Omkar Speciality Chemicals: Thinking big

By On Dec 6, 2012

Many people believe that starting a business is a herculean task. They know they want to start a business, but they don’t know the initial steps to take. The same happened with Pravin S Herlekar, CMD, Omkar Speciality Chemicals (OSCL). While he was undergoing internship with Excel Industries in Mumbai during his final years in IIT-Bombay, he had an opportunity to meet KC Shroff, Managing Director, Excel Industries, who asked him piercing questions about his ambition in life after graduation. These questions from Shroff changed Herlekar’s life forever.

Herlekar describes the scene, “As a trainee I had no clues then to strategise my abstract dream into entrepreneurship. I just replied naively to Shroff that I wished to opt for a decent career with some reputed brand or MNC. To which Shroff quipped and said, “So that’s all you want to do in life.” I was speechless and did not know what to say. Shroff who is a visionary then said, “You must start a business of your own and it should be something unique.” It was a path-breaking suggestion for me from Shroff and the epicenter of my goal to start my own venture.”

It turns out that many entrepreneurs started their businesses not because they had always had that dream, but because some event in their lives made it seem like the right thing to do at a certain time.

“I always wanted to do something innovative in chemistry and had the courage to step out into the unknown and pursue a dream no matter what it takes,” says Herlekar.

Armed with a Bachelor’s Degree in Chemical Engineering from the Indian Institute of Technology (IIT), Bombay and a Post Graduate in Management Studies from Mumbai University, Herlekar commenced a proprietary firm in 1983, with a working capital of meager ` 1 lakh, which he accumulated from provident fund during his seven years stint with Excel Group.

It all started in the kitchen…

Herlekar was aware of the fact that for any type of venture, be it big, small or home-based, startup funding is mandatory and definitely a stepping stone to success. “You will be surprised to learn that most of the multi-millionaires and billionaires of today just started with great ideas and very less funds. I did the same,” says Herlekar.

He adds, “A bird doesn’t sing because it has an answer, it sings because it has a song. With this dogma, I tried to move out of conformity and search newer product ideas. Along the course of following my own path, I have had many different experiences and have interacted with numerous individuals with very diverse backgrounds. This enabled me to explore, question, re-think and finally give shape to my perspectives. Finally, one that struck me was to manufacture import substitutes, which did not have much presence in India.”

It was in the 1980s, when there were stringent government norms and restrictions on imports. With all his determination, Herlekar went ahead with the idea and started developing a couple of import substitutes and that too in his kitchen as he did not have any lab.

“It was in my kitchen that I developed some molybdenum and selenium derivatives, which were not manufactured in India and were completely imported. Hence, this marked the start of my career as an entrepreneur. All my life, I have been doing only one thing and that is to learn and apply. The major challenge I faced is in the area of technology upgradation. 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,” informs Herlekar.

Products

OSCL started off in 1983 and primarily manufactured iodine derivatives. It subsequently manufactured selenium, molybdenum, bismuth and cobalt derivatives with capacity of mere six Metric Tones Per Annum (MTPA).

Currently, OSCL manufactures speciality chemicals and pharma intermediates, with a diversified portfolio of over 100 products, consisting of niche organic, inorganic and organo inorganic intermediates. Derivatives of molybdenum, selenium, iodine, cobalt, bismuth and tungsten are some of the inorganic intermediates, besides organic intermediates, such as resolving agents and other intermediates. Organo-inorganic intermediates include hypervalent iodine compounds benzeneseleninic anhydride, to name a few. All these products find application in various industries like pharma, chemical, glass, cosmetics, ceramic pigments and cattle and poultry feeds.

Positive growth

OSCL has manufacturing facilities, which can produce multiple products using a combination of processes. Currently, the company has four units at MIDC, Badlapur (East), Thane with a total capacity of 1,700 MTPA (as on June 2012). OSCL augmented its capacity from a mere six MTPA, when it started its business as a proprietary concern in 1983 to manufacture selenium and molybdenum derivatives. Since 2008, the capacity has increased nearly 4.5 times (as on June 2012).

In April 2012, OSCL acquired Lasa Labs, which enabled it to add a portfolio of 10 Active Pharmaceutical Ingredients (APIs) like Albendazole, Closental and Flucanazole. Though most of the APIs are generic, it still offers 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 pharma chain, as produces pharma intermediates, which finds application in the API manufacturing. Lasa’s acquisition enabled OSCL to spread out its presence across the value chain. OSCL manufactures some products, which are used in API manufactured by Lasa.

OSCL acquired Urdhwa Chemicals, a sick unit in Chiplun, Ratnagiri District in FY12. Company set up a 2,800 MTPA facility for manufacturing organic chemicals, which commenced its operations in October 2012. It manufactures export-oriented APIs, which will further drive the export foothold. With the new launches in pipeline and timely ramp up of Urdhwa and Unit V facilities at Chiplun, OCSL’s export revenues is expected to improve significantly going forward.

With a view to strengthen its research and development, OSCL acquired 99.82 per cent stake in Rishichem Research in May 2010. OSCL plans to consolidate its specialised research and development activities at Rishichem Research. OSCL is working to develop processes for manufacturing new high value added products and APIs. Once developed, it will scale up its operations with the help of facilities at Rishichem.

Ready for the competition

OSCL does not have one specific competitor. However, the company does face some competition from different players having presence in some of the product categories similar to OSCL. Herlekar says, “The pharma intermediate and speciality chemicals industry are both highly fragmented. In pharma intermediates, OSCL’s key competitors include listed players like Sequent Scientific (competitor of Lasa Labs, which is into API manufacturing) and Vivimed Labs. Apart from pharma intermediates, Vivimed’s portfolio has a range of specialty chemicals (active ingredients) supplied to manufacturers of beauty care products like hair care, skin care, sun care and oral care products, and industrial care products, such as anti-microbial, anti-fouling agents and biocides. However, OSCL’s presence in this end-user segment is very less.” He adds, “In the Iodine-based speciality chemicals, OSCL faces competition from listed player Samrat Pharmachem. Some other competitors in the price sensitive speciality chemicals segment include listed players like Camlin Fine Sciences, Vinati Organics, Sunshield Chemicals, Avon Organics and unlisted players like Maharashtra Organo Metallic Catalysts. OSCL also faces product specific competition from Chinese manufacturers in both its business segments.”

However, OSCL is better placed compared to its competitors on the back of its R&D focus, operational flexibility because of product diversity and launch of newer products with Intellectual Property Rights (IPR) filing.

OSCL’s credibility of meeting stringent quality requirements and dependably delivering high quality orders has garnered a loyal customer base in the domestic and international markets—resulting in repeat business, especially from global pharma players. All this has helped OSCL stay ahead of its competitors. According to Herlekar, some of the niche high-value added products (including pharma intermediates) manufactured by OSCL like resolving agents face less competition globally.

Pharma revenues

Pharmaceutical intermediates and APIs contribute around 70 per cent of OSCL’s revenue, while the balance 30 per cent is contributed by speciality chemicals space (largely from cattle and poultry feed, glass industry, water treatment, chemicals user segment). Iodine and selenium derivatives are its key category of products, which account for about 77 per cent of OSCL’s total net sales (in FY12).

Iodine derivatives like methyl iodide, trimethyl sulfoxonium iodide, potassium iodide and sodium metaperiodate are the top products, which account for about 45 per cent of OSCL’s total sales.

Passing on the baton

Succession is quite significant for any family business. The choice of the ‘right’ successor plays an important role in ensuring smooth transition of family business and its future success.

Herlekar informs, “In our case, I have two strong inheritors, Omkar and Rishikesh, my two sons. Omkar is a PhD from UDCT, Mumbai and has already shouldered business responsibilities of the company as a whole time director. He spearheads the group’s R&D operations, besides overseeing marketing, export and operations. Rishikesh is a BE Tech chemical engineer and he is currently growing up with the business with a strong interest in product development and marketing.”

Speaking about the future expectations, Herlekar says, “We expect to maintain our growth of 45-50 per cent year-on-year. We are also optimistic that it will resolutely take OSCL closer to the Rs 500 crore turnover benchmark by 2015.”

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