Shortcuts Are Not Solutions

Rajen Mariwala,
Managing Director,Eternis Fine Chemicals Ltd
Eternis has rebranded itself recently and is in the processes of re-inventing the company's image and business models. In the backdrop of this change, Mittravinda Ranjan & Girija Dalvi had a candid conversation with Rajen Mariwala, Managing Director, Eternis Fine Chemicals Ltd where he spoke about the reason for rebranding, the company's future plans and the changes that could set the Indian chemical industry on a growth trajectory.

In March 2015, the company rebranded itself from its previous name Hindustan Polyamides and Fibres Ltd(HPFL) to Eternis Fine Chemicals Ltd. Please tell us more about this move and why was it undertaken.
In 1980s, HPFL was an old company in which we had made investments but had not changed its name. We realised that fundamentally, it did not reflect the work we have been doing. Almost 90 percent of our business is overseas. In the next phase of our growth journey, we thought it was crucial to analyse how the company looked to us, to our customers and the world at large. We wanted to create modern relationships and sustainability was another vital aspect on our agenda. After lot of deliberations, the genesis of Eternis happened from the Old French world 'Eternal'. The 'E' in the logo we have adopted represents the Greek symbol of sigma which highlights our thought process. We are of course proud of being an Indian company but with the steps that we have taken overseas, I feel we need a wider canvas to paint!

How was HPFL functioning earlier and how has that changed in Eternis ? What are its future plans?
Today, we have a topline of USD 80 million and we have only been on a growth journey all this while. I believe, what has brought us to his point will take us to the next level. In the local market, we are at 50-60 crores. The company is likely to see a CAGR of 20 per cent. The first step necessary to meet with our new aspirations is to bring in the right talent; we need to look at bringing in more talent internationally. At present Eternis has two people working overseas for the company. This is a small step for a company that has 250 people working majorly in the manufacturing side of the business. Another strategic change that we are looking forward to is improving our processes and systems so that it is able to handle the larger context of the business. We are only in the business of fragrance chemicals, so for us fine-tuning our strategy and accelerating growth is of utmost importance. Culturally, we are undergoing a lot of changes as well.

Fragrance chemicals is a highly niche space. How much of the revenue does Eternis invest in R & D?
From the CAPEX of the company about 2-3 per cent is spent on R & D. At present the research centre is located in Rabale in India but we are open to opportunities. If we have the right people in place, we would look at setting up R & D facilities overseas.

How is the market shaping up for fragrance chemicals and what are the major growth drivers?
Globally, the market is expected to grow at 2 to 3 per cent while the Asian market is expected to grow at 6 to 7 percent between Indonesia, India and China. The European and US market will be more or less stagnant. A country such as ours will see acceleration in the growth numbers mainly because of a significant increase in rural consumption. Today, the aspirations of people are rising and this is the case even in rural India as the consumption there has become fairly resilient making it one of the key growth drivers for the market. Today, the rural population is well aware and more educated and the data available should be able to map how the occupational profile has changed.

Globally, the specialty chemicals industry is much disciplined and companies are highly focused on managing cost and margins, which is the same for specialty chemical manufacturers in the space of fragrance. Another key trend the market will project is that of volume growth. While the companies are most likely to see high levels of volume growth they might see a marginal drop in value growth. The market would see an upward and downward movement but there will not be any real impact from the perspective of margins.

There could be a rise in the consumption of some items; especially if there is a decrease in the prices of discretionary ones. A decrease in prices of perfumes could encourage people to use more. But it would actually pinch the pocket if the total value drops. Although there has been a lot of up and down movement in the global chemical industry and the prices would move in tandem with the oil prices; the industry will be resilient as it has been in the last 4-5 years.

China, which has maintained its image as the leader in commodity chemicals business has announced plans to enter the specialty chemicals space in a big way. What are your thoughts on the change in business model ?
Chinese economy became very competitive in the business of commodity chemicals because of scales of economy, huge domestic consumption and cheap labour costs.

In my view, the Chinese industry is highly disciplined and they are also at a stage where the government wants them to be much more compliant, they are probably more pro-active than the Indian government in terms of environmental health and safety issues. Moreover, their labour is getting expensive and I think that will definitely compel them to take business decisions. They will not continue the same way people feel they were doing earlier. I personally feel they are fairly business minded.

Both the industry as well as the government work proactively towards building new business strategies and regulations to stay ahead in the global competition. One of the points that I find worth mentioning is the strong stance of the Chinese Government where it has continued to protect the domestic manufacturing industry by imposing stringent import barriers. While buying from China is never a problem, but selling the products into Chinese market can be quite daunting for the suppliers from other countries.

What changes would you like to see that could boost the growth of the Indian chemical industry?
I feel one change that will give a boost to the growth of the chemical industry is 'the change in the mind-set of the Indian entrepreneurs'. Globalisation may go through its ups and downs; competition is here to stay. It is necessary to find viable solutions to the problems rather than complain about shortages. Indian industry should aim at reaching the global scale, especially the chemical industry. Today the fact is that a company would not launch a product unless it is sure of acquiring about 30-40 per cent of the global market share of the product. But, many Indian companies are only doing conversion, to put it crudely; raw materials are being brought in from overseas, converted here and sent out again. Eternis is just beginning to build scale but we have some way to go.

There is no denying that innovation is happening in India but there is no disruptive, path-breaking innovation happening here. You are not going to get a brand new polymer coming in today or something radical in terms of technology. I think combinations between the areas of scale and technology will truly drive the growth; scale brings ability to leverage on technology. Secondly, we need to constantly re-invent the business models. A perfect example of this is the Jurong Island Global Energy and Chemical Hub that is not just surviving but thriving. We need to step out and look for greener avenues in terms of feedstock availability rather than complaining of it lacking in India. We need to move out of the comfort zone that we have created and look to Oman, Dubai and other Middle Eastern countries. Along with re-branding, Eternis is also in the process of re-inventing its business model.

Rather than focusing on aspects like budget memorandums, etc, we must focus on pooling all our resources together and set up centralised boiler plants, common effluent treatment plants, cogen plants, bulk storage yards which will radically bring down the capital investment and save quite a chunk of the CAPEX, especially for mid-size companies. These can come across as radical thoughts but can truly turn things for the better. This will definitely encourage more and more people to invest locally over and above the MNC investments that come in.

We need to get over the JUGAAD mentality that Indians have. Shortcuts are not the solutions. Also, a practice that Eternis that adopted of 'customer first' can actually be a differentiating factor for your company. This has been widely been adopted globally. I believe India needs to catch up.

I think if we take the right steps, it would not be difficult to create a healthy sense of competition in the Indian market as it is still a large captive market. The spending power and rising aspirations of people will put it on a growth trajectory.