Protchem Derivatives Plant, India

The plant is located at Kodambakkam near Chennai, on the eastern side of India. The facility is owned and run by Protchem Industries, which is based in Pondicherry also in the east.

The company has recently changed strategy from a producer of amino acids and derivatives for the food industry to the manufacture and supply of active pharmaceutical ingredients because there is a bigger margin in these higher value derivatives and the company would be less subject to price pressures.

Protchem has been highly vulnerable to price fluctuations in the amino acid supply market in the past. Prochem exports 100% of its production to customers in the USA, Japan, South Korea, South-East Asia, the UK, Germany, Switzerland, France and Spain.

The company built a new plant in 1999–2000, which insulates the company in two ways. The new plant's products are more value added, so that there is a bigger profit and the use of amino acids as feedstock gives the Indian company a guaranteed market for the products.

The key competitive advantage of such Indian firms is their low labour cost. As the Indian market liberalises, and export becomes easier, the economy will become more integrated with that of the rest of the world. This may pose a long-term danger to those companies that are not capable of facing the toughened competition.

Protchem's present strategy is aimed at increasing its profit margin on a given amount of sales rather than expanding the sales themselves.

PROJECT MAKE-UP

The plant began construction in 1999, and initial trial production was started in February 2000. Commercial production started at the plant in the first half of 2000. The total cost of the new plant was estimated to be $1.46m.

The new derivative plant was set up with technology developed by the in-house R&D centre, which is recognised by the Department of Scientific and Industrial Research (DSIR), Government of India.

Protchem Industries manufactures pharmaceutical derivatives like S-Carboxymethyl-L-Cysteine, L-Cysteine free base, N-Acetyl-L-Cysteine, L-Cysteine Hydrochloride monohydrate and other derivatives of cysteine and tyrosine at the plant.

The company has a great deal of experience in making amino acids, all of which are exported. The derivatives market commands a much higher price and so export of these as well will bring in much more revenue.

The new plant also has a food-processing division, through a licensing partnership with Maruzen Foods of Japan. The company has also received support from the Tamil Nadu Development Corporation (Tidco) for a benzyl chemicals project.

Another existing, sideline of Protchem is the cogeneration facility at the company's plant in Pondicherry.

PROTCHEM DEBT

Protchem restructured its debt portfolio by converting its rupee loans to foreign currency loans with foreign investors like IDBI and ICICI. As a result, its debt cost has dropped from 18% to 5% per annum.

This result has benefited the company, but only at a long-term cost to its chances of securing credit. Total interest outgoing has dropped by over 50%.

The new plant cost Rs 6.5 crore (or about $1.46m). It was financed by promoters' equity (Rs 2 crore, or about $0.44m, through preferential allotment), internal accruals (Rs 1 crore or about $0.22m) and a foreign currency loan taken from the Exim Bank at 7.5% (Rs 3 crore, or about $0.67m).