The catalyst reacts
The construction chemicals industry realises that the time is right to address its key issues and reorganise itself for the future boom, which is as inevitable as the current slowdown. Niranjan Mudholkar finds out why this sector can play a catalyst’s role in the growth of the construction industry.
Due to its direct linkage with the construction industry, the construction chemicals sector was showing an upward growth trend for the last five years. However, with the financial crisis wrecking havoc, the sector is now readying itself for at least 1-2 years of downturn.
“The recent slowdown in the global economy has definitely affected the Indian construction industry and hence the growth trend in construction chemicals sector is most likely to be affected,” says Anasuya Gupta, managing director, Cico Technologies Ltd, one of the market leaders.
Besides Cico, the other major players include Fosroc, BASF, Sika and Pidilite. Dominic Britto, principal consultant – chemicals, materials & foods practice, Frost & Sullivan – South Asia & Middle East, explains the reason for the anticipated slowdown.
He says: “FDI in the construction business influenced the usage of higher quality materials resulting in high growth of construction chemicals. Now with the economic slowdown and reversal of FDI, the domestic contractors may not be particular about high quality resulting in lower use of construction chemicals.”
However, the slowdown, according to some, can actually be a blessing in disguise. “This is the time when the industry needs to get together and tackle the age-old problems that it has been facing. With the boom in the infrastructure and real estate industry, everybody was moving at break-neck speed. The time is right to analyse the ground realities, identify what’s wrong and take substantial corrective action,” says Dr SK Manjrekar, chairman & managing director, Sunanda Speciality Coatings Pvt Ltd.
Although, it is a relatively smaller player, Sunanda has been holding the fort for a long time purely due to its focus on R&D and exposure to the US, African and UAE markets besides the domestic. The other relatively small but key players in the market according to Upen Patel, head-marketing, BASF Construction Chemicals (India) Pvt Ltd, include Choksey, SWC-Chryso, Chembond, Don, Cerachem, MYK Group, Bal Ardex, WR Grace, STP, Carlisle Syntec, Texsa, Firestone, Cipy, Apurva and Krishna Conchem.
“There are many other regional and smaller players. Overall we estimate about 300 companies operating in this segment,” he says. Interestingly, the big 4-5 players account for more than 40% market share. “The industry is currently very fragmented in many product categories while in admixtures for concrete the retail segment is quite consolidated,” adds Patel.
With the construction industry driving on the fast track of growth, the last few years have seen unprecedented growth for the construction chemicals sector.
“For the past three years the sector has grown at a rate of 15-20%. In fact a recent Frost and Sullivan survey had projected a CAGR of 21.9% for the sector up to the year 2013. Most of the growth has come from concrete admixtures, waterproofing systems and industrial floorings. Besides, there has been a substantial growth in the sealants product category,” says Gupta of Cico.
“Our industry is growing 50% above the growth of construction industry in last five years and would continue to do so in next ten years period,” Patel remarks.
So what are the issues that are troubling this approximately Rs1200-1500 crore industry? Patel of BASF says: “Indian construction industry has grown fast during last five-ten years, which means that the many products being marketed are not time-tested.” Patel also states that the industry has not developed enough standards and guidelines to select the right product for the right job. “This leads to regular comparisons between apples and oranges and many time decisions are taken based on immediate cost; overall cost of ownership (life-cycle cost) is not considered,” he adds.
Gupta offers a perspective. “One of the major concerns for us is that our growth in the international markets has been temporarily affected owing to the global slow-down. Also, we are really concerned about the new entrants gaining easy approvals and entry into the important projects in India without proper quality compliances and due diligence exercises.” The primary challenge according to her however is facing the slowdown of the construction industry in India. Patel says: “The slowdown has affected volumes in admixtures, industrial flooring and retail segment.
Overall demand has been reduced by 20-25% though some product segments have not been much affected.” He states that the product segments catering to real estate as well as manufacturing have taken a hit. Britto of Frost & Sullivan too states that with real estate prices likely to come down, there will be further pressure on cost and hence the usage of construction chemicals. “However, the demand from infrastructure segment is very stable and is keeping the volumes steady,” adds Patel.
Of course, there are certain issues that have troubled the industry even before the slowdown hit and still do so. Britto enumerates them. “These challenges include low awareness levels among contractors, low profit margins, highly price sensitive market, rising cost of raw materials and lack of stringent regulations by the government.”
Usually, industry issues are tackled through a common platform – a forum representing the industry. Although there have been attempts in the past to create some kind of industry body for the construction chemicals sector, not much has been achieved on this front.
Some feel that this is due to the inherent lack of organisation within the construction industry itself. “Compared to the other industries in India, I feel that linkages in the construction industry are very weak. The harmonious co-working of all the sectors of the industry is still a wishful desire,” Gupta says. What is positive however is the fact that the key players are in favour of having a common platform.
“We at BASF have always supported this idea and have been committed to it as such a platform would stir the minimum performance standards and code of conduct for the industry. Unfortunately it’s true that so far we have not succeeded. Work is on and we anticipate it to take shape in the next six to twelve months time,” adds Patel.
Meanwhile, BASF is working with other organisations actively involved in the concrete industry like the Indian Concrete Institute for creating awareness on the usage and benefits of construction chemicals. Gupta too is optimistic.
“With bodies like Construction Federation of India (CFI) striving to strengthen the linkages in the industry working closely with the Planning Commission the future for the construction chemicals sector becoming more organised and well knit could be expected,” she says.
The CFI has indeed taken some steps in this direction. “Yes, there has been no representative body of construction chemicals manufacturers in the country. So, in view of the growing importance of this segment, a construction chemicals division has been set up under the aegis of CFI,” informs SC Mehta, secretary general, CFI.
Several major construction chemicals manufacturing companies have joined hands with CFI to be an active constituent of the Construction Chemicals Division. Some of the key objectives of this division include creating awareness about the use of right type and quality of construction chemicals to have durable structure and standardisation of materials and prices.
Mehta also recommends certain other measures for the desired growth of this sector. He says: “It is essential that the industry constantly upgrades its products and services. Awareness is a key issue. It is equally important to educate the users and specifiers of construction chemicals.” Mehta also expects the government to do its bit by reducing the import duty of raw materials for creating greater export potential for the sector.
Gupta of Cico believes that once the slowdown wears out, things will be definitely positive for the construction chemicals sector. “A lot of infrastructure and real estate sector boost-up programmes are being planned at the national level and also in other countries,” she explains.
However, she also emphasises that the construction industry must also put in a bit more effort to ensure the quality and infrastructural compliance of the construction chemicals vendors. Britto too states that after about 20 months, the market for construction chemicals could pace again with construction activities resuming.
“The main drivers for the construction chemicals market then would be rising product awareness among the contractors, development in the rural areas and compliance with the international standards and changing lifestyle of the people,” he says. In fact, Gupta is not ready to write off the sector even under the current conditions.
“Irrespective of the slowdown in the economy, the construction chemicals sector should not grow at less than 15%,” she says.
Patel of BASF is equally hopeful and his optimism is primarily based on the development in the infra segment. “As a developing country, India has shortage of shelter, power and transport infrastructure. As the country creates the wealth it would invest in these key sectors which would keep driving the demand for construction chemicals,” he says.
Patel isn’t too much worried about the reduced demand from real estate as he believes the power and transport sector would create additional demand for construction chemicals. “Globally a construction project would consume 2-3% value worth of construction chemicals, while in India this ratio is only 0.3-0.7% at the moment. As the ratio improves we see further growth for construction chemicals.
We expect the CAGR at 15-20% for next ten years,” Patel adds. According to Gupta, given the trying circumstances, the construction industry would definitely put a lot of effort to promote the use of time and situation tested brands rather than going out on experimentation mode. “One of the major growth drivers would be the ability of the players in the sector to deliver logistics and services at the doorsteps of the users,” she adds.
One of the key growth drivers of the sector in the last decade has been the acceptability of ready mix concrete (RMC) and so far in India around 7% of the domestic cement consumption is consumed in RMC. “The same is expected to grow 25-30% in the next couple of years.
That clearly indicates that the use of construction chemicals will see a phenomenal rise with the increase in the production of RMC,” says Mehta of CFI. “Large RMC players are also good in promotion of the value added concrete concepts and that enables sales of speciality admixtures,” adds Patel.
If the industry is to live up to its potential in India, the key players have to lead from the front and they realise it. “We have a big task. Enhancement of productivity with the use of advanced technology and introduction of newer product categories would be essential for increasing the efficiency of the industry dynamics. We at Cico Technologies Ltd are fully geared up to use the slowdown as an opportunity, because we feel that enhanced and specialised use of construction chemicals can cause the construction industry to beat the bad times,” says Gupta.
It will be very important to work synergistically with the construction industry because this is where the growth will come from.
Awareness has always been a key issue on this front and that will have to be addressed. “If you want to cut losses then cut wastages. If you want to cut the wastages then you should have the right material first time. We must make the construction industry realise this,” says Manjrekar of Sunanda.
Incidentally, BASF has been working with many construction companies in making it possible to reduce the usage of cement and still maintain the performance of concrete and also to reduce the energy used in concrete production and placement.
“We at BASF strongly believe that our construction industry has right knowledge on construction materials and have excellent technical manpower, this means that any of the modern technology from any part of the world can be well understood and implemented in India provided material supplier has enough courage and commitment to educate the market,” he says.
BASF is also looking forward to introducing new technologies which have been invented in the last 3-4 years and the company is working on it, according to Patel.
Being a catalyst
Nobody is denying the slowdown but it is a positive sign that the key components of the construction industry like the construction chemicals sector have started to look beyond it. As the key players are being positively proactive in their approach, it spells a healthy growth ahead for the overall construction industry and of course this sector.
To borrow a term from the field of chemicals, the Indian construction chemicals sector is very well aware of its role as a major catalyst in the success of the construction industry. And it is reacting constructively.