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Presentation to IFEAT Kochi
17th October, 2005
The Indian Aroma Chemicals Industry
Mr. ARUN NIMBALKAR, Director,
Moraya Global Limited
Contents
Trends & Challenges
A View of the
Future
Evolution of the
Industry
Current Structure of the
Industry
Principal Products
Conclusion
Indian Aroma
Chemicals Industry
Contents
Trends & Challenges
A View of the
Future
Evolution of the
Industry
Current Structure of the
Industry
Principal Products
Conclusion
Indian Aroma
Chemicals Industry
The Indian aroma chemicals industry is
comparatively very young ….
• The Industry has its genesis in the war years 1940 -1950
– The Second World War created raw material scarcity
– Initial efforts by few fragrance manufacturers to reduce the cost of inputs and to improve the supply of some chemicals by manufacturing them from local raw materials
• Today the $ 270 million Industry* is on the cusp of rapid growth
* Industry sources
The Industry has seen enormous changes inthe last decade ….
Liberalization of aroma chemicals import.
Entry of new players with larger capacities, driven by R&D
Initial attempts to from JVs with foreign firms
Rapid growth in local FMCG Industry
Petrochemicals based Aroma Chemicals
Products like phenyl ethyl alcohol, derivatives of alpha campholinic aldehyde, iso-e-super, coumarin introduced
Indian firms emerging as cost efficient suppliers to global F&F firms
Greenfield ventures with capacities planned for global markets
Industry adopts the same high industrial quality standards practised by the best
Tremendous activity in allied specialty chemicals – spillover of pharmaceuticals
Tariff Barriers Assured Market R&D of new aroma chemicals
from locally available raw materials
Essential Oils based industry Wide price gap between domestic
and international markets No incentive for exports
Econ
omic
Gai
ns
Responding to the pressures of liberalization
Import Substitution
Globalization of Industry markets
INWARD FOCUSED REACTIVE EFFICIENT
1990s1950s - 1980s 2000s
Today India is a significant player in the global aroma chemicals trade …
Source: Industry Sources, PCTAS database, Published Indian Customs data
2002 2003 2004
2000 MT$ 21.25 mn
2000 MT$ 24.05 mn
5000 MT$ 46.36 mn
Exports - USA
2002 2003 2004
2500 MT$ 25.25 mn
3500MT$ 33.81 mn
6000 MT$ 55.45 mn
Exports - EU
2002 2003 2004
500 MT$ 5.25 mn
1500MT$ 10.00 mn 1000 MT
$ 9.09 mn
Exports - Others
Musk Chemicals
2%
Benzenoids50%
Turpenoids33%
Others15%
Share by Quantity
The Industry is concentrated in Western & Southern India …
Bangalore
Mumbai
New Delhi
Kolkata
Chennai
Kochi
Gujarat
Reasons for the Geographic spread
• Presence of supplier chemical industries
• Presence of consumer industries
Musk Chemicals
2%
Benzenoids48%
Turpenoids40%
Others10%
Share by Value
Average Annual Production (MT)
80s 90s 2000s
10000
15000
25000
Source: Industry Sources, Published Indian Customs data
Contents
Trends & Challenges
A View of the
Future
Evolution of the
Industry
Current Structure of the
Industry
Principal Products
Conclusion
Indian Aroma
Chemicals Industry
Others(15%)
Benzenoids(50%)
Musk Chemicals
(<1%)
TerpenoidsBased (33%)
The Indian Aroma Chemicals Industry Structure ….
Supplier Industries Aroma Chemicals Firms
Rivalry between firms intense yet each firm has identified certain aroma chemicals and
build competencies in manufacturing and R&D Processes of that chemical
Exports (30%)
Domestic Market (70%)
Buyer Industries
Essential Oil Producers
TerpeneManufacturers
NaphthaManufacturers
Suppliers to Indian Aroma Chemical Firms …
Supplier Industries Firms
Essential Oils Producers
NaphthaManufacturers
TerpeneManufacturers
• Cultivators of oils like Peppermint oil, basil oil.
• International Suppliers of essential oils
• Large petrochemical complexes like Reliance Industries, IPCL etc.
• International Diversified Chemical Companies Bayer, BASF
• Imported especially from China, South America
Indian Aroma Chemical Firms …
• Range of aroma chemicals being manufactured is impressive, but firm production capacities are small
– 350 different aroma chemicals being manufactured– 8 to 10 medium / large manufacturers (~ 1000T per
month) and 45 to 50 small scale manufacturers• Sector dominated by Indian firms
– Divisions of F&F companies, divisions of large diversified chemicals, medium to small niche producers based on specialized knowledge of a product or process technology
• Adoption of new technologies– Modern methods of analysis– QA/ QC Standards, ISO certification irrespective of
size• Technologies being commonly employed
– Hydrogenation, Freidel Craft’s Reaction, Grinard Reactions, Various types of pressure reactions, cyclizations, pyrolysis and oxidations
Others(15%)
Benzenoids(50%)
Musk Chemicals
(<1%)
TerpenoidsBased (33%)
AROMA CHEMICALS FIRMS
Buyer Industries - Indian Flavours & Fragrances Industries …
• Although the market demand is dominated by cheap flavours, there is a growing sophistication in demand.
• The market is dominated by MNC firms like BBA & Quest with more than 60% share
• Has recorded good growth based on the changing lifestyles of India’s middle classes
• Dominated by domestic companies and by the unorganized sector with more than 60% share.
• In the cosmetics and toiletries product group, the principal demand is from hair care and skin care
FLAVOURS INDUSTRY
FRAGRANCES INDUSTRY
END USER FMCGINDUSTRY ($10
BILLION)
BUYER INDUSTRY ($1.2 BILLION)
Buyer Industries - Global Flavours & Fragrances Industries …
FLAVOURS INDUSTRY
($6.88 billion)
FRAGRANCES INDUSTRY
($4.96 billion)
BUYER INDUSTRY ($11.84 billion)
INDIAN AROMA
CHEMICALS FIRMS
TradersExports$110 million
END USER FMCG
INDUSTRY
• There are some 500 companies participating in the world F&F market.
- Of these, under half are engaged in merchant sales, the rest being brokers, dealers, refiners, processors and suppliers.
- Only 15 global F&F houses market the full range of products
- In the last decade the top ten F&F companies have absorbed about 60 others
- Givaudan (12.4%), International Flavors & Fragrances (IFF), with 11.1%, Firmenich (8.7%), Symrise (7.3% ), Quest (5.5%) and Takasago (4.6%).
Source: Flavours & Fragrances, 2005 SRI Consulting
Contents
Trends & Challenges
A View of the
Future
Evolution of the
Industry
Current Structure of the
Industry
Principal Products
Conclusion
Indian Aroma
Chemicals Industry
The principal Aroma Chemicals from India include …Aroma Chemicals
Terpenoids
Musk Chemicals
Benzenoids
Others
Musk amberette, musk xylol, musk ketone, ambrettolite, tonalide etc.
Aroma Chemicals
Fatty aldehydes, esters of PTBCH and OTBCH, heterocyclic compounds such as indolesPyrizines and quinolines
alpha Amyl cinnamaldehyde, Anethole (1-methoxy-4-propenyl benzene),P – anisaldehyde, benzaldehyde,benzyl acetate, benzyl benzoate, benzyl Salicylate, cinnamaldehyde, coumarin, diphenyl oxide, eugenol, isoamyl Salicylate, methyl benzoate, methyl salicylate, PEA, benzophenone cinnamic alcohol, dimethylbenzylcarbinol and its esters, esters of phenylacetic Acid, methyl anthranilate, methylcoumarin, strawberry aldehyde
Citronellol, geraniol/ nerol, hydroxycitronellal, Ionones, L– Menthol, Methyl ionones, Alpha terpineol, damascones, geranonitrile
Contents
Trends & Challenges
A View of the
Future
Evolution of the
Industry
Current Structure of the
Industry
Principal Products
Conclusion
Indian Aroma
Chemicals Industry
The basic building blocks for rapid growth are in place …
• The Industry enjoys number of advantages
– Skilled & Disciplined Manpower– In both technical and managerial
disciplines
– Good Work Ethics, Widespread knowledge of English
– Competencies in chemistry and process development
– Strong Industry - research institutions linkages resulting in productive research in newer products and newer processes
– Research institutions include National Chemical Laboratory (NCL), Mumbai University Department of Chemical Technology (UDCT), Regional Research Laboratories
– Rich Bio diversity and geo climatic conditions for essential oil bearing crops
– Rule of law and Intellectual Protection (IP) regime in place
– Rapidly increasing size and sophistication of domestic demand
– Rapid adoption of new technologies
The constraints to the growth are structural in nature …
• India’s Infrastructure is struggling to support the rapid growth
– Issues of logistics– Indian Ports suffer from enormous
bottlenecks
– Indian roads and airports are underdeveloped and the transportation systems less efficient
– Huge Investments are needed to set up the required infrastructure
• The bureaucratic setup has a drag effect on any business initiatives
– Enlightened policy like in the telecom sector, the need of hour in a number of sectors to attract domestic investment
as well as FDI
• Availability of capital to the sector is low
– The small capacities of the firms are not conducive for competing on a global scale, resulting in low surpluses
– Low firm surpluses and comparative low returns with other sectors resulting in investments in R&D and low innovation
Contents
Trends & Challenges
A View of the
Future
Evolution of the
Industry
Current Structure of the
Industry
Principal Products
Conclusion
Indian Aroma
Chemicals Industry
India’s growing middle class will make India a very attractive market for aroma chemicals …
Household Income Classes(2004)
“Aspiring India”
“Global India”
Segment Size(Millions of HH)
Real Annual Household Income
(avg size of HH =5.4)
> $10,000
$ 4000 - $ 10,000
1
40
“Destitute India”
“Struggling India” $ 1500 -$ 4000
<$ 1500
110
40
Source: Mckinsey Quarterly, “Winning the Indian Consumer, 2005 Associated Chambers of Commerce and Industry (ASSOCHAM)
• India’s household class “Aspiring India” is expected to drive the demand for FMCG and other retail goods
• Based on these projections the end user non food FMCG market is expected to be $22 billion in 2010 from the current size of $10 billion (CAGR-10%)
– The growth is to be led by rural and suburban India where the sector is expected to witness more than 50% growth by 2010
• According to the Mckinsey study on India’s Food industry, it is expected to grow to $50 billion by 2006
• The Aroma Chemicals Industry will have rapid growth based on derived demand for FMCG goods
– Increase in income levels
– Increase in availability and range of products
India’s aroma chemicals industry could be a supplier base for the global F&F Industry ….
• Increasing improvement in India’s Infrastructure
– India has begun to address the structural issues that constrain growth like infrastructure and huge bureaucracy
– Govt. policies in these regards are becoming less politically contested
• The Industry is expected to consolidate through acquisitions to achieve capacities to compete globally & to address issues related to finance
• The industry would be a base for manufacture of number of intermediate products.
• With the Private sector contributing 75% of GDP, wide scope for JVs, collaborations, partnerships
– It would be lucrative to manufacture in India
The industry could be a R&D base for the global F&F Industry ….
• The cost of developing molecules that look promising into products is costly and long winded affair
– 3 to 4 years to bring the laboratory bench to the perfume counter
• R&D Outsourcing to India can be carried out
– India’s technical manpower and world class research institutions could support a more cost effective and market oriented R&D model for large F&F companies
– India’s large bio diversity could be used to develop newer aroma chemicals
• The industry could also support the R&D activities in developing better processes for better products
Contents
Trends & Challenges
A View of the
Future
Evolution of the
Industry
Current Structure of the
Industry
Principal Products
Conclusion
Indian Aroma
Chemicals Industry
In Conclusion …
The Indian Aroma Chemicals Industry is poised to grow rapidly, thanks to the tremendous growth of the domestic end user markets and switching of international buyers to Indian suppliers due to favourable economics …….
There exists a window of opportunity for using India as a supplier base for manufacturing & R&D by entering into partnerships with Indian firms. The pace at which the opportunities are unfolding to create a more competitive global aroma chemical industry is remarkable.
We live in interesting times …..
Thank You