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Building on Corona

How healthcare, FMCG, pharma, petrochemical and IT companies will turn the capabilities acquired during the coronavirus crisis into new businesses in India and abroad
twitter-logoPB Jayakumar | Print Edition: May 3, 2020
Building on Corona
Illustration by Raj Verma

Unusual misfortunes create unexpected business opportunities. R.C. Mansuhkani, Chairman of Man Industries - which makes special steel pipes for oil & gas and hydrocarbon sectors, is keen to restart his factory at Anjar in Kutch, Gujarat. So far, Corona has not reached Kutch. The 2,000-plus workforce, mostly migrant workers, is idling in dwellings provided by the company. This Rs 2,200 crore-plus company, the largest supplier of such specialised pipes, has a near Rs 2,000-crore order book, half of which is for exports. Raw material (steel) prices are cooling and supplies, even from China, Japan and South Korea, have not been hit so far. Crude oil prices are also falling and his clients like IOC, BPCL, ONGC and oil exploration and production companies abroad are unlikely to freeze refinery expansion or repair work. "There can be only two-three week delay in supplies. I don't see many issues for us in both near and long term, compared to many other sectors," says Mansuhkani, who is worrying more about high working capital loan rates that can negate his competitiveness on a global level.

Mansuhkhani is raring to go post-lockdown and so are several of India's healthcare, pharmaceuticals, FMCG, vaccine, chemicals, hospitality and IT companies, which are gearing up to turn the capabilities acquired during the coronavirus crisis into new businesses in India and abroad.

The post-coronavirus future will be defined by greater localisation of supply chains, backward integration, faster policy decisions, increase in digital capabilities and investments in enabling technologies such as cloud, data and cyber security. Focus will be on cutting business costs, including fixed costs, increasing outsourcing, reducing manpower, bringing down non-core manufacturing and supply chain re-alignments, say experts.

There will be many gainers from this crisis, apart from the prime and obvious candidates like our healthcare and biomedical sector. Before exploring the opportunities in health, let's look at other sectors like FMCG, IT, petrochemical and textiles that are facing the brunt of this disruption but have been able to identify opportunities, too.

E-tail and Manufacturing

With supply chains broken during lockdown, FMCG majors Marico and Britannia teamed up with delivery platforms such as Swiggy, Zomato and Dunzo to distribute products being churned out by their plants. Flipkart and BigBasket partnered with cab aggregators such as Uber for delivery. Many retailers are also partnering with third-party supply chain companies like ShopX, Udaan, StoreKing and Jumbotail. "We are looking at third-party supply chain companies which have a strong digital backbone," says Unibic CEO Srini Vudayagiri.

These new relationships are unlikely to snap post lockdown. They have stood the test of a crisis and have proven their effectiveness. They are projected to evolve into new business partnerships when lockdown opens.

Market research firm Neilson says life after Covid-19 will be "a new normal" and FMCG companies and online retailers will be among the major gainers. FMCG firms are re-inventing themselves for the future with new supply chain strategies and unconventional delivery models. This may be temporary for some but everybody agrees these models will gain prominence.

"E-commerce companies have to re-look at last-mile deliveries and reinvent current operating models and route to the customer, apart from how they buffer their stock. The entire operating model will change," says Easwaran P.S., Lead, Supply Chain Solutions, Deloitte India. The companies will explore newer "direct to consumer" channels. The ability to predict and manage demand will be a game-changer.

While Bata India CEO Sandeep Kataria says one can't really predict the future at this point, Arvind Mediratta, CEO, Metro Cash & Carry, says: "Digitisation earlier was a nice-to-do thing, but now it's becoming a must."

The e-commerce market in India is forecast to grow from about $64 billion in 2020 to about $200 billion by 2024. The post-coronavirus scenario and new business models can accelerate this growth.

IT and Telemedicine

Sometimes, all it needs is a push and a shove for an industry to boom. Just as Paytm took off after the DeMo crisis, doctor consultations online may just become acceptable following the lockdown. So, healthcare aggregators like Ratan Tata-funded Lybrate and HealthAssure are leaving no stone unturned to make the most of this. They have launched new packages and innovations in the wake of the virus scare. Lockdown may have unravelled the true potential of "Telemedicine"as the number of people going to outpatient departments of hospitals will diminish.

"Every industry has to find ways to digitally engage with customers and employees," says Rob Thomas, General Manager, IBM Data & AI, which is helping numerous industries worldwide with its AI platforms for data analysis and communication. CISCO India & SAARC President Sameer Garde says many new technology-enabled businesses are emerging. These include telemedicine, online education and virtual conferences and meetings. "The current circumstances are bringing a lot of new technologies like analytics, AI, robotics, drones, AR/VR to the forefront. We can expect their adoption to accelerate," he says.

A McKinsey report says India could save up to $10 billion by 2025 if telemedicine replaces 30-40 per cent of in-person outpatient consultations. Banking on opportunities in the medical tourism segment, corporates like Apollo Hospitals are experimenting with business models combining telemedicine, hospitals and hospitality. A few days ago, Apollo Hospitals Group launched a partnership model to help quarantined patients stay at hotel rooms with telemedicine treatment support from Apollo. The partners are Hindustan Unilever, State Bank of India, Oyo Rooms, Lemon Tree, Ginger Hotels and Zomato. Already, private healthcare is popularising the concept of key-hole surgeries and daycare surgical centres for minor procedures, so that they can improve their Average Revenue Per Occupied Bed.

There will be a host of changes in customer behaviour, too, say experts. Sanitation, self-hygiene, immunity, wellness and biowaste disposal are some businesses that will indirectly get a fillip. A good number of people may avoid crowds and shop and order food online. "Fears related to social distancing are there to stay for some time, and we are looking at models like home delivery and e-tailing to improve sale of spirits," says Amrit Kiran Singh, Chairman of the International Spirits & Wines Association of India. India consumes about 350 million cases of spirits and 10 million cases of wine, but consumption out of bars and restaurants is only 25 per cent. In the developed world, it is 50 per cent.

Bright for Petrochemicals

India is the sixth-largest chemical and petrochemical producer in the world. With crude oil prices falling, petrochemical prices are likely to remain low in the medium to long term. Given that China accounts for a third of global petrochemical capacity, many producers are expected to have large inventories, which will also drive down prices. "Most fundamental factors for growth and investments still hold in India - high population with increasing per capita demand for chemicals, shift to Asia as a manufacturing hub, increasing purchasing power and availability of labour. The only question mark is the timing of the recovery in economic activity," says a recent KPMG report on Covid-19 impact.

India's pharmaceutical sector, which supplies 20 per cent medicines and one in every three tablets sold across the globe, is going to be a main gainer from this crisis. But a major worry is dependence on China for over 70-80 per cent of the main active pharmaceutical ingredients (APIs) and their intermediates. So, while the world is looking at India to supply Hydroxychloroquine, an old malaria medicine that can be effective in Covid-19 treatment, India has only two integrated manufacturers (Zydus Cadila and Ipca Laboratories) of this drug. "If I want to start an API plant in India, it requires at least one-and-a-half years, and getting environmental clearances is a big issue, whereas in China, you get all clearances quickly, apart from capital and other support infrastructure," says Arjun Juneja, Joint Managing Director, Mankind Pharma.


Corona causes world to look at Indian pharma for relief

Hydroxychloroquine (HCQ), an old pharmaceutical molecule, was invented by German multinational Bayer in the 1940s. Most multinationals stopped its production decades back as malaria is no longer prevalent in most developed nations.

India, however makes 80-85 per cent of finished formulations of HCQ, including combination drugs. Majorities are exported to 70-80 countries. It is not a big market, though. India's exports of HCQ in FY19 were only $51 million and the whole current size of the US market is only $220 million. Zydus Cadila is the largest player in the US market with 32 per cent market share by volume and the top 10 players include Dr. Reddy's Lab (10%) and Sun Pharma (7%).

HCQ suddenly gained prominence as some studies found it has strong antiviral effects on the coronavirus infection, which neither has a drug nor a vaccine. This prompted US President Donald Trump to direct the US Food and Drug Administration (FDA) to do away with rigid laws to ensure possible treatments for Covid-19.

Like Zydus, Mumbai-based Ipca Laboratories is a large integrated maker of HCQ and supplies across the world, except to the US. That was because its API unit at Ratlam in Madhya Pradesh and two formulation facilities were banned for almost five years by the USFDA citing sub-standard quality manufacturing. After Trump''s directive, the FDA has given temporary clearance for all these units to facilitate export to the US.

Another leading Indian respiratory drug maker Cipla was given fast-track permission this week by the USFDA to sell Albuterol Sulfate Inhalation Aerosol. Cipla's drug is first-generic of Merck Sharp & Dohme Corp's Proventil, used to treat severe chest congestion with asthma symptoms, which has a US market of $2.8 billion. Analysts were expecting approval for Cipla's product only by FY21 and limited sales during the year. Now they estimate FY22 sales of $50-60 million from the product, an inhaler with the medicine. Another Indian drug maker Lupin also has a filing for Albuterol in the US and is expecting a similar fast-track approval.


But coronavirus has triggered a small change for the better. The government has announced development of three "Bulk Drug Parks" with financial investment of Rs 3,000 crore in the next five years and Rs 6,940 crore incentives for the next eight years for making critical Key Starting Material (KSM), intermediates and APIs in India. "About 8-10 drug intermediates and KSMs currently imported from China to the tune of 15,000 tonnes have been identified for use in Covid-19 treatment and we can work with the industry to indigenise them," says Ashwini Kumar Nangia, Director, CSIR-National Chemical Laboratory, Pune.

A related sector - technical textiles - is also going to gain, just like domestic manmade yarns and fabrics used in special application apparel like personal protection equipment (PPE). For India's textile and apparel sector, which contributes 2 per cent to GDP and employs 45 million, prices of imported manmade fibre-based high-value products are expected to rise at least 25-30 per cent over the next two quarters due to slowdown in China. Besides, apparel production will shrink by 18-20 per cent and yarn production by 12-15 per cent during the next six months, says the KPMG report. It also says that for the real estate sector, which is going to face a severe impact due to lack of demand and capital, demand for industrial (logistics and warehousing) construction and data centres is likely to lead to a strong recovery in future. "If global manufacturing giants shift some capacity from China to India, aided by favourable government policies, it could lead to some construction demand in the manufacturing sector. Long-term outlook for the commercial real estate sector also remains good," says Subodh C. Dixit, Executive Director (Engineering and Construction), Shapoorji Pallonji.

Make-in-India Future for Medical Devices

The crisis has given a lease of life to Indian medical device manufacturers, who are mostly in the MSME sector. "Many of these big companies that have partnered with medical device makers are going to stay back as partners as there is a business opportunity in future. They can not only bring capital to compete with multinationals but also create scale, big basket of products, technological expertise and quality standards for global competition," says Rajiv Nath, Forum Coordinator, Association of Indian Medical Device Industry; and Managing Director of Hindustan Syringes & Medical Devices.

A part of the Make-in-India initiative is focused on plans to catapult India to among the top five medical devices manufacturing hubs in the world. At present, 75-80 per cent of the Rs 1,05,000-crore fragmented medical device industry in India is dominated by multinationals such as GE, J&J, Philips, Wipro, Abbott, Siemens, Baxtar and Fresenius. There are just four domestic manufacturers - Trivitron, Transasia Biomedicals, Hindustan Syringes & Medical Devices and PolyMedicure - with over Rs 500 crore revenues a year.

"Other than announcement of medical parks and small incentives, we never got a level-playing field. Almost all the policies or major tenders so far were in their favour and even big hospitals and procurers in India neglected the domestic manufacturers. Those MNCs are not in a position to manufacture for India as they are busy managing crisis in their respective home countries,"says G.S.K. Velu, Chairman and Managing Director, Trivitron - India's largest medical devices maker.

"Instead of a paltry Rs 1-2 crore grant, we require Rs  50-100 crore grants and incentives for research and also collaborations with institutions like IITs having precision engineering knowledge and talent," says Velu.

Public Health and Biotechnology

Experts say the pandemic will lead to increased public pressure to invest more in health infrastructure, especially primary and secondary care. A Motilal Oswal research report says the Indian government's health expenditure as percentage to GDP has remained at 1-1.5 per cent, whereas the world average is 7.4 per cent. Similarly, India has one of the least number of doctors per 1,000 population. "India had, over decades, ignored fundamentals like strengthening primary healthcare, producing adequate doctors and setting up public sector hospitals and related infrastructure," says Muralidharan Nair, a public health expert and Partner and Leader (Health) at EY India. "The old system of primary care and secondary care is broken and needs to be restored," says R.B. Smarta, Chairman and Managing Director, Interlink, which advises life science companies.

India also has an opportunity in the biotechnology sector, say experts. But lack of biotech infrastructure is a big issue. For example, Serum has been able to develop a vaccine candidate for coronavirus, but is not sure if it can make that in India. "This (vaccine candidate) will have to be handled under BSL 3 (biosafety level) conditions, which is basically a very high containment level, and I don't know how many facilities in the world have high volume manufacturing in BSL 3. Even if you have the vaccine, the main challenge will be to manufacture it in large volumes," says Adar Poonawala, CEO, Serum Institute of India.

India will also have to develop a scientific community that can market its IPs, encourage entrepreneur-scientists and create infrastructure to make India a power house in the biomedical sector, Kiran Majumdar Shah, Founder and Chairperson, Biocon, has written in a blog.

Muralidharan Nair says the Indian pharma industry should focus on developing new molecules rather than using chemistry skills to make copycat generic drugs for short-term profits. "With bioengineering and advanced computing coming together, synthetic biology is going to have wide applications in infectious diseases, agriculture, water, air. This is the time to be in biotech," says Ashok Trivedi, Founder and Trustee, Ashoka University; and Managing Partner of SWAT Capital, who will invest Rs 100 crore to launch Trivedi School of Biosciences with focus on synthetic biology, data science, biodiversity and ecology.

The post-coronavirus phase might be a new dawn for several large chunks of India Inc, it seems.

@pb_pbjayan

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