imports. “It was in my kitchen that I developed some molybdenum and selenium derivatives (inorganic intermediates), which were not manufactured in India and were completely imported,” shares Herlekar.

He commenced his entrepreneurial journey brimming with ideas and just Rs. 1.5 lakh from his provident fund which he accumulated during his seven years stint with Excel Group.

As a part of its diversification strategy and to strengthen its presence in the non-pharmaceutical space, oscl also plans to increase its focus on other end-user segments like water treatment, agrochemicals etc. And add new segments going forward.

Today, OSCL is a publicly listed company in India and has registered a year-on-year growth of close to 45 per cent in the last few years on the back of new customer acquisitions, introduction of new product categories and entry into new business geographies. It has closed FY 2012 with revenues of around Rs. 167 crore and aims reach Rs. 240 crore by FY 2013.

OSCL in operation

OSCL caters to the needs of the pharmaceutical intermediates of drug manufacturers and supplies specialty chemicals for varied end-user industries like glass, agrochemical, paints/pigments, poultry and cattle feed, water treatment and electroplating industries. It has a diversified portfolio of over 100 products, consisting of niche organic, inorganic and organo-inorganic intermediates. While pharmaceutical intermediates and APIs contribute to around 70 per cent of OSCL’s revenue, the remaining 30 percent comes from the specialty chemicals space.

“As OCSL is a multi-product-multi-segment and multi-customer company, there is no specific competitor that manufactures all the products that we do,” says Herlekar. But as the pharmaceutical intermediate and specialty chemicals industries are both highly fragmented sectors, it does face competition from different players that have a presence in some of the product categories similar to that of OSCL.

The company also has a significant overseas presence with exports constituting around 15.4 per cent of its total turnover (as of FY12). In fact, its exports have doubled over the last few years. OSCL exports to 21 countries (like Europe, Canada, Asia, South America and Australia) including the regulated markets.

Ramping up capacity

OSCL is a research-oriented organisation, with basic capabilities of research pertaining to the genre of chemicals, derivatives and intermediates. Every year the company develops five to six new molecules. With a view to strengthen its research and development, OSCL acquired Rishichem Research in May 2010. OSCL has plans to consolidate its specialised research and development activities at Rishichem Research.

It also acquired Lasa Laboratories (Lasa) in April 2012 which has helped it 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,” shares Herlekar. He explains, “For instance, Albendazole is estimated to have a global annual demand of about Rs. 1.7 billion. Currently, it operates at the tail end of the pharmaceutical chain, as it sells pharmaceutical intermediates, which find application in API manufacturing. This acquisition has enabled OSCL to expand its presence across the value chain. OSCL manufactures some products, which are used in APIs manufactured by Lasa.”

OSCL also acquired a sick unit, Urdhwa Chemicals, in FY 2012. It has set up a 2800 million tonnes per annum (MTPA) facility for manufacturing organic chemicals which is expected to be fully operational in the next few months.

To expand its capacity to meet the rising demand for its products, OSCL raised Rs. 78.40 crore through an initial public offering (IPO) in 2011. Currently, its manufacturing capacity for all its four units (at Badlapur (E), Thane, Maharashtra) together is 4500 MTPA. The total capital expenditure planned for this expansion was about Rs. 70 crore, which was funded through its IPO proceeds. Of the IPO proceeds, Rs. 25 crore is yet to be utilised, which would go towards funding the remaining aspects of its expansion plan.

To launch new products and to boost exports, the company has lined up an additional capital expenditure of Rs. 75 crore over the next two years. It plans to set up a new manufacturing facility (unit V) at Chiplun, Maharashtra and upgrade and expand its capacity at Lasa. Phase 1 of unit V is expected to be operational by April 2013 and OSCL will further expand the capacities at unit V in phase 2 and phase 3 over the next few years. The commercial production at Lasa would commence in H2FY14. This expenditure is likely to be funded largely through ECBs of Rs. 63 crore (obtained sanction from Bank of Baroda) and through internal accruals.

As OSCL finds its path to growth, one of the most significant challenges it faces is in the area of technology upgradation. Herlekar says, “Our business demands are such that we constantly need to innovate and grow according to the changing market dynamics, which often requires newer technology adoption in production and this is one of the few challenges we face.”

Going forward

OSCL has grown to become a company with a market capitalisation of close to Rs. 240 crore. With a large portion of its revenue coming from the pharmaceutical sector, it appears well placed to capitalise on the opportunities from this sector as the US $30 billion Indian pharmaceutical industry is expected to grow at a compounded annual growth rate (CAGR) of about 15 per cent to 17 per cent over the next five years. This growth is likely to be due to the growing global demand for generics drugs which has the capacity to lift the entire value chain of the Indian pharmaceutical industry.

This apart, majority sales of OSCL’s specialty chemicals comes from cattle and poultry feeds and glass segments where it caters to some of the large domestic players in the industry and these will continue to be its key focus areas. “We manufacture 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,” says Herlekar. The demand for float glass is expected to grow at a CAGR of 15 per cent -18 percent over the next three to four years, propelled by growth in the construction and automobile sectors.

Further, as a part of its diversification strategy and to strengthen presence in the non-pharmaceutical space, OSCL also plans to increase its focus on other end-user segments like water treatments, agrochemicals etc. and add new segments going forward. The increase in its manufacturing facilities coupled with a strong demand from the end-user markets augurs well for OSCL. “We expect to maintain our growth of 45 per cent - 50 per cent year-on-year. We are also optimistic that this will take OSCL closer to the Rs. 500 crore turnover mark by 2015,” concludes Herlekar.

THE FINER NUANCES OF MANAGING A CAPITAL-INTENSIVE BUSINESS

Fund raising for projects is one of the big challenges. The possible routes are promoters’ own equity, debt fund or private equity. Each option has its own advantages as well as disadvantages. One has to take an optimum decision regarding choice of funding.

WHAT NEXT?

Turnover of Rs. 500 crore by 2015

To launch new products

Demand for generics drugs has the capacity to lift the entire value chain of the Indian pharmaceutical industry and will benefit OSCL

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 continues to be a key focus area

Plans to diversify and strengthen its presence in the non-pharmaceutical space

Increase its focus on other end user segments like water treatment, agrochemicals etc. and add new segments.

SNAPSHOT

Omkar Speciality Chemicals
Founder: Pravin Herlekar
Year: 1983
City: Thane, Maharashtra
Turnover : Rs. 167 crore