Bain Capital-backed Indian chemicals firm eyes US expansion after key acquisition
Hyderabad-headquartered Novopor wants to establish itself as a leading global contract development and manufacturing organization (CDMO) in the performance or specialty chemicals and material sciences space, chief executive Radhesh Welling said.
'Now, to be able to do that, we have identified certain unique and relevant capabilities that we need to develop or acquire," Welling said, adding that there was a huge addressable global market for performance chemicals that the company aims to tap. 'We have a huge potential upside here… Unlike agrochem or pharma, it's not a space that is overcrowded."
A CDMO provides various services to pharmaceutical companies for drug development and manufacturing.
The global specialty chemicals market was valued at $640.8 billion in 2023 and is projected to grow to $939.7 billion by 2031, according to Statista. India's overall chemical industry was valued at $250 billion, according to a EY report in December.
On Wednesday, Novopor announced the acquisition of US-based Pressure Chemical Co., an affiliate of the Belgium-headquartered Minafin Group and a leading provider of high-pressure and specialty chemistry services, for an undisclosed amount.
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'(Pressure Chemical) has some very unique capabilities with respect to specialized high-end polymerization, organic synthesis, etc… A lot of these capabilities are just completely absent in India," Welling said.
'The main reason was to acquire some of these unique and relevant capabilities. By doing that we can actually strengthen our overall value proposition to the customers we are looking to target in the performance chemical and electronic chemical space," he added.
Novopor does not directly export to the US, although a large number of its clients are based in the US, Welling said. The Pressure Chemical acquisition will help build trust in the US market as Novopor looks to target other global customers, he added.
Pressure Chemical has a mid-sized manufacturing presence in the US, which the company might evaluate for scaling up later, Welling said.
Novopor is also evaluating other strategic acquisitions. 'There are a few in Europe, few in India, but most of them are in the US… There are things in the pipeline in various stages," Welling said.
In 2023, US-based Bain Capital Private Equity acquired a majority stake in Novopor, previously known as Porus Labs, for an undisclosed amount.
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Building partnerships
Some of the challenges to global expansion in the specialty chemicals space include the capabilities companies can offer, Welling said, adding that intellectual properties (IP) are closely held by customers. A majority of performance chemical companies are focused on specific markets.
A majority of performance chemical companies are focused on specific markets, and as a result there is a gap in the capabilities companies can offer, Welling said, adding that intellectual properties (IP) are closely held by customers.
'They are very reluctant to actually give this IP out. They have partnerships with some of the local companies in the US, like the one that we acquired, but typically, they don't like to work with companies outside of the Western hemisphere," Welling said.
'We have identified certain customers who potentially we would like to partner with, and we have identified certain sets of capabilities which are very relevant for these customers," he added.
Novopor aims to grow profitably at an annual growth rate of about 20% over the next few years, Welling said. Crisil Ratings expects Novopor's revenue to have grown to ₹1,100-1,200 crore in 2024-25 from ₹763 crore in 2023-24. 'Operating margins also witnessed an uptick to above 20% backed by scaling up and higher contribution from high margin products," Crisil Ratings said in a February 28 note.
Novopor hasn't yet filed its financial statements for 2024-25.
Some of the largest Indian companies in the specialty chemicals industry include SRF Ltd, which posted a revenue of ₹13,149.7 crore for FY24 (of which 48% came from its chemicals business), Aarti Industries Ltd ( ₹7,012 crore revenue in FY24), and PI Industries Ltd ( ₹7,665.8 crore revenue in FY24).
Welling expects the Indian specialty chemicals industry to see an increase in demand in about a year or two because of the ongoing trade war between the US and China. 'Companies would look at reliable Indian partners as part of a long-term strategy," he said. 'If you also have an Indian company that has a footprint in the US, it's going to be an additional benefit."
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