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OVERVIEW
THE NEXT THREE YEARS: THREE AREAS FOR BOLD ACTION The market share of the top 20 ChemCos has reduced from 19% to 14% over the past 15 years creating opportunities for carve-out acquisitions the overall index over the past couple of quarters. Multiples are reaching a level where they are raising thorny questions: there is a lot of cash being generated in the business, capital is accessible at levels seldom seen before – how is management utilizing capital to deliver for stakeholders? This piece proposes three specific areas for management teams to boldly build their business, and to deliver against this task.
AMIT GANDHI MD & PARTNER BCG INDIA
AMITA PAREKH MD & PARTNER BCG INDIA
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ndian ChemCos are saddled with high performance expectations, driven by strong macroeconomic tailwinds. The markets have certainly baked it in – chemical stocks have noticeably decoupled positively from
We believe an aggressive roadshow approach by companies in a targeted fashion will be beneficial. Set up greenfield/brownfield capacity in India with reliability on supply and IP; start with 5-10% movement of supply; take-or-pay arrangements to safeguard interests of both parties.
1: BUILD HOCKEY-STICK VALUATION OPTIONS Management teams are faced with a constant barrage of questions about participation in future trends. Sustainability is top of the agenda, but so are many other “future” areas – health trends impacting specialty value chains, reinvention of energy, fundamental process innovation, AI/ML, … There is a fundamental challenge to resolve, best encapsulated by Mark Twain: “Prediction is difficult – particularly when it involves the future”. Essentially, while there is broad alignment that these trends will happen, no one can predict when they will be material. How do management teams participate in these effectively? The answer – set up Corporate Venture Capital (CVC) arms. These are dedicated teams (small: typically 2-3 strong) with a mandate to invest in future technologies and build option value for the firm. They have assured funding every year of a certain amount – say Rs. 20-100 cr. per year, depending on the firm’s size and risk appetite.
