In 1999, construction began on a derivatives plant for Protchem Industries.
Located in Kodambakkam near Chennai on the eastern side of India, the facility began trial production in February 2000 and started commercial production in the first half of 2000.
Protchem Industries was an experienced amino acids producer, but the derivatives market commanded a much higher price in comparison and brought more revenue. The plant was designed to help insulate the company as its products were more value-added. In addition, the use of amino acids as feedstock gave the Indian company a guaranteed market.
The company now focuses on manufacturing and supplying active pharmaceutical ingredients (API) for the pharmaceutical industry because there is a larger margin in these higher-value derivatives and the company is less subject to price pressures.
With a total cost estimated to be $1.46m, the derivative plant was set up with technology developed by Protchem Industries’ in-house research and development (R&D) centre, which is recognised by the Government of India’s Department of Scientific and Industrial Research (DSIR).
On completion, the plant manufactured pharmaceutical derivatives such as S-Carboxymethyl-L-Cysteine, L-Cysteine free base, N-Acetyl-L-Cysteine and L-Cysteine Hydrochloride monohydrate, as well as other derivatives of cysteine and tyrosine. It also had a food-processing division through a licensing partnership with Maruzen Foods of Japan.
Protchem Industries debt
Protchem restructured its debt portfolio in 2000 by converting its rupee loans to foreign currency loans with foreign investors such as IDBI and ICICI. As a result, its debt cost dropped from 18% to 5% per annum.
This result benefited the company, but at a long-term cost to its chances of securing credit. Total interest outgoing dropped by more than 50%.
The plant cost Rs6.5 crore (around $1.46m). It was financed by promoters’ equity (Rs2 crore, $0.44m), internal accruals (Rs1 crore, $0.22m) and a foreign currency loan taken from the Exim Bank at 7.5% (Rs3 crore, $0.67m).
Protchem Industries is based in Pondicherry, India. In the past, the company was highly vulnerable to price fluctuations in the amino acid supply market. It exported 100% of its production to customers in the US, Japan, South Korea, South-East Asia, the UK, Germany, Switzerland, France and Spain.