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Sunday, October 29, 2000













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The future is the colour of R&D -- Mr Prakash R. Rastogi, Managing Director, Clariant India.

A. Srikanth

OVER the last year, most specialty chemical companies took a severe beating in the stock market.

Despite the superior business model, the valuation multiples of both specialty and commodity chemical companies seem to be converging. Has the business model failed or is it a blip on the screen? Business Line discussed various aspects of the industry's future with Mr Prakash R. Rastogi, Managing Director, Clariant India.

Excerpts from the interview:

The business model for a specialty chemical company is based on a larger R&D budget, greater marketing power and a larger range of products to spread its R&D cost. To what extent has this model been successful? What is the latest on strategy for a specialty chemical company?

It goes without saying that a specialty chemical company should benefit from research and development (R&D). From this point of view, it can be appreciated that Clariant International has spent Swiss Francs 362 million in 1999, which is about 4 per cent of sales. R&D activities are based on customer needs, with the focus on products, applications and development. In addition to developing new and improved products, R&D also develops new and improved application processes for customers. As Clariant products are related to the change in fashion and customer preferences, it is necessary to keep the focus of the new products on meeting the requirements.

The development of new products is Clariant (India) Ltd's focus strategy for growth. The products developed over the last two years contributed more than 18 per cent of the company's total sales for 1999-2000. In our view, meeting the customers requirements through R&D and focussing on the changing needs of customers must be the strategy for growth of specialty chemical companies in the near future.

Do Indian conditions necessitate a change in strategy?

The conditions in India are not very different from those abroad. The preferences of Indian customers are changing in tune with the global scenario. The difference is in the preference of the urban and the rural masses. The products and applications have to be developed appropriately to suit these mass consumers. Considering the competition from industries in the unorganised sectors, marketing high quality and technologically-fit products that meet the changing demands of customers must be the Indian specialty company's strategy.

What are the reasons for the decline in the share prices of specialty chemical companies globally?

The specialty chemical industry worldwide is now a fully-matured industry, but several new areas are also emerging. Further, the specialty chemical industry's growth is linked with that of the industries it caters to, and therefore the growth of these industries would have a bearing on the specialty chemical industry as well.

In the last year-and-a-half, investor focus has shifted from stable, growth-oriented stocks to high-growth sectors such as information technology and communication. This change has affected the valuations of specialty chemical companies in the international and domestic markets.

What about the growth in turnover, profits and margins for the current fiscal?

Two-digit growth in sales and an overall improvement in net profits are expected. Due to the severe pressure on margins from the increased prices of petro-based raw materials and intermediates and competition from the Chinese and other markets, we expect substantial growth in specialty segments this fiscal.

What are the prospects of the various segments of the specialty chemical industry?

Growth and margins of textile dyes were severely affected and continue to be affected because of textile industry's low growth. With the introduction of a special range of high-performing dyes, it is hoped that the textile dyes business will regain its strength.

Meanwhile, textile chemicals have performed extremely well so far and are expected to perform in line with the current fiscal. There is good potential for new products in pre-treatment, sizing and technical textiles. The infrastructure and facilities for developing and promoting these specialty chemicals have been created.

The contribution of leather dyes declined in the previous year in relation to the increase in overall sales. Despite the negative growth in the leather industry, our leather business has been able to achieve positive growth. We seek to improve the situation in this year. In our opinion, finishing chemicals are yet to reach their full potential and will be the focus of promotion.

In addition, good growth is expected in paper chemicals and masterbatches. Our project at Kolshet, for the manufacture of masterbatches, is expected to begin production by end-December. This will certainly improve growth and our market share in the masterbatch business.

Considering the significant reduction in the international prices of raw materials and intermediates and the 33 per cent volume growth in export sales, the growth in value terms was restricted to just 3 per cent last year. However, we expect to do better in this year.

What of BTP India's merger with Clariant India?

We have no comments to offer. However, we would like to clarify that the larger portion of BTP India's operations consists of products for the leather industry.


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