Tata Chemicals New Formula
The 72-year-old company is making a strategic shift from just chemicals to water purification and products that promote health and wellness
Off the scenic Pune–Bangalore highway, in a quiet lane, sits a nondescript building. Once a marriage hall, it is now a laboratory that even runs a pilot scale biofuel manufacturing plant. The laboratory and the chief scientific officer, Murali Sastry, are pivotal to Tata Chemicals’ (TCL) new game plan, but you wouldn’t guess that from the façade of the building — it is even missing the Tata logo.
TCL sees new opportunities in segments like water purification, specialty chemicals that go into plastics and paints, customised fertilisers, biotechnology and nutraceuticals (products isolated from foods that are used for health and medicinal purposes). Secondly, most chemicals companies are perceived to be polluting; TCL wants to be seen as one that is sustainable and green.
So, the company set up the Innovation Centre in Pune in 2004 with two clear objectives: One, engage in cross-disciplinary work to develop new technologies that would drive new businesses; two, help get an image makeover.
“The group [at the Pune centre] has taken some creditable first steps in that direction. We are not saying it, the market is saying this,” notes TCL managing director R. Mukundan. He is referring to Tata Swach water filters, one of Sastry’s early successes. Launched in December 2009, the sea-green filters already sell 400,000 units in 15 states.
Sastry had joined the Innovation Centre soon after it was set up. After 14 years at the National Chemical Laboratory, he had decided to enter the corporate world to learn how technologies are taken to the market. “It was a culture shock. I knew nothing about how industry works,” he says. TCL’s managing directors before Mukundan — Prasad Menon and Homi Khusrokhan — helped him make the transition.
Periodic nudges from the finance department and the top management ensured that his team remained focussed on the market.
Swach was his first lesson in corporate R&D. A group at TCS had developed a prototype water purifier and wanted to reduce the cost of purification dramatically. R. Gopalakrishnan, a director of Tata Sons, had suggested to Sastry that he use nanotechnology for bacterial protection in it. This was back in 2006. The best Sastry had done by way of research commercialisation was to write a business plan with an IIM Ahmedabad graduate back in 2001 and win a prize at the institute’s annual contest Anveshan. He had a few patents to his credit, but nanotechnology for him, until then, was for high-end uses like cosmetics and drug delivery. Cost-effectiveness — a puny purification cost of 10 paise per litre in this case — had hardly been a consideration. But he took the bait and developed a nano-silver coating that allows Tata Swach to filter bacteria without the use of electricity; the raw material of the filter comes from waste — rice husk ash.
Swach provided the first proof of principle for Tata Chemicals (TCL). Today, a whole gamut of opportunities are opening up: Point-of-use purification, large community-use filters, desalination of seawater, distribution of water supply, industrial waste water treatment. As for Swach itself, “There’s a lot of improvement that can happen in this, including the material that is used for filtering,” says Sastry.
His team is testing attachments that can filter arsenic and fluoride, harmful minerals found in the ground water in some regions in the country. Swach sold in these regions will soon carry such attachments.
Sastry’s team now has a bunch of similar green, low-cost technologies that could shape TCL’s plan of having “new avenues to grow the business in a very different way”.
After water, nutraceuticals and functional foods (foods fortified with health-promoting additives) are next for TCL.
Through its work on oligosaccharides, a type of sugar polymer derived from micro-organisms, the lab has stumbled upon healthier substitutes for a few nutraceuticals which are today made by chemical processes and hence are not very healthy. One candidate for commercialisation is xylitol, which could be used as a zero-calorie sweetener in many foods, including chewing gums and dairy products. Whether the group company Tata Global Beverages, which announced a tie-up with PepsiCo in 2010, commercialises these nutraceuticals or whether TCL spins it out as a sub-business unit is a decision that will perhaps be taken once all the pilots are complete.
“We are also an ingredients company, so having novel ingredients that add health benefits to drinks or confectionaries, or special features to plastics, provide a good [business-to-business] case,” says Sastry.
He is probably only scratching the surface. The specialty chemicals market alone will be a $1 trillion business by 2020, of which approximately $350 billion will move to Asia (excluding Japan), according to a forthcoming report from McKinsey & Co. Its initial estimates suggest India can build its current $20 billion specialty chemicals business to a $80 billion - $100 billion industry by 2020.
Sastry’s team of 40 now works with other Tata group companies to drive innovation, which, under Gopalakrishnan’s leadership, has become a fairly serious business. Take for instance the lab’s work on fuel cells. It is focussing on lowering the cost per unit of energy by reducing the use of precious metal in the catalyst. Both Tata Motors and Tata Power are interested in this.
Still, the scale is small, especially in comparison to industry leaders such as BASF, Bayer or DuPont. DuPont, for example, has 600 people at its Knowledge Centre in Hyderabad. With an annual budget of Rs. 15 crore to Rs. 20 crore, TCL’s centre may not have a big pool to dip into yet, but it’s using the frugal resources efficiently. The management is ensuring that one or two new technologies get pushed out for commercialisation every year.
“After all, we are a commercial organisation; Rs. 650 crore in profit is not a big number to write home, unlike big chemical companies globally whose per day profit is equal to our annual profit,” says Mukundan.
Green Economics
All these prototypes coming out of the lab will help the 72-year-old company make the strategic shift that was initiated a decade ago.
In 2001, impressed by the way McKinsey had helped Tata Steel achieve quality performance while becoming the lowest-cost steel producer, TCL hired the consultancy firm to draw up a similar restructuring plan. Along with the overall repositioning of TCL, several activities such as cost-reduction, streamlining supply chain management and a marketing revamp were undertaken.
Around 2005, the company began looking to acquire scale, says Mukundan. That was the second phase, where a spree of overseas acquisitions followed, including Brunner Mond in the UK, Magadi Soda in Kenya, and GCIP in the US in 2008, just before the Lehman Brothers crisis hit the world.
Along with these moves, an internal decision was taken to drive a technology innovation-led product and image revamp. That was when the lab was set up. The market collapsed but TCL had already begun investing in the new business avenues, choosing nanotechnology and biotechnology platforms, says Mukundan. The choice of technology was deliberate, as these could be applied to a broad set of businesses, from agriculture to insulation material. “You can call this the third leg [of transition],” he says, reluctant to give it a “big greening title” even though “it makes for a good headline”.
One reason for his restraint could be that most chemicals’ giants are doing this and are far too vocal about it. “It’s difficult to fathom how much of this is public relations and how much is business, but most companies are anticipating a future when the screws [environment regulations] will be tightened,” says Pushpito Ghosh, director of Central Salt & Marine Chemicals Research Institute (CSMCRI) in Bhavnagar, a CSIR lab that has licensed green technologies to many chemicals companies, including TCL and Heubach India which supplies the famous “Ferrai red” pigment to the carmaker.
“But TCL is a conscientious company and [the] Tatas have a track record,” he says. The Tatas consulted McKinsey again in 2009 to help reduce the carbon footprint across five of its most polluting companies and TCL was one of them. As a result TCL has done a company-wise carbon footprint and says it will reduce it by 20 percent by 2020, in line with the target for European companies.
Mukundan says that ‘greening’ is driven by many factors, including competitiveness. Others seem to be driven by similar compulsions. DuPont, which started as a gunpowder mill in 1802, acquired Danish enzyme company Danisco earlier this year. Danisco’s enzymes are a staple for food biotechnology. Similar shifts have occurred at BASF and Monsanto.
“These companies know that one key technology could change the rules of the game and one wrong decision could spell disaster,” says Ghosh, who, before coming to CSMCRI, spent 13 years at ICI, the largest chemicals’ company in the UK that couldn’t change fast enough and was split vertically.
On The Right Track
In general, TCL’s game plan is working. It has become the second largest soda ash producer and third largest bicarbonate producer in the world. In soda ash, two-third of its capacity is in natural soda ash, which is more cost effective (for instance, it acquired a natural soda ash company in Wyoming, US, where the energy cost of soda ash extraction is $70 per tonne, compared to $140 per tonne India and China). So it has big competitive advantage globally. Its Babrala fertiliser plant in UP is the country’s most energy efficient fertiliser unit. In food, it has enhanced its footprint (from fertiliser to pesticides to seeds) and will do so more as it gets into functional foods.
Just as Sastry’s team is free to license its technology to other Tata group companies (or even non-Tata companies), TCL too is open to getting green technology from elsewhere.
It is licensing a technology from CSMCRI that makes Sulphate of Potash (SOP) from bittern, a by-product of salt production. India today imports at least Rs. 10,000 crore worth of SOP every year. “The idea of extracting SOP from seawater always existed but the extraction technology was not there. So when the government wanted to scale up [CSMCRI technology], we joined hands,” says Mukundan.
However, whether TCL’s “third leg” gives it a sprint or a limp remains to be seen. Competition is heating up. Many multinationals, including DuPont, have identified India and China as their key growth areas.
“Some of them have also started thinking about how to re-distribute their asset footprint in these regions so as to set up a competitive manufacturing base, effective supply chain and local presence,” says Dipal Parikh, business head, DuPont Titanium Technologies, India, Sri Lanka, Nepal, and Bangladesh. DuPont has set up three manufacturing facilities in Savli, Vadodara to meet the growing needs at shorter lead times.
Apparently, industry efforts fall short of the market requirements. Going by an “outside-in” benchmarking of 50 multinational and domestic companies in India, McKinsey believes that about 80 percent of companies are still not “fully geared up to profitably address the growth opportunities
in India”.
Nonetheless, looking at the 15 categories that make up 70 percent of specialty chemicals in India, according to McKinsey, TCL will have a footprint across many of them, the latest being agrochemicals. It acquired biotechnology seed company Metahelix Life Sciences last year. With seed, fertiliser and pesticides in its portfolio, it can address the food, health and wellness issue in totality.
Now, that’s the change in public perception that Mukundan and Sastry are aspiring for.
(This story appears in the 29 July, 2011 issue of Forbes India. To visit our Archives, click here.)
