The quirky chemist

The office is cramped. there’s barely room for 85-year-old Keki Gharda, to say nothing of his table piled high with files, bookshelves crammed with chemistry and other books, a shelf for awards, a bed opposite the table in case the octogenarian chemist wants a nap between meetings, and a wheelchair in the corner just in case it’s needed. Gharda laughs when I ask if he stays nights in office. He says he spends only seven hours here, but then goes up one floor to his home, where he stays up till midnight reading chemistry books. On Saturdays, he says with a smile, “I work half day.”

That kind of punishing routine and perennial learning have made Gharda the grand old man of the chemicals industry. In his own way, he’s to his industry what K. Anji Reddy, the late founder of Dr. Reddy’s Laboratories (now DRL), is to pharmaceuticals. But where Reddy spent a lifetime chasing the elusive target of new drug discovery, Gharda is happy to copy, as long as he can make the same product faster, better, and at a fraction of the cost. It’s not that he doesn’t want to create new, innovative products. It’s just that he’s convinced that the bread-and-butter business of Gharda Chemicals (GCL) is in cheap and efficient reproduction. And it’s that trait that has the likes of Bayer and Solvay, multinationals who would otherwise gobble up minnows like GCL, running for cover.

Gharda’s breakthroughs include making a version of a polymer compound that Apple uses today to keep iPhone screens from overheating. He sold that business back in 2007 to Solvay, one the biggest manufacturers of the polymer and Apple’s supplier. Wouldn’t it have made sense for him to have held on to that business, maybe as an Apple supplier? A former employee who was part of the company for years and so asked not to be named, claims that Gharda sold the business on a whim. Others say it was because he needed cash to expand the agrochemicals business. GCL, being much smaller then, was unable to fund both businesses. (Gharda hasn’t forgotten the polymers business, though; more on that later.)

His latest project: extracting metals such as aluminium, iron, and titanium using a third less energy than current methods. If Gharda’s technology succeeds, it could shake up global metal manufacturing. His technology will affect the likes of Tata Steel and Hindalco, and even global players like Alcan. In fact, several senior Tata executives, including their chief technology officer, Gopichand Katragadda, have visited Gharda to look at the technology but they won’t comment on it yet.

Set up in 1964 as a small unit making blue dye, GCL reported sales of Rs 1,404 crore last year. The bulk of this comes from agrochemicals; GCL is the fourth-largest agrochem company in India. Read in the light of the fact that India is among the top three countries in terms of overall agricultural GDP, the natural inference is that GCL should be in the big league.

But here’s the thing. The domestic agrochemical industry is highly fragmented—and at $4.5 billion (Rs 28,427 crore), relatively small. Of a few thousand companies in this space, only two have market capitalisation of over $1 billion. And only one domestic company, Mumbai-based UPL (formerly United Phosphorus) has reported sales of over $1 billion; it’s the only agrochem company to make it to the Fortune India 500 list. But, says Rajju Shroff, chairman of UPL: “GCL could have been a much bigger company [than us] given the fact that we started our business after them.”

The problem is that GCL does not make retail products; it is a bulk manufacturer. That means its products are not available to retail buyers, and will be of no use to such buyers without further value addition. Since value addition happens (with formulators) at the retail end, bulk companies are usually smaller in size. Of course, this does not apply to global firms such as BASF and Bayer, which have established global distribution chains and command high value for their patented products.

Too few bulk manufacturing companies in India have managed to break into the big league; UPL is one of those few. I ask Gharda why his company is not a real threat to the likes of UPL. “I only wanted to sell to buyers who understood my products technically,” he says, explaining that he’s happier with a few industrial buyers than many retail ones.

The chemicals industry in india is skewed in favour of pharmaceuticals, which accounts for 20% of it. There are some 180 listed companies in the industry, and just six of the non-pharma players are valued at $1 billion or above. These include companies in diverse areas, including agrochemicals manufacturer UPL, pesticides maker PI Industries, industrial explosives maker Solar Industries (see page 112), Gujarat Fluorocarbons, retail chemicals major Godrej Industries, and industrial chemicals and adhesives maker Pidilite. Compared to this, there are some two dozen pharma companies with similar valuations.

The big difference is that while chemicals companies are happy to remain suppliers to global manufacturers, pharma companies have been pushing the boundaries. Pharma visionaries such as Ranbaxy’s Parvinder Singh and Wockhardt’s Habil Khorakhiwala were among the early movers into the strictly regulated western markets. Despite exporting a large part of their production, few chemicals companies have set up shop abroad.

There’s opportunity for them to catch up, though. With the government pushing its ‘Make in India’ programme, and with China clamping down on polluting industries (of which chemicals is a large segment), buyers are likely to look at producers outside China. Something similar happened five years ago, when Chinese garment manufacturers took intense heat from buyers over sweatshop conditions. These buyers flocked to India as an alternative.

“We see the beginning of a consolidation in the chemicals industry and a better focus on growth,” says Jay Desai, founder and managing director, Universal Consulting, a boutique firm that strategises for several chemical companies. Over the past 18 months, CMIE’s (Centre for Monitoring Indian Economy) agrochemical index has even outperformed the pharmaceutical index.

“You can say the opportunity for the chemicals business is at an inflexion point, and companies can scale up quickly if they get their strategies right,” says Manish Panchal, practice head of chemicals at Tata Strategic Management group (TSMG). “Lack of global capacities, regulatory complexities, and slow implementation of the proposed new zones of chemical manufacturing are some of the many reasons holding back the industry,” he adds. In an attempt to bring players together and discuss the way forward, TSMG conducts annual industry conclaves with the Federation of Indian Chambers of Commerce and Industry.

All said, most indicators suggest that GCL is well-placed to take the big leap into the big league. In the last three years to FY14, the company’s sales grew at a compounded 30% per annum touching its record performance of creating disposable cash profits of over Rs 200 crore. It grew at twice the industry rate and is the biggest agrochemicals company on the Fortune India Next 500.

GCL’s first big hit was copying bayer blue pigment, an out-of-patent chemical that was ubiquitous in school uniforms. But in the early ’70s, when the government imposed a 45% excise duty on dyestuff, the company moved into agrochemicals.

How GCL foxed Rhône-Poulenc to produce the herbicide isoproturon and eventually become the No. 2 producer of the chemical globally is legendary in the business. To those not in the know, the story is simple. GCL was perhaps the only Indian company that did not oppose Rhône-Poulenc’s application for a licence to make the herbicide in India. Rather than join his compatriots in crying about not being able to compete with the Swiss multinational, Gharda announced that his company would create a better, faster, cheaper, and safer process to produce the herbicide and compete with Rhône. Naysayers were flummoxed when he pulled off that feat in 18 months. Today, GCL is the world’s second-largest producer of isoproturon, and the process he pioneered is called the ‘Indian process’.

Gharda is a chemist par excellence, no doubt, but he’s also a canny businessman. He noticed that agrochemicals was a small segment for giant chemical companies such as BASF and Solvay, and so took on the challenge to copy and make high-end polymers, an unchartered territory for Indian firms for lack of knowhow, which found application in niche areas. After selling off his polymers business to Solvay, he’s back to researching polymers.

Shroff of UPL, who is also in his eighties, says Gharda is a great scientist and a good friend. But, he adds, he’s also a bit of an eccentric. “His extreme focus on labs rather than markets stifled growth,” says Shroff.

Case in point: Gharda says he hasn’t patented his unique processes because he’s never going to charge a premium for his product. That’s magnanimous, but also gave competition carte blanche to tempt GCL employees away, essentially taking away Gharda’s technology.

Gharda is still involved in the company, although he has hired professionals to handle day-to-day affairs. In fact he wanted to sell off his 60% stake some years ago. However, his nephew challenged that sale and the matter is still in court. Meanwhile, Gharda has transferred much of his stake to a charitable organisation. And he seems to have realised the need to focus on the business; he plans to hire two CEOs—one to head research and the other to handle commercial operations. Will he not sell then? Gharda says he will be tempted by a good offer to use a lot of that money to fund his research on metal making.

Had he done this earlier, would GCL have grown faster? Gharda retorts that he has never been interested in size. What matters, he says, is developing the skills to do different things. So, when he ran the firm, he did not persist in a business if there were too many hurdles to growth. A former employee says that Gharda has “no patience for commercial matters”.

To be fair, Gharda’s disinterest in the business aspects is not the only thing holding GCL back. Like other companies in the space, GCL is battling regulatory issues and flak from environmentalists. UPL’s Shroff is scathing about NGOs “who simply cannot understand how the use of pesticides helps save crops and increases productivity”. Shroff’s company is in the midst of fighting a case against the Centre for Science and Environment (CSE), an NGO headed by activist-scientist Sunita Narain. In 1995, Down to Earth, a magazine Narain edited, had carried an article that alleged UPL had underworld connections. The magazine carried a retraction in a subsequent issue, but the article remained on its site. UPL claims that in 2015 it lost a major contract because the client read it and didn’t want to get involved with a company with underworld associations.

It’s not that CSE has always been in the wrong. From 2000, the organisation has been fighting the use of chemical pesticide endosulfan. Its studies showed the ill effects of the chemical, and it lobbied hard for a government ban. The Supreme Court in 2011 banned the use, sale, manufacture, and export of endosulfan.

Gharda admits that such bans hurt the industry, but adds that it is possible to find alternatives. The market for pesticides will continue to grow in India as we will need more crop protection due to a growing population and food demand. So it is imperative to find safe options. Gharda says one such option could be bio-pesticides, which selectively target harmful pests and don’t leave any residue. However, he adds that the technology to make such chemicals is still very nascent and they can’t be made in vast quantities. A TSMG-FICCI report says that domestic agrochemical companies have not invested enough in research, largely because they are too small to afford the investment. It can take $1 million to $2 million just to get a product registered in western markets.

The report also says that these companies have not invested in setting up systems to deal with regulatory issues at home and abroad. And the regulatory dice seem loaded against chemicals companies in India.

Consider this: In the case of pharmaceuticals, it’s easy for Indian companies to launch copies of off-patent generic drugs as long as the drug is registered with the Drugs Controller General Of India (DCGI) by its inventor or by a company. No questions are asked. Unfortunately, the agrochemical sector does not have the equivalent of the DCGI. In fact, local players are not allowed to make and sell some products even if the same product is imported and sold by multinationals. The government’s contention is that these products are not registered in India—although they are used by most farmers in the country. For instance, GCL is sitting on a consignment of bis-isobutane, a hard-to-make fungicide which is being imported and sold by several multinationals.

The absurdity is compounded by the fact that there’s no single organisation that oversees regulation. The Ministry of Agriculture regulates the manufacture, sale, import, export, and use of pesticides. But the monitoring of pesticide levels is under the Ministry of Health and Family Welfare. And sops for the sector come from the Ministry of Chemicals and Fertilisers.

It’s a bureaucratic nightmare, and it can take a company up to five years to register and get approval for a single product. Little wonder then that an August 2014 TSMG-FICCI report found that some 40% of the agrochemicals sold in the country was spurious. It’s far easier for companies to get away with making chemicals without proper authorisation, especially since there’s little chance of them being brought to book, in the absence of watertight inspection.

Gharda, meanwhile, is facing other problems. GCL’s oldest factory is in Dombivli, one of Maharashtra’s original industrial zones. It used to be a distant suburb of Mumbai, but as the city expanded, it has become a popular residential locality. With the rise in population, residences have come up close to its factory gates: The main reason is the ad hoc manner in which residential permissions have been handed out, with no demarcation of the industrial areas. As a result, GCL has been forced to cut several of its processes that could pose a risk.

Clearly, the agrochemicals business is not going to be enough to take GCL to the big league. Gharda’s solution is to continue with agrochemicals to keep the cash register ringing. But the big bang, he hopes, will come from his renewed focus on polymers. This is still tiny, but Gharda believes it could soon become as big as the pesticides business. He has already developed an advanced version of the polymer that he had sold off to Solvay. He expects this business to grow rapidly over the next five or seven years, while agrochemicals will continue at a steady 12% to 13%.

“Despite all the constraints,” says the man who is at ease with narrow spaces, “we’ve grown because our technology was unique. I don’t see why that won’t continue to differentiate us.”