It might be a little costlier as a raw material but it saves us water, power and, more importantly, time,” says D Subaash Kumaar, general manager, Freelook Fashion, a unit of Tirupur-based Anugraha Fashion Mills, about the industrial enzymes used by the ₹150 crore readymade garments company. Till four years ago, Anugraha had a two-stage process for dyeing the t-shirts, leggings and women’s tops it produces and exports. That was until Bengaluru-based Novozymes South Asia introduced Kumaar to a better enzyme that helped bring this down to a single-stage process. “We are able to save an hour per batch, and much more in water and power costs,” says Kumaar.
Small is beautiful
India is still a marginal market for Novozymes
in the global context
Enzymes — biodegradable proteins found in living organisms — catalyse body functions such as digestion and blood clotting. Industrially, these catalysers can replace conventionally used chemicals and speed up industrial processes, saving costs and reducing CO2 emissions. It takes around 150,000 litres of clean water to produce 1 tonne of knitwear. According to Novozymes’ Danish parent, if the textile industry across the world adopts enzymatic solutions in the production of cotton textiles, it could save 28% on water, 80% on chemicals and 25% on its energy costs. That may sound like marketing spiel, but there is no denying that with 47% market share globally, Novozymes — Novo Nordisk in its original avatar — counts detergents, food and beverages, textile and pharmaceuticals players as its primary customers.
Its India story is nowhere as spectacular. While Novozymes South Asia dominates with a 50% share in the Indian enzymes market, it’s a small pie worth just ₹600 crore roughly and populated by 17-odd players (see: World of their own). That, after three decades in the country, doesn’t count for much. Though Novozymes’ journey in India has been one of sluggish growth, it only mirrors the evolution of a business that’s taking off now.
World of their own
Just three players dominate the nascent enzymes market
A long journey
First, a bit of history. “In 1983, we had a liaison office with two employees,” recalls GS Krishnan, president, Novozymes South Asia, who’s been with the company for 22 years. The first port of call was the brewing industry. Soon after, India’s economic liberalisation opened up new sectors. Detergents were the most promising, as more Indians took to premium products like Surf Excel and Ariel. “By the mid 1990s, the enzymatic detergent caught up well here,” points out Krishnan.
In 1998, Novozyme set up full-fledged operations in India. A couple of years later, a re-tapping facility was set up to package bulk enzymes imported from its centres in the US, Denmark and China into smaller quantities for sale. Adapting to Indian conditions was key. “Western stains are sauce-based, but ours are curry-based. So, we tweaked our detergent enzymes accordingly for the Indian market.” Now, detergents bring in 35% of revenues (see: Soap opera), and Krishnan says all leading detergent players such as Unilever and P&G are Novozyme customers globally. Soon enough, industries such as beverages and textiles, too, began toying with advanced processes. Textile companies used enzymes, for example, to create the ‘stone washed’ effect in jeans, while distilleries used them for manufacturing grain-based alcohol as a better substitute for molasses-based alcohol.
Novozymes has managed to create a
stronghold in the detergents space
Though detergents are the largest category for enzyme makers in India, only 15% of detergent brands in the market today are enzymatic. The adoption is even lower in other categories. “There are structural issues in India. For example, the extent of food processing, where enzymes have an application, is low here. In the West, baking enzymes are used in bread, but in India we have traditional foods like roti, naan etc. It is hard to target such traditional segments,” points out Piyush Rathi, managing director of the Thane-based Advanced Vital Enzymes — Novozymes’ closest competitor in India.
He may have a point there. Unlike markets elsewhere in the world, price-conscious consumers and manufacturers in India have been reluctant converts until now. “Selling an enzyme is a highly technical proposition. You need to demonstrate the benefits,” says Krishnan. This means working closely with customers and demonstrating on site how enzymes can help cut costs and shore up efficiency. For instance, Rathi’s comment notwithstanding, Novozymes has developed an enzyme that keeps rotis and naan fresher for longer, which finds takers in restaurants and packaged foods companies.
Chaitra Vijaypura Narayan, associate director of the chemicals materials & food practice at Frost & Sullivan India, agrees that potential users need plenty more convincing on the value proposition of enzymes. “These can’t be stored like chemicals for a long time. Then, there is the initial cost factor — a textile bleaching enzyme, for instance, is 25-30% costlier than a peroxide chemical, though this cost is compensated by savings later,” she explains. Also, the volumes are still too small to justify setting up a submerged fermentation plant, needed to produce enzymes. Little surprise, then, that 75% of industrial enzymes sold in India are still imported.
Going for the kill
In 2006, when Novozymes opened its research and development centre in India, it wasn’t at the top of its game; homegrown Biocon was, in fact, chugging right ahead. “Biocon was big time into enzymes then,” points out Narayan. That’s when Novozymes made a bold gambit. In FY07, it bought Biocon’s ₹100-crore enzymes business, accounting for 12% of its business, at a high multiple of around five times. It paid ₹ 460 crore for the business, which was largely producing pectinase enzymes for the juice and wine segment.
Competitor Rathi, though, is critical of the deal. “I don’t think they benefited from the acquisition. The wine and juice segment hasn’t offered them much growth,” he says.
Consider this. Post acquisition, Novozymes’ turnover more than doubled from ₹100 crore in FY07 to ₹ 225 crore in FY08. But, in the following four years it has managed a CAGR of just 7% to touch ₹297 crore in FY12 (see: One-time pop?). At the time of the buy, the parent company had mentioned that it expected “the acquired business to have a long-term annual growth of more than 15% in sales.” But currently it is the detergents and textiles segments that are its biggest revenue contributors, with food and beverages and other segments accounting for the balance. Krishnan, however, defends the buyout. “We were not market leaders but managed to become one after the acquisition. Also, in a scattered and vast market such as India, we got a strong distribution network and today 95% of what we produce is exported.”
Biocon did help Novozymes double its revenues initially,
but since then sales growth has been oscillating
According to the management, the growth in the wine and beverage segment in India is nascent, while demand in export market is seasonal. Krishnan says, “Consider the juice market in Australia: if the apple crop is good, the demand will be high and so will be the growth and vice versa if the crop is bad.” The company, however, refused to divulge the current contribution of the Biocon business to its overall turnover.
Five years since the buyout, Novozymes is now looking at strategic R&D alliances to add its 200-odd product portfolio. One is with Pune-based Praj Industries on developing second-generation biofuels in India. The other is an exploratory research agreement with IIT Chennai-incubated Sea6 Energy to jointly develop a process for making biofuels from seaweed. Srikumar Suryanarayan, chairman, Sea6 Energy, says the partnership was a natural one. “We have managed to grow weed in seawater, but we needed someone who could develop an enzyme to convert seaweed into ethanol.” He expects to move to pilot project stage in three-four years.
“Investments in biofuels might not appeal to many today, but in five-six years, they will be very important,” says Narayan. The focus on this business is also in line with the company’s global strategy, outlined recently by Novozymes’ new global CEO Holk Nielsen who assumed charge on April 1. However, in India, like other developing markets, biofuels haven’t taken off, thanks to food security concerns and the lack of a comprehensive roadmap for the sector. So, is it worthwhile to put in money and so much time on biofuels in India? “There have been implementation issues. But for the future, going green and clean is a wise thing to do,” says Narayan.
As for profitability and growth forecasts, Krishnan refuses to share numbers but adds, “We are profitable in India. Otherwise how would a two-employee company grow to 400-plus people company and sustain?” But with larger competitors like DuPont — which ranks second globally, with a 21% share of the $3.8-billion market— entering the fray with similar offerings, it’s time for Novozymes to step up its game to stay in the reckoning.