Sales to grow at robust rate of 43.6% over FY12-14: Pravin Herlekar The New INDIAN EXPRESS (19/10/2012)
In an exclusive interview with Meena Konar of Myiris.com, Pravin S Herlekar, CMD, Omkar Speciality Chemicals (OSCL)says, "Capacity expansion would enable OSCL to meet the increasing demand from its user industries - pharma, cattle/ poultry feed, glass etc. and drive its revenues.''
What is your outlook on the Indian pharma industry? Pharma industry in India is growing at a reasonable pace. This is on account of population growth and the changing life styles of people. The drug for applications on anti-diabetic, anti-cholestrol, anti-hypertension, anti-asthematic, etc., has been constantly in demand. Moreover, a number of drugs are getting off-patented in the near future, and the Indian pharmaceutical industry is expected to cash on this business. Interestingly, the Indian pharma industry is expected to do well on the back of growing global demand for generics drugs.
According to a recent research conducted by CRISIL, the size of the generics market is estimated to be USD 88.8 billion, and is expected to grow at a CAGR of about 10% over the next five years to reach USD 122.5 billion by FY16. Further, the Indian drug manufacturers have the largest FDA approved facilities in the world and are highly export-oriented. Around 90% of the bulk drugs manufactured are exported to regulated and semi-regulated markets. Such a global push in the generics market has the capacity to lift the entire value chain of the Indian pharmaceutical industry. This is likely to benefit OSCL as we are one of the established pharma intermediate manufacturers in the Indian subcontinent.
Amongst the speciality business, on which segment are you more optimistic? Currently on which business segments you are focusing on?
The majority sales of OSCL's speciality chemicals comes from cattle & poultry feeds and glass segment (8-10% each). The company caters to some of the large domestic players in the industry. OSCL also manufactures various chemical products, which primarily constitute selenium compounds used in the preparation of high quality animal/poultry feedstock.
The company also manufactures chemical products particularly sodium selenite, nickel oxide and cobalt oxide, which are used in the manufacturing of tinted float glasses, which are high value added glasses. This continues to be a key focus area for OSCL going forward. As per reports, the demand for float glass is expected to grow at a CAGR of 15-18% over the next three to four years, propelled by growth in the construction and automobile sectors. This is likely to benefit OSCL going forward.Further, as a part of diversification strategy and strengthening presence in the non-pharma space, OSCL also plans to increase its focus on other end user segments like water treatment, agrochemicals etc., and add new segments going forward.
Omkar Speciality Chemicals forays into API business and has acquired LASA Laboratory. Could you brief us about this? How will this acquisition contribute to your revenue? Should we expect such acquisition for next few quarters?
Increased restrictions on the production cost have forced the API manufacturers from developed countries to shift their manufacturing base to the emerging economies like India, China and Eastern European countries like Hungary and Poland. This has helped emerging countries to make their global presence felt in the API market. API is the largest segment of the specialty chemicals industry. The growth of API market in India is likely to add pressure on the production capacities. This will result in an increased scope and revenue for OSCL.
The acquisition of Lasa Labs in April 2012 has enabled OSCL to gain a portfolio of 10 APIs like Albendazole, Closental and Flucanazole. Though most of the APIs are generic, they still offer incremental market opportunity for OSCL. For instance, Albendazole is estimated to have a global annual demand of about Rs 1.7 billion. Currently, OSCL operates at the tail end of the pharmaceutical chain, as it sells pharma intermediates, which find application in the API manufacturing.
This acquisition has enabled OSCL to expand its presence across the value chain. OSCL manufactures some products, which are used in API manufactured by Lasa. According to reports, the overseas veterinary API markets like Australia, New Zealand, Africa and Europe are estimated to offer a sales opportunity worth about Rs 250 million in FY14. OSCL is in talks with big pharma players to supply Albendazole for human usage in the Indian market. In Q1FY13, Lasa revenue stood at about Rs13 million. The company expects about Rs 120 million revenues in FY13 from its subsidiary going forward. Post the ramp up of the new capacity, which is expected to be operational by H2FY14, the pace of revenue growth could accelerate. Full benefits of the ramp up would come from FY15 onwards.
How do you see OSCL's earnings performance for FY13?
OSCL's net sales are expected to grow at a robust rate of 43.6% on a CAGR basis over FY12-14. Capacity expansion would enable OSCL to meet the increasing demand from its user industries (pharma, cattle / poultry feed, glass etc.) and drive its revenues. Ramp up of Urdhwa & Lasa capacities would further boost the top line and bottom-line of the company.
Could you brief us about your export? What are your capex and expansion plans for the coming year?
The company has lined up capex between Rs 850- Rs 900 million for expanding and setting up new capacities over the next two years.
What is your message to the shareholders and investors of the company?
In terms of competition, OSCL has an edge over its peers mainly on the back of its R&D focus which helps us consistently come out with new product launches and operational flexibility because of product diversity and its ability to consistently launch new products with IPR filing. OSCLâ™s credibility of meeting stringent quality requirements and delivering high quality orders has enabled to build goodwill with its customers, which has resulted in repeat business, especially from large pharma players. This has resulted in high entry barriers for new players and has enabled the company to stay ahead of its competitors.
Further, some of the niche high value added products including pharma intermediates manufactured by OSCL like resolving agents face less competition at present. We aim to evolve as one of the leading manufacturers of speciality chemicals and API products with key focus on people and processes, thus making OSCL one of the most admired companies in South East Asia. We are committed to become a knowledge-based premium conglomerate and have embarked on increased investments in all aspects R&D, manufacturing, people, capacity expansion, brand building and various other projects. We are confident that it will enable us to maintain our growth trajectory in the future.