IndiaChem 2006 10th November Mumbai

1
IndiaChem 200610th NovemberMumbai

• Growth Opportunities for Specialty Chemicals
• Pavan Kumar
• Rohm and Haas (India)
• Opinions expressed are that of the presenters
  and not necessarily of Rohm and Haas company
• Thankful to various sources from where
  references have been used in this presentation

2
Presentation structure

• Introduction and overview
• Perspectives on the Specialty Chemicals industry
• (with illustrations from Rohm and Haas
  experiences)
• Opportunities for growth

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Rohm and Haas - an overview

• Fortune 500 company, founded in 1909, listed on
  NYSE, HQ in Philadelphia, about 8 billion in
  sales in 2005
• 100 sites, 27 countries, gt17,000 employees
• Dedicated to the principles of Responsible Care
  and Sustainable Development
• Six business verticals Coatings, Electronic
  Materials, Adhesives Sealants, Performance
  Chemicals, Salt Monomers
• Delivers technically advanced products and
  services to a variety of end-use markets
  including
• Building Construction
• Electronic Computer Hardware
• Household Personal Care Products
• Automotive Leather
• Paper Packaging
• Retail Hypermarkets
• Pharmaceuticals Water Treatment

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Rohm and Haas (India)

• Wholly owned subsidiary of Rohm and Haas Company,
  established in 1995, Mumbai office handles
  interests in the Indian sub-continent
• First manufacturing plant at Taloja (Mumbai)
  commissioned in August 2003, certified on an
  integrated management system - ISO 9001, 14001
  and OHSAS 18001
• First company in India to be awarded the
  Responsible Care logo
• Currently in the process of expanding the Taloja
  facility substantially besides building a
  greenfield manufacturing plant near Chennai
• From current years sales of about Rs.400 crore,
  aim is now to reach sales of Rs.1000 crore by
  2010

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Major factors for progress for Rohm and Haas in
India

• Striving to build credibility quickly with
  customers, local stakeholders and the Rohm and
  Haas fraternity
• Ramping up manufacturing , technical service and
  application development capabilities to support
  customers end-to-end
• Product selection from the established global
  portfolio but adapting for local market needs and
  positioned competitively
• Emphasising processes without losing sight of
  speed, cost and quality in responding to
  customers and business associates

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Specialty chemicals Key features - I

• Sell in relatively lower volume, primarily on the
  basis of performance
• Insightful understanding customer needs is a
  major success factor
• Less capital intensive (smaller plants, batch
  sizes) but highly knowledge dependent product,
  process and application development
• Products, applications functionalities can vary
  widely
• binders, opacifiers, thickeners, sealants, flame
  retardants, dispersants, flavours, fragrances,
  photoresists, etc.
• interfacing with almost every sector of the
  manufacturing industry including textiles,
  paints, paper, polymers, leather, packaging,
  inks, automobiles, electronics, building
  construction

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Specialty chemicals Key features - II

• Essential raw materials are petrochemical
  derivates that are subject to the vagaries of
  demand/supply cycles limited bargaining power
  on prices
• Given the high cost economies and low growth
  rates of the West, emerging markets present huge
  growth opportunities, but pose challenges as well
• Historically, sales of specialty chemicals were
  based more on technological superiority - more of
  a push than creating a pull
• Research and supply chain productivity
  increasingly critical for sustenance

8
Relative power position on the Value Chain
Market Capitalization (US Billion)
250
150
60
40
20
0
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Specialty chemicals - Growth tenets

• Specialty chemical vendors growth is dependent
  on the customers growth..
• Expanding the ultimate market/product usage in
  the last (consumer) stage of the chain is key to
  grow the market pie and seek a share of that pie
• Therefore, Rohm and Haas invests in the enabling
  conditions for business through technology and
  marketing initiatives !

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PQI is one such initiativeto supplement the
marketing efforts of the paint industry
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Changing customer expectations

• Better performance at same cost (differentiation)
• Same performance at lower cost (cost position)
• Price reductions and improved quality with better
  service
• Products with intelligence eco-friendliness

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Specialty Chemical industrys dilemma !

• With a shrinking window of market opportunity for
  specialties and increasing lead time, cost and
  risk of innovation
• Persisting with suppliers position or
  empathising with customers ?
• Need to consider differentiation in a new
  paradigm
• Radical vs. incremental
• Functionality vs. cost
• Product supply vs. service delivery
• Vendor vs. partner

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Notwithstanding the industrys challenges
Specialty Chemicals have a major growth
opportunity
Indian Specialty Chemicals market has the
opportunity could grow from US7 to 27 billion
by 2010.
US 100 bn
US 60 bn
US 28 bn
Source KPMG India Report
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Growth in consumption prime mover !
- Phenomenon applies to many products -
Established correlation between rise in GDP and
consumption - Higher growth rates seen in
emerging markets
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Several end-markets waiting to bloom

• Top growth markets in Building Construction and
  estimated annual growth rates
• India 9.5
• Thailand 8.5
• Kuwait 8.3
• China 8.2
• Brazil 8.0

Estimated 200 billion worth of public
infrastructure in India the coming years
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A typical Indian product-market
- Evolving from a pyramid to a diamond - The
emerging Indian middle class is a huge growth
opportunity
Middle class
Premium segment
Economy Segment
Sub-economy
segment
(Illustrative)

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Attractive Specialty Chemicals Segments
Top segments
Specialty polymers (1)
Water management chemicals (2)
Electronic chemicals (1)
Plastic additives
Diagnostics aids (1)
HIGH
Fine chemical Pharmaceuticals (1)
Cosmetic and tolietry chemicals(2)
Food ingredients (1)
Catalysts
Enzymes(1)
Flavors and fragrances (1)
Fairly attractive segments
Cement concrete additives (2)
Feed additives(2)
Trend attractiveness
Foundry chemicals
Construction Chemicals (2)
Thickeners
Biocides
Fine chemicals agro
Paper chemicals
Photographic chemicals
LOW
HIGH
Market attractiveness
LOW
Source Roland Berger
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India- the emerging crucible of innovation

• Worlds leading software, pharma, specialty
  chemicals, engineering and other industry giants
  are setting up RD facilities in India
• Excellent opportunities for local companies to
  partake of the growth momentum in various ways
• Combined with process capability and factor cost
  advantages, a veritable opportunity for Indian
  players to be among the lead suppliers to the
  world tomorrow

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Principal enablers of industry growth

• A regulatory milieu that is transparent, industry
  oriented, contemporary in knowledge and
  progressive in attitude
• Speedier development of quality public
  infrastructure which would have a multiplier
  effect on private investment
• A self-regulated industry that acts as a
  responsible citizen with superior governance and
  EHS practices
• Improved stakes in the industry for the larger
  community regulators, academia, potential
  employees, business partners, media and the
  public in general through organised
  communication of the value of work being done by
  the industry and building a favourable
  disposition

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BCG report on 100 Emerging Market Challengers
from Rapidly Developing Economies (RDEs)

• gt 40 Chinese and 20 Indian companies figure in
  the report as emerging global players
• Low cost resources, strong home markets and
  accent on operations have been named as key
  drivers for their success
• Innovation, supply-chain effectiveness,
  management talent and rigour in strategy are
  areas needing improvement
• These candidates could raise the stakes of the
  game itself and reshape the playing field
• They hold out great hope for emerging market
  enterprises to succeed on a global canvas giving
  confidence to many aspirants

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In closing

• Opportunities for the growth of the industry -
  there was perhaps no better time in history than
  what we are seeing now !
• Thank you