India Chemicals Blog

Looking for a high-paying job? How about investing in a PhD degree first?

The Indian R&D sector is booming and so are salaries even as companies struggle to find scientists. The boom is being led by the pharmaceuticals sector with both Indian companies and multinationals expanding their R&D units to take advantage of India's scientific talent.

This report in the Business Standard says salaries in the range of Rs10-40m ($240,000-$975,000) are being paid to leading scientists in pharmaceutical companies. Salaries are steadily heading to international levels.

At this rate, how long will India enjoy the cost advantage? Not many years, I suspect. India cannot, in the future, rely only on cheap talent to draw R&D business from the West or even China.

There is fresh competition for Indian engineers. After IT, it is the turn of the legal outsourcing sector with engineers being recruited to work in the area of patents and intellectually property rights, says this report.

Engineers are being hired to carry out research in biotechnology, pharmaceuticals industrial chemicals, electronics and telecommunications, evaluate existing IP portfolios and determine their worth.

The average annual salary for fresh engineering graduates at legal process outsourcing firms ranges from Rs400,000 to Rs700,000 (US$10,000-17,500).

R&D investments in India are steadily growing. This Reuters report states that DuPont will double its investment in a planned R&D centre in Hyderabad to Rs2bn over two years.

The Hyderabad centre will be the company six largest outside the US. The centre, which will have a capacity for 650 people, will be operational by June 2008.

And last month, Dow Chemical signed an MoU for Rs4bn R&D centre at Pune. The centre will employ 500 researchers by 2010. The company already has 125 researchers working from a rented facility in Pune.

It is good to note that the Indian government is looking to boost R&D spend in the chemicals industry.

According to this report, agro chemical companies would be given an income tax exemption to the extent of 1.5 times their annual R&D expenditure. The benefit will be available to all locally done research by multinational companies. This scheme is currently available only to the pharmaceutical industry.

Indian chemical companies need to get serious on R&D and innovation to effectively compete globally.

There has been some debate on how much companies should expect from innovation. Mckinsey has undertaken research on whether R&D investments have translated into returns that would meet investors’ expectations.

The model used included R&D and capital expenditure costs, a molecule’s life cycle from launch to maturity, associated peak profitability and eventual erosion. On this basis, to achieve break-even return a business unit would need to see 5-9% of its sales derived from products introduced in the past five years for every 1% of its sales invested in product-related R&D. In process-related R&D, every 1% of sales invested should achieve a 2-5% reduction in total production costs.

The consultancy applied these criteria to 27 chemical businesses from Europe, North America and Asia. The research showed a rather disappointing return-on-investment performance: 60% of the chemical companies failed to generate positive returns from their R&D investments, while another 20% earned only a marginally positive return. Only 20% companies succeeded in generating a substantial return.

Ernst & Young has just released a report on the Indian speciality chemicals sector which accounts for around 24% of the US$40bn Indian chemicals industry.

The report presents a favourable outlook for the sector with growth expected to be around 15%/year as compared to a global growth of around 7%.

India's attractiveness as an outsourcing hub will be the principal gorwth driver. Ernst & Young expects merger and acquisition activity to increase as India's edge in speciality chemicals becomes more visible.

Indian speciality chemical exports are projected to grow at 22%/year from US$4bn in 2007 to US$13bn in 2013.

Indian companies, it says, are well placed to expand as profitability has improved in the last few years due to product innovation, operational efficiencies and volume growth. The EBITDA for Indian speciality chemical companies has grown by 16%/year during 2002-06 to reach US$47.7m in 2006. Net profit has gorwn by26%/year during the same period to US$25.5m. Net profit margin has increased by 270 basis points to 7%. Return on capital employed has expanded from 22.7% in 2002 to 29.4% in 2006.

But the major concerns are poor infrastructure, shortage of power and high power costs and the cost of complying with Reach.

Ernst & Young recommends that companies should ramp up R&D expenditure to offer high value added and differentiated products and practice systematic cost management and innovation programs to remain globally competitive

It looks like Dow Chemical will not be able to easily forget the Bhopal gas tragedy or rather India will not allow the company to move ahead. The latest is news of protests against Dow’s planned R&D centre at Chakan, near Pune.

Led by NGOs, locals blocked access to the site of Dow’s proposed global research centre on 16 January and brought work to a halt.

Their opposition was based on fears that chemicals produced at the R&D facility would impact the local environment. And NGOs have for long been demanding that Dow should accept all liabilities of the tragic accident at the former Union Carbide facility in Bhopal in 1984. Dow acquired Union Carbide in 2001.

Ramesh Ramachandran, president and ceo of Dow India has said that it was unfortunate that the R&D project should run into this problem. The company has also indicated its willingness to provide a written assurance to the villagers of Chakan that the new facility would be only for research and that operations would not, in any way, harm them, their cattle or their land.

Some relief appears to be in sight. According to this report, district officials have held talks withlocals to clear their doubts and villagers have agreed that work can resume at the site after a certification from the National Chemical Laboratory.

There is no denying that the people of India have a right to ensure that chemical plants do not pollute the environment. But why just target Dow? Perhaps it is time to take a closer look at many of the small and mid sized facilities in places such as Vapi in Gujarat which is ranked as one of the most polluted cities in the world.

A new technology that converts plastic waste to fuel has impressed sections of the Indian government but extensive support will be needed for it to be commercialised.

The technology, developed by Unique Plastic Waste Management & Research, allows fuel to be generated from plastic waste by rapid de-polymerisation of carbon chain using proprietary catalysts. More details are available here.

It is now being implemented on a small scale and I suspect more research will be needed before tonnes of plastic waste can be converted into fuel to drive our cars.

But given the amount of plastic waste being generated in India it is certainly a technology worth pursuing.

India is seeing a rapid growth in the outsourced R&D business but the country still trails behind China and much of the developed world in this sector.

This was evident in the numbers presented by the science and technology minister to the parliament yesterday. India has 150,000 researchers compared with China’s 800,000-1m.

The number of researcher per million of population is only 156 for India, way behind 7,000 in Scandinavian countries and 4,700 in the US.

India’s R&D spend as a percentage of GDP is only 0.8% compared with 3% for developed countries.

And despite growth in business, the private sector trails behind the public sector which accounts for 80% of R&D spend in India. This is vastly different from US and even China where the public sector share is only 30%.

The government also appears to have recognised the need to improve the education system to produce more researchers. Funds allocated to scientific departments during the 11th Plan period (2007-2012) have been raised three fold to Rs753bn (US$19bn).

For more on Indian R&D, I recommend this report. It reviews major developments and identifies future prospects for this sector.

I am back from my holiday and have discovered no earthshaking developments in the last few weeks. But the following news articles caught my eye.

First, Dow Chemical’s European arm and GACL have agreed on a 50:50 joint venture to produce 200,000 tonnes/year of chloromethanes at Dahej, on the west coast of India. The plant is likely to start in 2011. State-owned GACL would supply chlorine, power and lease land to the joint venture while Dow would license its technology and also bring its marketing and sales experience.

The project indicates Dow’s growing interest in India and the government’s desire to attract foreign investors. But both sides may find the going difficult as the Bhopal issue has yet to be fully resolved and continues to attract NGO attention. It was only a couple of months back that Dow faced strong opposition to its planned R&D centre at Pune.

This article from today’s Business Standard indicates that while some government officials are keen to close the Bhopal chapter, others would like it to end only if Dow cleans up the site. It also quotes the chemicals, fertilisers and steel minister as saying that he is against doing any business with Dow until the liability issue is resolved.

Meanwhile, yet another SEZ is facing public ire. This time it is the Visakhapatnam-Kakinada corridor on the east coast of India where the state government plans to develop a mega refining and petrochemical hub.

Locals are reported to have demonstrated in front of the district collector’s office at Visakhapatnam as they believe the industrial activity on the coast would ruin the livelihood of fishermen, destroy mangroves and cause ecological damage.

At Paradip, also on the east coast of India, environmentalists have voiced concerns over the dredging operations being carried by Indian Oil Corp (IOC) for its refinery and petrochemicals project.

And in Tamil Nadu, the Tatas have reportedly shelved their titanium dioxide project because of problems related to land acquisition.

But there has been some progress in Mangalore where the first phase of a proposed SEZ has received environmental approval. The SEZ includes an aromatics and olefins complex as well as a refinery expansion by MRPL. This SEZ had faced strong public opposition which I had highlighted in my previous entries.

Are Indian chemical companies ready for Reach? Apparently not, says this report in today's Mint.

The problem appears to be not only lack of awareness about the EU programme for registration, evaluation and authorisation of chemicals (Reach) but also a shortage of labs certified for good laboratory practices (GLP), a standard developed by the OECD.

Under Reach, during a six-month period from 1 June through 30 November, foreign firms exporting to the EU must pre-register any of some 30,000 substances that are shipped to Europe as chemicals or as components in intermediate or end-user products.

The formal process of testing and full registration of all 30,000 substances will begin next year and run through a series of stages and deadlines to June 2018.

The Indian Chemical Council estimates that about 1000 Indian companies exported 700,000 tonnes of chemicals to the EU in fiscal 2007. But India has only about a dozen GLP-approved labs, half of which belong to pharmaceutical majors. The few independent labs face a daunting workload which is likely to leave Indian companies struggling to meet the EU deadline.

Atul has successfully secured a contract manufacturing deal with Stamicarbon and DSM Licensing Centre for phosgene-based polymer performance additives used in polyamides.

Atul will manufacture the additives based on guidelines given by Stamicarbon with DSM marketing the product worldwide under its brand name.

And this could just be the start as DSM has proposed to strengthen the relationship with Atul for more custom synthesis and development work, says Jagdish Shah, executive director at Atul.

ICIS news also reported that within a year Atul would set up a new plant fully dedicated to the manufacturing of these polymer performance additives as it expected an increase in demand following the long-term contract with DSM

In yet another blow to Dow Chemical's plans for India the company has had to halt work on its new R&D centre at Chakan, near Pune, following instructions from the Maharashtra chief minister.

The government's directive was aimed at appeasing the local population which has been strongly protesting against Dow and had even forcibly entered the site and set the centre on fire in July.

The chief concern of the locals is that the centre would pollute the area which is sacred to them. This is despite reassurances from Dow and local authorities that the company would not be carrying out any manufacturing at the site.

Dow's plan is to employ 500 Indian scientists at the centre to work on projects like purifying water for consumption, energy efficiency and the effective use of green technology.

Surely, there is no reason to protest against this type of investment.

I should not be surprised that Maharashtra's new chief minister is having second thoughts about Dow Chemical's plans for a research centre at Chakan, near Pune. Unfortunately, I am.

I fail to see how a research centre will increase pollution. Dow had signed an MoU with the government last August and construction had started when villagers, supported by NGOs, started agitating and forced the company to halt work.

Politicians have been quick to jump in and the new chief minister probably sees this as an opportunity to make his mark in state politics.

News is slowly trickling in of Indian pharmaceutical and fine chemical companies shutting down facilities that were acquired with great zeal during the 2005-08 overseas acquisition drive.

Shasun has decided to shut its facility at Newbie in Scotland and is reportedly shifting manufacturing to other locations in the US, the UK and India. The Newbie plant is one of two units acquired by Shasun from Rhodia in 2006.

Last week Piramal Healthcare announced that it was closing an active pharmaceutical ingredients (API) facility in the UK. The move, said Piramal, would help improve profit margins of the company's pharmaceutical solutions business by 6-8%. The unit was acquired from Avecia Pharmaceuticals in 2005.

A case of biting off more than you can chew?