Capsule King - ACG Worldwide

Outside the media glare that usually envelops the publicly listed universe of companies, India has some sterling unlisted firms that have quietly made a mark for themselves in globally competitive industries. One such B2B player is ACG Worldwide, helmed by brothers Ajit Singh and Jasjit Singh, which started operations in the 1960s with a single semi-automated capsule-making machine and has now diversified extensively to become the world’s second largest manufacturer of empty hard capsules and the largest capsule-filling machine manufacturer in the world. The turnover of the group has rocketed from Rs.4 lakh in 1965 to around Rs.2,000 crore in FY16, with a CAGR of around 20%. 

A pharma industry insider claims, “Every single Indian pharma company I know buys capsules from ACG.” Ajit Singh, chairman, ACG Worldwide, likes to joke, “We tell bankers that if you want a credit appraisal note on a pharma company, come to us. Don’t bother looking at their balance sheets.” Standing in the company’s vast, meticulously organised 1 lakh sq ft factory floor at Shirwal near Pune, it soon becomes clear that ACG has tasted success the hard way: through dedication, focus on R&D, fair treatment to employees and attention towards quality, reliable service and honest communication. “Our plant in Shirwal can be compared with the best in Germany, except it is much busier,” says Ajit. But then, this consistently global outlook is nothing new for the Singh brothers.

Licence Raj operators

Brothers Jasjit and Ajit took over the reins of a small capsule-making factory after their father’s untimely demise in 1964. However, for the first few years, the quality of their capsules was not up to international standards and clients realised the product did not work well with high-speed imported filling machines. Clients were forced to import capsules, creating serious financial problems for ACG. The brothers then decided to develop a simple capsule-filling machine of their own to circumvent this issue. However, operating under the Licence Raj prevalent in pre-liberalisation India, they found it difficult to import the required machinery.

“So, in a friend’s garage, we installed a drilling machine and a shaping machine. The rest of the parts were sub-contracted. Soon, India had its first locally made capsule-filler. Though slow, it was nevertheless efficient and filled capsules with the same precision as the much more expensive imported machines. This was the humble beginning of our R&D. For us, jugaad arrived in the late 1960s,” says Ajit. While most companies in India started R&D activity in the 1990s after considerable government incentives were in place, ACG’s SciTech Centre has been in the field since the 1970s and trains 2,000 pharma personnel each year, in addition to conducting scientific conferences. 

The definitive R&D breakthrough for ACG came in 1975, when it managed to build an indigenously developed fully automatic capsule-making plant, which was the second of its kind in the world. “With our own plant ready, we did not need to import machinery for which we had to hold a Rs.30-lakh import license. We returned the licence to the government. The gesture was, to say the least, unusual. The concerned civil servant in Delhi was so pleased that he wanted to take us straight to his minister to show him what Indian technology could do,” Jasjit has been quoted saying in an old interview. Having exhausted the domestic market, ACG then turned its attention overseas and started selling to quality-conscious MNCs such as Glaxo, Hoechst AG and Bayer. In 1976, ACG finished a turnkey project in Afghanistan and exported plant and machinery to southeast Asia, Africa and South America. The company even started exporting to the US, then the home of capsule technology, soon entering into a technical collaboration with an American firm to manufacture capsule-making and -filling plants in California.

The company soon began to notice a visible change in how it was perceived at international pharma exhibitions. “At first, other advanced players were contemptuous of our capabilities and felt no need to come to our stall. However, they slowly realised that our products were not poor copies but were advancing in design and function, with substantial improvements every couple of years. They observed many original features, some of which we have since patented. They realised that we were not copying market leaders. Their attitude began to turn to one of interest and, in some cases, even awe and fear,” says Ajit.

“This directly opened the door for us to MNCs, who were increasingly looking for world-class machines at affordable prices… As a representative of a major MNC said, ‘We are now facing huge worldwide competition in generics and other segments from strong Indian companies… They are using robust, efficient, good-looking and affordable Indian pharma machines, capsules and films from ACG and successfully competing with us. Why should we not do so as well?’” Jasjit was quoted saying in an earlier interview.

Today, the ACG Group comprises 15 subsidiaries involved in activities in the pharma ancillary segment, such as manufacturing of blister packing and formulation processing machinery as well as manufacturing and processing of specialty packaging films. In the past, ACG had JVs with international companies and continues to have a technical partnership with US-based Honeywell.

“Our JVs have helped us stay ahead of others, expand into overseas markets and remain contemporary on a global basis. Through its import agency lines, ACG has given its many overseas partners successful access to India; we have helped build their brands in the Indian market. Foreign JV partners should use India as a sourcing base and use the marketing strengths of both organisations,” he added during the interview.

Customers in India attest to ACG’s product quality and customer focus. Bomi Gagrat, former executive director, Pfizer, says, “We have used hard gelatin capsules purchased from ACG. The quality of its products was very good. Usually, such capsules are a little brittle and tend to break when you put them in fast encapsulators; there is wastage. With ACG capsules, that didn’t happen.” Adds SM Mudda, director, global strategy (technical), Micro Labs, “ACG has been a reputed and credible vendor for hard gelatin capsules for both domestic and export markets. It is professionally managed and has a global outlook.”

ACG also helped Pfizer introduce anti-counterfeit measures. “There is a circular printing of brand names on the body and head of our capsule Becosules, which was very difficult for counterfeiters to copy. ACG had a special printing machine that did the job. We found that the company was customer focused and ready to work with customers to bring in new innovations,” says Gagrat. Interestingly, the 2008 crisis worked in ACG’s favour.

“Customers had become conservative about investing in building new capacities and were looking at reducing their costs. This opened up several market expansion opportunities for each of our group companies. MNCs finally saw that our products were competitive and as per world standards,” says Singh. The company is also known among vendors for its professional approach and for making payments on time. “We’ve been vendors for ACG for around 15 years; we supply the gelatin used for manufacturing its capsule shells. We also supply to its subsidiary in Croatia. We have a great relationship with the company — its business is growing and payments come on time,” Sajiv Menon, managing director, Nitta Gelatin India, an Indo-Japanese venture.

Retaining talent

The bedrock of ACG’s success over the years has been its focus on R&D and its progressive HR policies that have immensely aided employee retention. “The word employee is banned in our organisation. Everybody here is an associate,” says Ajit, walking us through his ornately decorated Nariman Point office. He maintains that transparency is the founding principle of the company. To reflect that, he had all the walls in the office made of glass. The company today employs more than 5,000 people, runs 14 factories and has a global presence, deriving more than 50% of its revenue from exports to over 100 countries. The US and the EU contribute 15% each to the company’s turnover.

“We believe Indians want two things: they want to keep learning on the job and they want that their kids should want for nothing. So, that’s what we do: we ensure our associates keep learning and we take care of their families,” says Ajit. To ensure employees are on a constant learning curve, ACG has developed more than 200 courses to enhance their technical, behavioural and functional skills and summarised these courses into a comprehensive booklet. ACG is also one of the few companies to organise alumni meets of ex-employees. However, in the absence of a strong brand name and given its B2B business model, the company does find it a challenge to hire good talent. “One way we hire people is through top-tier headhunting firms, but that isn’t always effective since they don’t want to work for an unknown company; we don’t advertise, we don’t have a brand,” says Ajit.

HR policies have played a significant role in aiding ACG’s global growth, ensuring consistent quality and helping it meet the USFDA’s stringent norms. “Inculcating a global mindset is one of the more difficult challenges of growing overseas, particularly with your second- and third-tier team members, who have to follow up and are in constant contact with your global customers, partners, consultants and suppliers. Becoming global does not just mean knowing how to handle cutlery properly. It needs to be as basic as using the words ‘please’, ‘thank you’ and ‘sorry’ in daily interactions, or replying quickly to email, or communicating correctly and without ambiguity,” explains Ajit.

Also, supplying to big pharma requires a different mindset and organisational orientation. It takes some years to qualify as a supplier, but it then ensures long-term, steady business. MNCs, in particular, have a long checklist of requirements before seriously partnering with potential suppliers. “We try to comply with their requirements, some of which are: ground presence in their country or region, evidence of long-term commitment and presence in the customer’s country, sustainability, financial stability and strength of the supplier, manufacturing operations in three continents, mastery of accurate recording and retrieval of information and strong R&D and innovation,” Ajit says. 

The presence of several expats in operations is also seen as a validation of the reputation of a company and facilitates communication with Western cultures. The company finds it useful to hire overseas personnel to handle front-line functions — Europeans in Europe, Chinese in China and Americans in America. At ACG’s Croatia factory, in fact, 100% of the team members are Croatians. Ajit says that often, many FDA inspections turn sour because of differences in styles of communications between American inspectors and local plant heads.

“The colloquialisms used in instructions by Americans, coupled with their accents, are often misunderstood or not understood by Indian plant managers, leading to non-compliance with FDA rules,” he says. He hastens to add that ACG hasn’t failed any of its inspections by the USFDA as well as global pharmas. This is corroborated by Kapil Bhargava, former deputy drugs controller, Central Drugs Standard Control Organisation. He says, “I’ve conducted inspections at the company for more than a decade. ACG has been better than its competitors in terms of having qualified personnel for manufacturing, testing of raw materials and finished products. Moreover, it was maintaining standards and following the norms even before these rules were applicable,” he says.

The company’s future plans include strengthening the culture of professionalism at ACG. “We have learnt in the last few years the importance of creating and sustaining a professionally-run company. As entrepreneurs and co-founders of now maturing companies, we have felt the occasional pain of letting go and limiting our involvement and truly playing the role of board members,” says Ajit.

However, the company prefers organic growth over mergers and acquisitions. “Yes, an organic growth path might be a longer journey, but it also gives you greater stability. We have made a few small acquisitions, some of which failed and some of which have grown exceedingly well. In general, our corporate philosophy is that going the M&A route is largely an uncertain journey and there are too many compromises down that road. Perhaps M&A is better suited for private equity companies and the like. They have to show rapid short-term growth in the top and bottom line irrespective of long-term consequences for the company. It’s a game we don’t practise — selling off your assets and your people every three to four years,” says Singh. 

New avenues

Going ahead, the company plans to take biotech and biosimilars from injectable form to capsule form. “Strangely, we don’t see many other pharma and biotech companies or even universities and scientists working in this area. Therefore, we are moving ahead on our own, but rather slowly. The opportunity and size is huge. But even more important is the eventual convenience and reduced cost for tens of millions of people.” He explains that the present route of administration is through injectables.

“With the lower cost of biosimilars, where is the need for thousands of doctors and nurses in rural areas to skillfully administer such sensitive and hi-tech medicines? The special capsules required in this case are almost ready with us. We now need to gather more international support and involvement,” says Karan Singh, director, ACG Worldwide. 

“My main focus now is to transform ACG from an organisation to an institution, where even if Ajit or Karan or Jasjit Singh aren’t there, the organisation continues to grow,” says Karan. Over the next few years, Ajit says they will continue to see double-digit growth, nearer to 20% than 10%. The next big goal for ACG is to reach the position of ‘preferred supplier’ to the largest global pharma companies. Singh believes that the company will get there sooner rather than later. And if its track record is considered, there is not much doubt ACG will get there very soon indeed.