Chemplast Sanmar Ltd (CSL), a leading manufacturer of specialty chemicals, expects its custom manufacturing business to grow at a healthy pace as the Chennai-headquartered company believes that its expertise in chemical manufacturing, access to raw materials, and track record in environment compliance will provide an edge over others to emerge as a prominent supplier in the space.
Custom manufacturing is the exclusive manufacturing of non-commercially available molecules for a specific company. These molecules are manufactured by conforming to particular properties and processes.
The demand for custom manufacturing has shifted to developing countries due to better cost economics. Key drivers of India’s market share gain are the energy crisis in Europe, increasing EU regulatory constraints, decreasing trust in Chinese supply chain reliability, and growing trust of Indian players to work with complex chemistries.
Global innovator companies are increasing their outsourcing pie constantly. This together with the China+1 strategy of the innovators, is resulting in increased enquires for Indian players including Chemplast Sanmar, according to the company’s latest annual report.
The company’s Custom Manufactured Chemicals Division (CMCD) produces advanced intermediates in pharmaceutical and agrochemical markets. The business recorded a growth of 26 per cent in FY23 and the growth outlook is also bright as the addressable opportunity is about $2 billion.
The company is preparing to commission a multi-purpose facility for CMCD during this fiscal. While the total outlay is about ₹680 crore, Phase 1 of the project will be commissioned during the first half of this fiscal, and the second phase by the end of FY24. This will expand the capacity from 1,068 mtpa to 4,500 mtpa.
“Our investments in capacity expansions will further augment our market leadership and solidify our position as a trusted partner for global innovators in the agrochemicals, fine chemicals, and pharmaceutical industries. Additionally, we are studying opportunities to further look at growth prospects in allied areas of our businesses,” Vijay Sankar, Chairman, said in the report.
High compliance standards
The Custom Manufacturing industry in particular has significant entry barriers, including expectation of high standards of Environmental, Health and Safety compliance and extended customer validation and approvals process among others.
“In fact, customers use Environmental and Safety as a first criterion for screening before they decide to work with a supplier,” said the report.
Further, the end customers are usually required to register their suppliers with regulatory bodies as a source of intermediate products or active ingredients, and this leads to high switching costs.
The company believes that its strong research and development capability combined with a broad range of chemical technologies at production scale and its track record in environmental and safety compliance, are among the key differentiators when compared with other chemical companies.
Also, CSL has access to many basic starting materials necessary for this business, such as caustic, chlorine, hydrogen, and chloromethanes, and the ability to handle gases like ethylene.
The commissioning of the newfacility in FY24 and the addition of new products to the portfolio is expected to drive the topline of this business to ₹1,000 crore in 3-4 years.