Maximizing Profitability by selecting the best product mix to

benefit from domestic & international industry trends

Soumendu Ghosh Head – Marketing & Business Strategy

Cheminova India Limited, Mumbai

Agenda

Backdrop

Industry trends

Product Mix & Profitability

Backdrop

Food Demand – Supply situation laid a strong

foundation for the growth of Crop Protection Industry

Demand drivers :

Rising Population

Higher Incomes – Changes in dietary pattern & Improving Living

Standard

Spiralling Food Prices – Containing the inflation

Food Security Ordinance

Govt. Support – Crop prices (MSP) & Institutional Credit availability

Backdrop

Supply Side Constraints :

Dwindling arable land & diminishing av. farm size

Land degradation & Scarce Water resources

Labour availability in Agriculture

Lack of Investment in Agriculture

Low level of Awareness at ground zero

Low Productivity & Regional Imbalances

Backdrop

Indian Agriculture :-

Characterized by “Low

Productivity” &

“ Non mechanized Small

Sized Farm”

Backdrop

Urgent needs to improve farm productivity in an affordable,

environmentally sustainable way

On an average 20 – 30 % yield is lost due to Pests, weeds &

diseases amounting to ₹ 1500 bn @ current market prices

Improving agricultural productivity by preventing losses in an

integrated manner is the way to improve farm productivity

Strong Fundamentals of Crop Protection Industry with Positive

outlook

Industry trends

Global Crop Protection Market Trends

US $ Bn CAGR @ 7 % - 2007/12

Highly Consolidated

Shift in R & D expenditures to Seeds & GM

Traits with Increasing expenditures to

defend off patent molecules – Fewer

Pipelines

Development of Major markets in last decade

India - Introduction of Low dosages, environment friendly & high value

proprietary products resulting in Value growth in the market

Increased usage on improvement of Agricultural Economy & affordability

of farmers

Significant Growth in Brazil, India & China

Indian Crop Protection Market

CAGR @ 15 % - 2007/12 MNC’S Contributes ~ 40 % of

Indian Market

Generics ~ 70 % of the

domestic Market

Generic Indian Companies

are not involved in high end

R&D to find new AI’s instead

focus on Manufacturing

process, formulation

development & quality

improvement. R & D

expenses ~ < 1% of sales

compared to 8 – 10 % by

Innovator companies

Large off patent product

Opportunities

Consistently growing Market

Highly fragmented with 30 - 35 big companies along

with other regional players

Export from India – US $ 2 Bn

Changing Trend of Product Category

Tropical Climate – Crops more prone to Insect attack

& only GM - cotton

Increased wages & Scarcity of Labour - Herbicides

Differential Produce prices for Quality Fruits & Vegetables driving demand for Fungicides & Plant Nutrition Products

Changing Trend & Crop - Product dynamics

Indian Agricultural landscape is distinctly different from most other countries

1980 – 2004 :- Highly depend on Single Crop (Cotton)

GM Cotton :- Game Changer

Changes in Pest Complex – New Chemistries / Improved Formulations / Mixture / Spodoptera

Pulses – Heliothis & Maruca control New Chemistries

Soybean - Herbicides

Wheat – Phalaris Chemistries

Fruits & Vegetables – Emerging segments (MRL / Residue Legislation /

High Value Products)

Development of Indian Geographical Markets

Gradual shift in the

dominance of AP & Punjab

Emergence of Maharashtra,

Madhya Pradesh & Gujarat as

big markets

Govt. initiatives of 2nd Green

revolution in eastern India

led to the development of

Bihar, Orissa, Chattisgarh,

West Bengal, Assam &

Eastern UP markets

Crop diversification &

multiple cropping led to

development of Rajsthan –

Guar Crop

Evolution of Indian Domestic Agrochemicals Market

Wheat Herbicides &

Synthetic

Pyrethroids

Triazoles & Phalaris

New Chemistries

Neonicotinoids &

Heliothis Chemistry

2002 – Bt. Cotton

Strobilurins & New

Lepidopteran Chemistries,

Price Increases

Rs. C

r.

New Product Introduction being the major driver of Indian Industry Growth

CAGR of 15 % in last decade

Market Introduction of Products & Chemistries

Indian Industry all the time depend on MNC’s for New Technology & Product Introduction

Before IPR regime (2005) – MNC’s were hesitant to bring their New Technology due to Process patent in India

Market Introduction of Product & Chemistries

Residue legislation in the destination country of Export Crops like Fruits & Vegetables led to

increasing acceptance of New Fungicides in Indian Market

Post emergent selective herbicides adds to the convenience of Indian big farmers

Low dosages & High value new chemistries resulted in the overall value growth of the Industry

Top 20 Products - 2012

Out of top 20 products

in Value term – 5 Nos.

belong to Proprietary

Molecules

These 20 Nos.

constitute ~ 50 % of

Indian Domestic

Market

New products ~ 30 %

of total domestic

market & growing at

faster pace

Cost & time of New Product Introduction

Total = 10 - 12 years and ~ US $200 - 300 Million

Source :- Phillips Mcdougal report 2012

Fewer New products in Pipeline

A Typical Product Life Cycle

Product Mix & Profitability

Basic Approaches Technology / New product driven

Few products (4 – 5) contributing ~ > 60 % of sales

Brand led focus

Premium Pricing & higher margin ~ > 35 %

Offering Co – Marketing for market access after establishing the

1st mover’s advantages

Manufacturing & Cost Led

Off Patent Product manufacturing through reverse engineering

Acquisitions of Products & Companies for global reach & market

access

Back ward integration for Cost Leadership

Investment in Overseas Registration

Export focus

Market led Pricing Strategy - margin ~ 20 %

Basic Approaches Strategic Alliances & Market Access driven

New Product access from Japanese & Other MNC’s and Marketing

in Own brand names

Market Reach / Distribution Channel focus

Brand Building & differentiation through services / education &

training

“Value for Money” Pricing model – margin ~ > 25 %

Chinese Sourcing / Collaboration

Registration of Chinese Analogue of Proprietary off patent

molecules

Direct dealers / retailers networks

Services to gain grounds

Investment in Manufacturing & Contract research

Profit & Cost Analysis – An Example

Innovator Companies generally operate @ Net profit margin ~ 10 – 15

% while Generic Companies @ 5 – 10 %

Product Mix is the key determinants of Profitability

Profit Growth :- Market Contribution (External Market

Environment) – Cost (Internal Management in Supply Chain

and Manufacturing and Operational Efficiency)

Selecting the Product Mix Categorization & Concretization :- BCG Matrix of Relative Mkt. Share & Industry

growth

Product & Market Priorities :- To bring the desired “Focus” & Set the

“Priorities”

Priority & Activity Focus as per the Life Cycle / Stage of the Product by defining

/ detailing the Investment & Return Matrix

Determining the Effectiveness & Exclusiveness of Product Portfolio

Exclusiveness Commoditized

Leverage

Opportunity

Vulnerable

• Products are in a relatively less crowded market

• Products have high degree of differentiation in terms of effectiveness

• Products are in a relatively less crowded market

• Products do not have differentiation in terms of effectiveness

• Products are in a relatively crowded market

• Products do have differentiation in terms of effectiveness

• Products are in a relatively crowded market

• Products do not have differentiation in terms of effectiveness

Effectiveness High

Low

High

Low

Market expansion

(new segments)

Quality of sale

Framework to assess characteristics of product portfolio to determine focus products for marketing and promotion planning

Market growth through brand

promotion

Market share growth - Differentiation

Price levers dependant

Non price levers dependant

Pull

Push & Pull

Dealer Focus

New product launch and commercialization

Market and customer segmentation and

targeting

►Determining target segments based on structured analysis of market and customer characteristics (such as cropping intensity, productivity level, affordability)

Product positioning

►In-depth analysis of “Points of parity” and “Points of difference” vis-à-vis competition for ensuring clearly differentiated positioning

►Ratification of positioning based on customer and channel feedback

Key aspects Key focus areas

Product and market development

►Effective involvement of research and development and sales and marketing team in knowledge sharing, demos, training

►Clear focus on maximizing impact of demos by targeting trend setting farmers

►Feedback through FGDs as a formal input to market development

New product launch and commercialization

Key aspects Key focus areas

Pricing

►Defined mechanism for value based pricing (Formal framework considering customer’s affordability, willingness to pay and clearly articulated tangible and intangible product benefits)

Branding (Marketing and promotion)

►Clear articulation of benefits, differentiated by customer segments

►Adequate training of sales team and effective merchandising w.r.t FABs

►Effective communication of cost benefit ratio to farmers

►Enhanced ability of field force to handle “price objections” and “large customers/channel partners”

Concluding Points Increased Purchasing Power of Indian Farmers:-

Better Prices of Agri Commodities – Willingness and affordability to pay

for performance / need based products (Proprietary Products)

Demand for Value added formulations / Mixture Chemistries /

Differentiated products in Generics Habit Segments

Higher emphasis on Yield Increase & Quality of Fruits & Vegetables :- Increasing

sales of high end Fungicides and Plant Nutrition Products with low residue level &

lesser waiting period

Increasing trend of Agri Exports :- Approved / Least residue / High end Products

Machines replacing Man in Agriculture :-

Post emergent Herbicides & Herbicides tolerant cotton

Cotton Plucking machines, Rice Trans planter necessitates specific type

of product mix usage for ease & convenience of Operations

Increasing preference for Seed Treatment Products

Concluding Points

“Product mix” offering “Solutions” of “Crop – Pest Problems” of

“Customer’s Preference” with “Quality & Prices” which provide true

“Value for Money” & thus helping farmers to increase “Yield &

Quality” of crops to satisfy the global demand for food, feed, fibre and

energy – ”Basic for Sustainable & Profitable Business Growth ”

Any Questions? Thank you