop strong
partnerships with solution providers to be able to offer integrated
packages.
94 <
^ Nearly 88% of industrial water consumption in India

is by the energy and power sector alone
Coagulants and flocculants account for 38% of the Indian market

and are the fastest growing at 17% p.a. due to rising demand for
wastewater and effluent treatment from the industrial and municipal
segment respectively
In India most water chemical manufacturers are end-to-end water

solution providers
> 95

TExTILE CHEMICALS
Indian Market Size
Profitability
Market Growth Rate
96 <

t Global market size of USD 20.3 bn; to grow at 3.6% over 2014-19. Growth to be driven by demand for value
added textiles with improved aesthetics and functional properties
t Indian market size of USD 1.1 bn; to grow at 11.9% over 2014-19. Growth to be driven by domestic demand
for quality textiles and exports of high quality textiles

t The segment has witnessed M&A activity driven by market access and consolidation opportunities
t Largely commoditized products, resulting in low to moderate profitability
CHALLENGES FACING THE MARKET

t Little differentiation resulting in price competition
t Cyclicality of textile industry
t Highly fragmented market : most companies are dependent on single chemical or a small basket of
chemicals

t Highly fragmented industry structure as a result of a largely unorganized end industry. This is also driven by
poor implementation of environmental norms, as well as concessions provided by the Government
> 97

Textile Chemicals
Highly fragmented industry in India, caters to a large and growing
segment
A. INTRODUCTION TO THE MARKET Stages of textile processing

India is the worlds second largest producer of textiles and garments.
Textiles play a major role in the Indian economy contributing 14% Stages of t Sizing chemicals and textile waxes are applied to
textile the yarn to avoid yarn breaks during weaving. This
to industrial production and 4% to GDP.
helps achieve high weaving efficiency and good fabric
processing
surface appearance
Textiles require a range of treatment processes before reaching
the end-user. Textile chemicals are specialty chemicals used during
dyeing and processing of textiles to impart desired properties t Chemicals are applied to increase process safety,
to the end product. For instance, finishing agents are commonly Dyeing efficiency and reproducibility for production, so as to
used for managing stains and wrinkles before supplying textiles achieve the desired optimum dyeing results
to market. In recent time, additional treatments for making textiles
more resistant to water, stains, wrinkles, and pathogens such as,
bacteria and fungi have become common.
t Pigments and inks are applied to impart the desired
Printing
colour to textile
Globally, the textile chemical industry is dominated by large
multinational companies like Archroma, BASF, Bayer, Dow
Chemical, and Huntsman which together account for more than
t Completes the fabrics appearance and gives it the
50% of the global organized market. final touch
Finishing t Special effects are produced during this process,
The Indian textile chemical industry is highly fragmented and such as wrinkle-free, easy-care, shrink resistance or a
largely unorganised. There are more than 500 textile chemical gloss effect (chintz)
manufacturers. This is a result of the textile industry structure : 70%
of the fabric sold in India is unbranded. It is a mature and fairly
commoditised industry with low margins. t Increases the performance, durability and softness
Coating of the textile
However, a large domestic demand for textiles means that this

market cannot be ignored and there will be niches within this
segment. MNCs like BASF, Archroma and Huntsman dominate the Figure 107: Stages of textile processing
Indian industry with more than 70% share of the organised market. Most of the Indian textile chemical industry is concentrated
in Maharashtra and Gujarat. The domestic opportunity for
The three main applications for textile chemicals are home
textile chemicals is vast, but the profitability is subdued, and not
furnishings, apparels and industrial and other uses. Home
as attractive as other specialty chemicals. There are opportunities
furnishings accounts for ~ 40% of the global market, closely
for Indian players in supplying higher value added functional
followed by industrial applications.
chemicals such as fire retardants, water repellents, etc. to
the technical textile markets at home (CAGR ~ 20%) and abroad
The various types of textile chemicals include coating and sizing
( ~ 4% CAGR).
chemicals, colorants and auxiliaries, finishing agents, surfactants,
de-sizing agents, bleaching agents and yarn lubricants.
^ The global market for textiles is worth USD 4.4 tn while the textile chemical
market is USD 20.3 bn
Archroma, BASF, Bayer, Dow Chemical and Huntsman account for more than
50% of the global organized market
98 <
B. MARKET SIZE AND MARKET GROWTH Yarn lubricants

5%
Global market growing steadily Bleaching agents
5%
% Desizing agents Coating and sizing
R 3.6
CAG 24.3 8% chemicals
3.4% Surfactants 30%
CAGR 20.3
4%
17.2
Finishing agents
19% Colorants and
auxillaries
29%
2009 2014 2019F

Figure 109: Break-up of global textile chemical market by
Figure 108: Global market for textile chemicals (USD bn)
Source: Transparency Market Research
product type, 2013
Source: Transparency Market Research
The global market for Textile Chemicals is estimated to be USD 20.3
Asia-Pacific accounts for more than half the worlds consumption
bn, and is expected to reach USD 24.3 bn in 2019. The market for
of textile chemicals. It is also expected to grow at 4% CAGR over
textile chemicals is driven by the growth of apparels and technical
the next 5 years. North America and Europe closely follow, and are
textiles. The textile chemicals market is expected to grow at a CAGR
expected to grow slower than the global average of 3.6% CAGR.
of 3.6% for the next 5 years.
Global majors in this sector (BASF, Archroma and Huntsman)
The main growth driver is the increasing demand for finishing
are focusing on eco-friendly and high-end products that add
chemicals. Recent innovations in finishing chemicals allow a variety
functional properties to the textiles. They are using environment
of beneficial properties like anti-microbial properties, wrinkle-free
friendly chemicals like bio-auxiliaries in order to decrease their
properties, stain-resistance, etc. to be imparted to the textile. The
overall pollution load and meet global standards. As a result, a
use of these chemicals has almost become a norm rather than
significant value growth is expected in the market.
exception.
Coating and sizing chemicals (extensively used in pre-treatment)

RoW
constitute 30% of the market. Sizing chemicals are used to increase 16%
the strength and abrasion resistance of the yarn to prevent
breakage. The growing demand for high quality textiles has
resulted in increased demand for coating chemicals that increase Europe
the performance, durability and softness of the textile. 14%
APAC
55%
Coating and sizing chemicals are closely followed by colorant
auxiliaries with 29% of the market. These chemicals enable dyeing
North America
or printing to be carried out more effectively and help give effects 15%
like colour deepening. Finishing agents constitutes 19% of the
market, though the share is expected to increase in future years.
Finishing refers to the method whereby deficiencies in textiles are
corrected or specific properties are introduced. Surfactants, de- Figure 110: Breakup of global textile market by
sizing agents, bleaching agents and yarn lubricants together form geography, 2013
the remaining 22%. Source: Avendus analysis, Literature review
> 99
TExTILE CHEMICALS

Potential for growth in the Indian market C. TRENDS SHAPING THE MARKET
1.9 M&A activity driven by the need for market access

%
12
GR In 2006, Huntsman acquired the global textile effects business of
CA
Ciba Specialty Chemicals for USD 253 mn. This also included Ciba
2%
Specialty Chemicals in India which was sold to Huntsman Advance
R1 1.1
CAG Materials India for USD 27.5 mn.
0.7
In 2009, Huntsman further increased its presence in India
by acquiring the Baroda Division of Metrochem Industries, a
manufacturing facility for the production of intermediates and
2009 2014 2019F specialty products for textiles. The division had annual sales of
~ USD 40 mn. This move came in as Huntsmans strategy to realign
Figure 111: Indian market for textile chemicals (USD bn)
Source: McKinsey
its manufacturing footprint towards Asia.
The Indian textile chemicals market is estimated at USD 1.1 bn in In 2013, SK Capital Partners, a US-based private investment firm
2014. It is expected to reach USD 1.9 bn by 2019, growing at 11.9% acquired the textile chemicals, paper specialties, and emulsions
p.a. Growth is driven by domestic demand and exports of high businesses of Clariant for USD 500 mn. This was integrated into
quality textiles. The latter has been growing at a CAGR of 11.6%. a company called Archroma. The acquisition also included the
Increasing penetration of solutions such as negative ion therapy7, India business which was sold to Archroma India Pvt Ltd for
stain releases, anti-microbial effect (growing at 20% CAGR over USD 34.9 mn.
FY11 to 17) are additionally driving market growth.
In October, 2014, Archroma announced that they have entered an
agreement to acquire the global textile chemicals business of BASF.
The driver for the acquisition was BASFs ability to offer solutions
India 35.8
across the value chain and the strong focus on Asian markets.
Brazil 189.6
BASF however decided to exclude its plants in India (Thane and
Mangalore) from the deal.
China 196.4
Environmental regulations form a significant entry barrier in
Russia 348.0 the Indian industry. It takes a minimum of 18 months to get
an Environmental Impact Assessment (EIA) done and receive
Japan 558.5 permission to setup a plant. This implies that acquiring an
established player gives the acquirer a significant headstart
Canada 806.8 compared to investing in Greenfield projects. This is likely to be the
single biggest driver of MNC driven M&A in this sector.
USA 815.9
D. COMPETITIVE LANDSCAPE
Figure 112: Per capita apparel expenditure by Fragmented industry structure resulting from a largely
major countries (USD, 2014): Indian market highly unorganized end-industry
underpenetrated despite a large textiles market
Source: Euromonitor The market for textile chemicals in India is highly fragmented
and comprises over 500 large and small players. In India, large
majority of textiles manufactured and sold is unorganized,
catering to price sensitive customers. This means that the
majority of the end market is price sensitive. This large
^ The Indian textile market is Products are made from Carbonized Charcoal and some products are
7
mixed with Germanium. Carbonized Charcoal fibre and Germanium

USD 117 bn while the textile chemical both release negative ions while worn. Negative ions stimulate
market is USD 1.1 bn molecular vibration which increases blood flow and blood speed and
helps bring more oxygen to the area of use.
100 <
unbranded market is a target for the unorganised textile chemical E. CHALLENGES FOR TEXTILE CHEMICALS
manufacturers. There are ~ 500 players who manufacture
textile chemicals, but there is a large number of players who Similar products, little differentiation
blend and resell chemicals in unorganized markets. The count
A majority of the Indian players sell chemicals with little
including such players is 800. Fragmentation of the market can
differentiation, thus competing largely on price. As a result they
also be attributed, in part, to the weak enforcement of
find it difficult to compete with MNCs who have an advantage with
environmental norms for small players, as well as concessions
regard to access to high quality raw materials as well as being able
provided by the Government of India 8. The increasing preference
to sell a quality product at a premium.
for quality products, as well as a growing market penetration
of technical textiles, is likely to have some impact on the level Cyclicality of textile business
of fragmentation going forward.
Another challenge for Indian players is to deal with the cyclicality
Indian textile chemical market
in the textile manufacturing business. There are hot and cold
MNCs cycles. Surviving through periods of low demand is tough for the
21% small players.
Single product dependencies

Many Indian players concentrate on manufacturing a
Indian players single chemical or a small basket of chemicals. As a result, they
79% are vulnerable to shift in regulations and/ or market trends. For
example, banning formaldehyde resulted in a major loss for
Chemipol.
F. FUTURE OUTLOOK
A large domestic demand for textiles, growth in branded apparel,
Figure 113: Competitive landscape strength in exports and opportunities for technical textiles,
Source: Annual reports; Industry interviews and analysis
together provide a large and growing market for textile chemicals.
A few Indian players in this industry like Rossari Biotech are However, the supply base continues to remain fragmented with
focusing on product innovation. Rossari Biotech, a diversified moderate margins. An increase in regulatory standards is likely
player offering textile auxiliaries, and other specialty chemicals, to cause some reduction in fragmentation, but we do not foresee
manufactures chemicals to enhance anti-microbial and anti-fungal any major shifts in the near future. Due to the commoditization of
properties, flame retardant properties, fragrance, and UV absorbing existing textile chemicals, major players such as BASF, Archroma,
properties of the textiles. These are value added products with Huntsman as well as a few scaled up Indian players, are focusing on
relatively better margins, where even the MNCs are focusing their innovation in eco-friendly and functional textile chemicals. As far
efforts; rather than regular textile chemicals which have essentially as general textile chemicals are concerned, players need to remain
become commoditized. cost competitive and offer differentiated products.
8
The government is also taking initiatives to encourage new players to enter the market of technical textiles by introducing Technological Mission,
which aims to support new industry players by offering them knowledge about technical textiles. Another important scheme is the Revised
Restructured Textile Upgradation Fund Scheme (RR-TUFS), where the government is giving funds to existing players in the textile market to
upgrade their capacity and machinery. The plan allocation is USD 2 bn, and the government is reimbursing between 5-6% of the interest and
15-30% of the capital depending on the sector. The goal is to increase scale and modern equipment comparable with that of Bangladesh, which
entered the global textile scene after India.
> 101

APPENDICES
102 <
APPENDIX - I Product Differentiation / Specialization This rating is based on

a subjective criteria. For each segment, the factors that determine
Segment Attractiveness : Scoring Methodology the extent and sources of differentiation have been considered,
followed by a rating to reflect our view of the overall differentiation
India Market Size 2014 Indian market size has been used to the companies in the sector are able to achieve based on these
determine this. The ratings are distributed as follows factors.
MARKET SIZE (USD BN) RATING INDUSTRY SOURCES OF PRODUCT RATING
DIFFERENTIATION
> 3.31
Agrochemicals Brands, Distribution
1.7-3.32
Flavors & Fragrances IP, Sourcing
0.8-1.73
Personal Care Product Innovation
< 0.8
Dyes and Pigments Specialized & more
India Growth Rate The expected CAGR of Indian market over attractive applications ;
2014-19 has been used. The ratings are distributed as follows : Regulatory compliance
Surfactants Specialized applications ;

GROWTH RATE RATING Sourcing
>= 15% Polymer Additives Product Portfolio
13% - 15% Construction Brands, References
11% - 13% Water Treatment Breadth of offerings
< 11% Textiles -
EBITDA Margin The average EBITDA margins over FY11-14 have Presence of Scaled Up Players The number of companies in
been used. The ratings are distributed as follows : the segment with revenue > USD 30 mn is used as a criterion for
benchmarking the sectors on this parameter
EBITDA MARGIN RATING
Number of Companies Rating
>= 15%
>= 20
13% - 15%
10 20
11% - 13%
5 10
< 11%
<5
Overall Attractiveness
The overall attractiveness for each segment has been determined
by combining the ratings on the individual components of that
segment. This indicates the potential attractiveness of the segment
to an investor based on the above mentioned parameters : market
opportunity, the expected market growth, defensibility of the
business model, profitability of key players and number of scaled
up players in the segment.
1
Refers to > INR 200 bn
2
Refers to INR 200 bn - INR 100 bn
3
Refers to INR 100 bn - INR 50 bn
> 103

APPENDIX - II
Recent Inbound and Outbound Transactions : Strategic M&A

Table 26: Some recent M&A activities involving Indian specialty chemical companies
YEAR SEGMENT ACQUIRER ACQUIRED COMPANY COMMENTS
2016 Others Dorf Ketal Filtra Catalysts & Dorf Ketal has acquired Filtra Catalyst in order to
Chemicals Chemicals strengthen its specialty chemicals portfolio
2015 Personal Care Clariant Chemicals Vivimed Labs Clariant (India) has agreed to acquire the
(India) (Personal Care personal care portfolio assets of Vivimed Labs for
portfolio) USD 57.4 mn
2015 Agrochemicals Godrej Agrovet Astec Lifesciences Godrej Agrovet has agreed to acquire 45.3%
stake in manufacturer of agrochemicals and
pharmaceutical intermediates, Astec LifeSciences
2015 Flavours and Frutarom Sonarome Israel based Frutarom has agreed to acquire 60%
fragrances in F&F producer Sonarome in order to increase
presence in India
2015 Agrochemicals Valagro Sri Biotech Italy based fertilizers manufacture has acquired
Laboratories 80% in Sri Biotech Laboratories, manufacturer
of bio-organic agri inputs for nutrition and
protection
2015 Others Evonik Industries Monarch Catalyst Evonik Industries has acquired Monarch Catalyst,
manufacturer of nickel catalyst for oils and oleo
chemicals
2014 Flavours and V. Mane Fils Kancor Ingredients V. Mane Fils has acquired a majority stake in
fragrances Kancor Ingredients in order to increase control
over sourcing
2014 Agrochemicals Nihon Nohyaku Hyderabad Chemicals Acquired 74% stake to establish direct sales
(Japan) (India) network in India
2014 Construction Astral Poly Technik Resinova Chemie Astral Poly Technik has acquired a 76% stake in
Chemicals Resinova Chemie, manufacturer of chemical and
adhesive products for USD 34.26 mn
2014 Dyes and Clariant Chemicals Plastichemix Clariant (India) has acquired Plastichemix
Pigments (India) Industries Industries, manufacturer of masterbatches for
USD 22.4 mn
2014 Agrochemicals Coromandel Punjab Chemicals & Coromandel Agrico has agreed to acquire the
Agrico Crop Protection Agro formulation division of Punjab Chemicals
and Crop Protection, manufacturer of pesticides,
herbicides, fungicides, and biocides
2013 Construction Chryso (French) Structural French MNC Chryso acquired 100% stake in
chemicals Waterproofing Indian construction chemical company SWC
Company (Inida)
2012 Surfactants Solvay (Belgium) Sunshield Chemicals Belgian chemical company, Solvay acquired
(India) the Indian surfactants manufacturer Sunshield
Chemicals
104 <
YEAR SEGMENT ACQUIRER ACQUIRED COMPANY COMMENTS
2011 Agrochemicals Coromandel Sabero Organics Acquired 42.2% for USD 41.7 mn stake to derisk
International (India) its subsidy business (fertilisers) by adding to the
Ltd(India) portfolio non-subsidy business (pesticides)
2011 Agrochemicals UPL (India) DVA Agro Do Brazil Acquired 51% stake for USD 150 mn in the
(Brazil) fast growing Brazilian company involved in
production, marketing and distribution of
agrochemicals
2011 Agrochemicals Arysta LifeSciences Devidayal Sales Acquired majority stake to bring Arystas
(Japan) Limited (India) global products in to India through Devidayals
distribution network
2011 Dyes and Kiri (India) SMS Chemicals Kiri acquired SMS Chemicals, which was involved
pigments (Taiwan) in distribution of chemical products
2009 Surfactants Galaxy (India) Tri-K Industries (USA) Galaxy acquired the American manufacturer of
specialty ingredients in cosmetics and personal
care
2009 Textile chemicals Huntsman (USA) Baroda division Acquired the Baroda manufacturing facility
Metrochem Industries producing intermediates and specialty products
(India) for textiles of Metrochem to increase its presence
in India
2008 Flavours and Oriental Aromatics Camphor (India) Acquired a majority stake in the terpene
fragrances (India) chemi;cals and other specialty aroma chemicals
manufacturer for USD 2.9 mn
Source: Merger market
> 105

ANNEXURE III
Trading multiples of select listed Indian and global specialty chemical players
COMPANY COUNTRY MARKET REVENUE EBITDA PAT 3YR EV/ EV/ P/E
CAPITALIZATION (USD MN) MARGIN MARGIN GROWTH REVENUE EBITDA
(USD MN)
India - Agrochemicals
UPL Ltd India 2,734 1,978 20% 9% 16% 1.6x 7.9x 14.6x
Bayer Cropscience Ltd India 2,031 642 12% 9% 18% 3.0x 24.1x 34.3x
PI Industries Ltd India 1,463 317 20% 13% 30% 4.7x 23.7x 36.4x
Monsanto India Ltd India 643 91 21% 19% 14% 6.7x 32.0x 37.0x
Rallis India Ltd India 493 298 15% 9% 13% 1.7x 11.1x 19.2x
Dhanuka Agritech Ltd India 403 128 17% 14% 14% 3.1x 18.5x 23.2x
Sharda Cropchem Ltd India 315 174 18% 12% NA 1.7x 9.3x 15.7x
Excel Crop Care Ltd India 191 163 11% 6% 13% 1.2x 11.5x 18.5x
Insecticides India Ltd India 121 158 12% 6% 23% 1.1x 9.3x 13.5x
Astec Lifesciences Ltd India 68 44 21% 6% 33% 1.9x 9.3x 28.3x
Punjab Chemicals & Crop India 32 65 11% 1% NA 2.4x 21.6x 55.2x

Prot
Camson Bio Technologies India 24 33 7% 1% NA 1.0x 13.2x NA

Ltd
India - Other Specialty Chemicals
Pidilite Industries Ltd India 4,214 792 16% 11% 16% 5.3x 32.8x 50.3x
Atul Ltd India 712 435 15% 9% 14% 1.7x 11.8x 18.1x
Aarti Industries Limited India 645 476 16% 7% 20% 1.8x 10.9x 19.2x
Clariant Chemicals (I) Ltd India 308 207 15% 32% 1% 1.5x 9.8x NA
Sudarshan Chemical India 114 199 11% 4% 15% 0.9x 8.5x 12.8x
Inds Ltd
Vivimed Labs Ltd India 113 226 16% 5% 27% 1.2x 7.8x 9.6x
Meghmani Organics Ltd India 92 212 15% 3% 7% 0.9x 6.0x 12.8x
Plastiblends India Ltd India 91 81 10% 6% 13% 1.2x 11.3x 18.5x
Ultramarine & Pigments Ltd India 53 28 17% 11% 8% 1.8x 10.3x 17.2x
Chembond Chemicals Ltd India 45 49 9% 4% 10% 0.9x 10.6x 22.0x
Kiri Industries Ltd India 44 152 13% 20% -39% 1.1x 8.8x NA
Camphor & Allied Products India 43 58 13% 5% 21% 1.1x 8.0x 13.6x
Poddar Pigments Ltd India 30 52 7% 5% 13% 0.7x 9.3x 11.3x
Asahi Songwon Colors Ltd India 30 39 15% 7% 2% 0.9x 6.0x 10.2x
Jayant Agro-Organics Ltd India 30 259 4% 1% -5% 0.3x 6.5x 17.6x
106 <
COMPANY COUNTRY MARKET REVENUE EBITDA PAT 3YR EV/ EV/ P/E
CAPITALIZATION (USD MN) MARGIN MARGIN GROWTH REVENUE EBITDA
(USD MN)
Global - Specialty Chemicals
Givaudan Switzerland 16,223 4,665 24% 14% 3% 3.6x 15.2x 25.6x
Akzo Nobel Netherlands 15,961 17,022 13% 5% -2% 1.1x 8.0x 17.7x
Evonik Industries AG Germany 14,778 15,550 17% 7% -5% 0.9x 5.5x 12.7x
Solvay SA Belgium 9,884 12,714 16% 5% 10% 0.9x 5.5x 15.4x
Intl Flavors & Fragrances USA 9,496 3,064 22% 14% 3% 3.3x 14.6x 22.1x
Symrise AG Germany 8,312 2,949 22% 9% 9% 3.3x 15.3x 32.4x
Johnson Matthey Plc Britain 7,129 17,018 7% 5% -5% 0.5x 6.9x 8.6x
WR Grace & Co USA 6,513 3,097 18% 5% 0% 2.6x 14.0x 46.7x
Ashland Inc USA 6,289 5,388 15% 6% -13% 1.6x 11.0x 20.4x
Clariant AG Switzerland 5,643 6,139 14% 5% 2% 1.1x 8.0x 19.1x
Croda International Plc Britain 5,636 1,692 27% 16% 2% 3.5x 13.0x 20.4x
Arkema France 4,607 8,449 12% 4% -1% 0.6x 4.5x 15.5x
Lanxess AG Germany 3,761 9,191 9% 1% -5% 0.6x 6.2x 39.9x
Frutarom Israel 3,009 849 19% 11% 16% 3.7x 20.1x 32.9x
Huntsman Corp USA 2,201 10,918 8% 0% 1% 0.6x 7.6x 43.2x
Stepan Co USA 1,030 1,811 10% 4% 1% 0.7x 7.0x 14.9x
Source : Bloomberg, Avendus Analysis. Market data as on 13th Jan 2016
> 107

AbOUT AVENDUS
The Avendus Group (Avendus) is a leading provider of financial services with an emphasis on customized solutions in the areas
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throughout their life cycle from growth stage funding to complex, large sized transactions later in the cycle.
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located in New York and London respectively are wholly owned subsidiaries offering M&A and Private Equity syndication services
to clients in the respective regions. For more information, please visit www.avendus.com
CONTACT
Preet Singh
Email : [email protected]
Koushik Bhattacharyya
Jagriti Gupta
Vinayak Goyal
108 <
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SPECIALTY

SPECIALTY CHEMICALS REPORT

t Market size and growth .................................................................................................................. 17

t Future outlook : Marketing and product portfolio management as the

FLAVORS AND FRAGRANCES | Page 30 - 43

t Market size and market growth ................................................................................................... 34

t Trends shaping the market ........................................................................................................... 37

DYES AND PIGMENTS | Page 44 - 53

t Market size and market growth .................................................................................................. 48

t Market size and market growth .................................................................................................. 57

POLYMER ADDITIVES | Page 60 - 67

t Market size and market growth .................................................................................................. 63

t Key success factors ........................................................................................................................... 65

PERSONAL CARE INGREDIENTS | Page 68 - 77

CONSTRUCTION CHEMICALS | Page 78 - 85

WATER CHEMICALS | Page 86 - 95

t Market size and market growth .................................................................................................. 88

IV. APPENDICES | Page 102 - 106

MESSAGE FROM THE AUTHORS

Mr. Preet Mohan Singh Mr. Koushik Bhattacharyya

Figure 1: Market size and growth

KEY SUCCESS FACTORS

SEGMENT PRODUCTION RAW MATERIAL PRODUCT BRANDING DISTRIBUTION

Shift from factor advantage

Figure 2: Basis for competitive advantage

KEY TRENDS IN THE MARKET

Aarti (surfactants) Synthite

EBITDA margin / Industry average EBITDA margin

Figure 3: Specialty chemicals competitive landscape

Table 1: Summary of players to watch out for

FLAVOURS AND Privi* 11% 13% NA

Table 2: Summary performance parameters for segments

Market Growth Rate EBITDA Product Presence of Overall

Agrochemicals, Flavours and Fragrances

MARKET SIZE AND GROWTH

KEY SUCCESS FACTORS

TRENDS SHAPING THE MARKET

CHALLENGES FOR INDIAN PLAYERS

A. INTRODUCTION TO AGROCHEMICALS : A CRITICAL Classification of agrochemicals

Table 3: Commonly used agrochemical molecules

MOLECULE TYPE USE KEY MANUFACTURERS

R&D Technical Grade Formulation Marketing and

Emulsifiers and other

Huge research Product efficacy as per Strong rural sales and

Bayer, Syngenta, DuPont, UPL, Rallis, Insecticides India

Figure 4: Agrochemicals value chain

There are four key components in the agrochemicals value chain :

R4 .9% Moderately Hazardous

India 12.0% Gaseous or volatile fumigants not classified by WHO

In developed countries there are rising concerns about the

Figure 7: Global Glyphosate market (USD bn) 12% 5.7

Glyphosate is the largest selling herbicide in the world and 3.2

Focus on generics or licensed products in India Table 5: Awareness Initiatives

Monsanto 10.3% Rallis 1.4%

China 4.67 Mexico 5.00

Mexico 3.64 Japan 3.83

^ Herbicides would be the fastest growing segment with an expected CAGR of

China 1.98 Company : INDOFIL

Low capacity utilization levels an opportunity to cater to Company : RALLIS