Auto market spurs Ram Charan growth

16 November 2012 09:27  [Source: ICB]

The Indian distributor aims to triple in size as it takes advantage of the surging domestic automotive sector

Indian rubber, chemical and polymer distributor Ram Charan has unveiled ambitious organic growth plans that target more than a tripling in sales in the five years from 2010-2015 from $21m (€16m) to $79m.

The company says it will be able to capitalise not only on the rapidly-growing Indian economy and middle class, but also on the increasing sophistication of sectors such as automotive.

Domestic companies are building more premium models, while international automobile and tyre makers expand production within India. The company is expanding its warehouse capacities significantly.

 

Ram Charan office staff at work

Copyright: Ram Charan

With sales of $30m in 2011, Ram Charan is a major supplier of carbon black as well as polyolefins such as polyethylene (PE) and polypropylene (PP). Key end-use markets include automotive (40%), infrastructure (25%) and packaging (20%).

It supplies products from well-known global groups such as Germany's LANXESS and Rhein Chemie, Japan's Mitsui Chemicals and France's Arkema. The company was founded in 1965 and employs 76 people.

Explaining how the company can achieve this growth target, business director Kaushik Palicha says: "It's a rather tough target, but we have a mix of new products coming in and have larger scale, so we believe we can eat into our competitors' market share. Around 70% of our growth can be attributed to customers' own growth. Production capacities are growing as India moves from commodity-driven production to semi-specialties."

Palicha says Ram Charan will benefit from a trend that is seeing Indian groups such as Tata manufacture premium vehicles, while international producers such as BMW and Mercedes have started manufacturing domestically.

He adds: "Seventy percent of what we make in India are 1.2-litre engines: Suzuki, Nissan and Renault are all working on this basis and that is growing significantly. But the high end spectrum is interesting. Tata has upgraded and BMW is now manufacturing here. We are shifting our portfolio towards high performance products to match our customers."

He concedes that the third quarter of 2012 saw negative growth in India's automotive industry, but he insists this was caused mainly by a shutdown at Suzuki and is temporary.

The industry will grow at least by 10-12% per year over the next two to three years. Car makers such as Hyundai, Toyota, Nissan and BMW are switching from importing components to local sourcing.

"This should lead to a spurt of growth for local manufacturers to build more high quality products and this will have a direct impact on us," he adds.

Adding to its premium offering, the company has been introducing new products such as polybutadiene and butyl rubbers from LANXESS, which are coming into the market from November. These will contribute to 12-15% of our overall future growth.

"Premium tyre makers such as Michelin and Goodyear have managed to introduce capacities and have local approval so they should achieve a very significant spurt over the next two to three years. Off-road tyre-makers such as Israel's Alliance have set up new capacity and are also growing strongly."

WAREHOUSE EXPANSION
To service this, the company is expanding its warehousing facilities, investing $1.2m in the 2012/13 financial year to boost capacity from 1,960 tonnes/month to 2,250 tonnes/month.

In the next two years, there are plans to expand further to 3,000 tonnes/month, taking the number of warehouses from 11 to 18. Ram Charan aims to cut the area covered by each warehouse from 3,000km2 to 1,000km2, which should give it a lead time of less than one day to deliver materials.

Inorganic growth is also on the cards: Palicha says that by March or April 2013 the company aims to make a double-digit $m acquisition.

Asked how the company can compete against global players such as Brenntag, which have a strong presence in India, Palicha says: "We're good at what we do: we have achieved reasonable scale and have in-house technical expertise. We have been recognised as 'first for service' for many years from companies like AkzoNobel."

On the other hand, it is much more expensive for businesses to borrow money for expansion in India, with interest rates approaching 13% compared with 3-4% in Japan, according to Palicha. Inflation is high, and the Indian rupee has suffered a lot of depreciation this year, which will make imports more expensive.

But Palicha is optimistic about future Indian economic growth. The country relies much more on domestic demand rather than being export-driven. "The markets we work in are defined by home-grown demand and we don't see a vast correction coming along. On the flip side, when China was growing significantly we didn't see the same levels in India."

World Bank GDP figures show India suffered only a shallow downturn in 2008 and has been growing ever since.

"There is likely to be 20-25% growth in distribution across India in the next two to three years because this sector is so fragmented," he adds.


By: Will Beacham
+44 20 8652 3214



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