Wednesday, January 20, 2021

Interview - Manish Panchal & Charu Kapoor (TATA Strategic Management Group)

The industry lacks in consumer standards for construction



The Indian Construction Chemicals Industry has immense potential to grow but is blindsided by the lack of awareness among consumers, proper regulation in standards and price sensitivity of the market. MANISH PANCHAL, PRACTICE HEAD – CHEMICALS, ENERGY, SUPPLY CHAIN AND SUSTAINABILITY and CHARU KAPOOR, PRINCIPAL – CHEMICALS from TATA STRATEGIC MANAGEMENT GROUP offer an insight into India’s performance in the global construction chemicals segment. 




What is the current size of Indian construction chemicals industry and what is your forecast for the industry in 2014-15?


Indian construction chemicals industry currently stands at Rs 3,600 crore and has grown at a CAGR of 17 percent from 2007 to 2013. Admixtures constitute majority of the market with 42 percent share. Flooring and waterproofing agents constitute 1.4 percent share each. Chemicals for repair and rehabilitation constitute 12 percent of the market while adhesives and sealants constitute the remaining 18 percent of the market (Ref Fig I). TATA Strategic expects the industry to grow at around 15 percent to 17 percent in 2014-15 to reach around Rs 4,800 crore.




What are the main growth drivers for construction chemicals in the coming years?


The industry is expected to maintain its growth momentum driven by untapped potential of the market and growth in construction industry over the next 5-7 years. Also, growth in urban housing sector, investments in infrastructure, increasing awareness and adoption of international standards would lead to usage of higher performance products. Moreover, changing regulatory environment which incentivises energy-efficient/green buildings and discourages the usage of on-site concrete mixing in metros and tier-1 cities is further expected to increase demand.




Could you briefly provide an outline of the challenges for Indian construction chemicals players?


The industry faces multiple challenges which can impact the growth rate of the industry. Consumer awareness in India is low regarding benefits of construction chemicals when used appropriately.  High value products have limited demand and are used only by premium construction projects. Furthermore, industry lacks in relevant consumer standards for construction. The practice of employing unskilled workers in construction activity is still hampering the growth of the sector, as construction chemicals are sensitive products and their use requires technical expertise and training. All these factors have resulted in an underdeveloped market in India when compared to other countries, such as China, which accounted for 42 percent of the global construction chemicals consumption in 2012. Another major challenge from the supply side is that the construction chemical industry is highly fragmented with the top seven players accounting for ~50 percent of the market; next 20 players ~25 percent and the remaining 25 percent comprises small and unorganised players (Ref: Fig II). Low capital investments, high growth rates and localised nature of the business are the key reasons for high fragmentation. Such situation along with absence of standards leads to price wars between manufacturers and lower margins for the overall industry.




You mentioned currently the industry is highly fragmented, what is your view going forward?


Yes, the industry today is highly fragmented when it comes to admixtures segment which comprises of around 42 percent of the total market. This is because the barriers to entry are low and such setup requires minimal capital investments with freely available technological know-how.


Bleeding P&L of many players in the industry point towards eminent shake-out in the market where the companies relying on only single low-margin products will find it extremely difficult to operate profitably. On the other hand, there are several companies which have developed a business model with a much wider product portfolio. Like other chemical industry segments, this is a free market and therefore market forces will determine right time for its consolidation.




Would you agree that usage of construction chemicals is more of an afterthought – they are used more as a cure to an ailment rather than being used as part of the original building process?


The answer can be yes or no depending upon the segment within construction chemicals we are talking about. For example, if it is admixtures, it is more or less being used in metros and several tier 1 and tier 2 cities as people have started to realise the benefits it offers in terms of cement strength vs water requirement.  India faces a serious water issue. As we know, it has ~4 percent of water reserves for ~10 percent of global population. However, for several segments of construction chemicals, it is more of an afterthought primarily because the  benefits are not adequately known by users and the perception is that cost of construction will go up without adding tangible benefits to the structure or building process. It is important for companies to make not only contractors but also end users aware of the benefits construction chemicals provide to the structure in the long run and also educate them that “lifecycle” cost is what needs to be looked at, not just today’s cost. Since India is now moving towards high rises or at least few floor structures across the country, it is important to note that maintenance costs in the long run can be significantly lower when adequate usage of construction chemicals is done along with proper application in the initial stage. When this is not done, the structural maintenance is required to be done more frequently leading to incremental but frequent expenses. As a result, few years later, the maintenance costs become much higher as compared to buildings which received proper treatments in the initial stage.



What is the cost of manufacturing construction chemicals in India vis-à-vis other countries? Does the Indian construction chemical industry measure up to international standards?


The cost of manufacturing construction chemicals in India vis-à-vis other countries depends upon several factors such as key raw material availability, scale of operations, cost of logistics, financing costs etc. In India, products such as admixtures and several advanced polymer compounds have a large dependence on imported raw material. This leads to a situation where many times it is more economical to produce these products in nearby geographies which are rich in such raw materials and import the material into India. However, several construction chemicals need to be produced and consumed locally as they are used in diluted forms and shipping water is uneconomical.


The other costs of manufacturing such as labour, utilities etc. are more or less competitive in India. Almost all global MNC’s which cater to construction chemicals industry have presence in India. Some have major presence and some minor. Therefore, the products that are available are as per global standards. However, depending upon what the domestic industry demands in terms of performance, the companies provide products in market.




Does India have any kind of advantage which it can convert into an opportunity to grow its market for construction chemicals? What are the opportunities for Indian construction chemicals industry in the SAARC region?


India has a large pool of people. This can be an advantage for construction segment as companies can opt for “Train the Trainer” model to train people on the advantages construction chemicals offer either in the form of providing specific properties to construction or make the construction more efficient. Companies can also include training on proper application of construction chemicals.The above approach can increase awareness at an exponential rate. Once awareness levels increase from both benefit as well as proper usage perspectives, people will automatically start demanding such products. This has the potential to significantly grow the market for construction chemicals. SAARC countries rely on imports of construction chemicals from nearby geographies to a large extent. Construction activities in all these countries are not too high and thereby demand is limited. Companies which have a large portfolio of products catering to key segments such as waterproofing, flooring, adhesives and sealants can certainly explore possibilities to build their business in these countries.

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