The worldwide press is currently occupied with the news from the end of January that the Tata Group from India has acquired Anglo-Dutch steel group Corus. It is both fortunate and coincidental that the theme for gasworld this month is Asia and our interview of the month is with Mr PK Jain, Managing Director of the Inox Group. gasworld set out to discover the drive behind the growth in the group and how it intends to develop in the 21st Century.
While the origins of the Inox Group date back to 1923, it was Mr Jain's father who decided in 1963 that his trading company should evolve and move into manufacturing. According to Mr Jain, the SMS Trading Co was looking for a manufacturing business that had low raw material element and high value for product output. What better than industrial gases, since the air was $quot;free$quot; but the resultant products had value?
The industrial gases market was dominated by Indian Oxygen Ltd, which was a BOC subsidiary at the time, and the smaller but well-known entity Asiatic Oxygen. The gases business was a traditional oxygen and acetylene market, so it was not difficult to enter, but the lack of production equipment in the country meant that the Industrial Oxygen Co. (Inox) had to import a plant. Due to foreign exchange controls, the choice was limited to Soviet Union or East German built plants. So the Jain family formed Inox and invested in a 63 Nm3/hr gas plant in Pune which started up in 1965. This clearly means a lot to Mr Jain, as he remembers both make and capacity of the plant in question.
From those humble beginnings the company has grown into a group that specialises in industrial gases but has expanded into equipment manufacture, refrigerant gases and the leisure industry.
The Inox Group today exists of three major entities: Inox Air Products, the jv between Inox and Air Products and Chemicals Inc. (IAP); Inox India, the equipment manufacturing and service provider for cryogenic storage and distribution; and Gujarat Fluorochemicals Ltd (GFL), a refrigerants and chemicals company. These three companies have a direct association with the industrial gases business. The group also has moved into IT services and the leisure industry, but 82% of the Group's income comes from gas and related services.
Inox Ltd has evolved over 40 years, but has stuck to a basic principle - to be an innovator in the Indian market.
The Early Years
While its competitor IOL built its own plants in India, Inox had to rely on imports until 1976, when it started building its own small, high pressure plants. This made it the second plant manufacturer in India.
The company built upon its first venture into industrial gases in Pune and invested in a second plant in Thane. It was an opportunity to supply desperately needed products and break into what had been a duopoly-controlled market.
Relationship with Nippon Sanso
The company began working with Nippon Sanso in 1984 when it acquired a 50 tpd ASU from Nippon Sanso with the intention of supplying liquid industrial gases to the Western region. This made it one of the first Indian companies to invest in liquid capacity.
Nippon Sanso also helped Inox to develop liquid storage tanks.
$quot;We entered into a technology agreement with NSC to produce cryogenic storage tanks using Nippon Sanso licences,$quot; said Mr Jain. $quot;Up until then we had to buy tanks from IOL or state-owned BHPV, or we had to import.$quot;
After this agreement was finalised Inox set up a wholly-owned subsidiary - Inox India - to manufacture tanks at a new site in Vadadora.
Relationship with Air Products
As the industrial gases business in India evolved in the 1980s, Inox needed to meet a demand for special gases and helium. It entered into a relationship with Air Products in 1985 to supply special gases, which developed further when Air Products helped Inox establish a liquid Helium transfill facility in Patalanga.
In the early 1990s, the governmental bureaucracy which had hampered development in the 1970s and 1980s started to diminish. This, combined with high growth in demand for industrial gases, led Inox to invest further.
$quot;We undertook an IPO for 25% of the Inox Group,$quot; said Mr Jain, $quot;which allowed us to invest in a new 140 tpd unit at Nagpur and three more plants at Delhi, Vadadora and Pondichery.$quot;
Inox was also the first company to install an on-site plant to supply Mukund Steel using its own manufactured gas plants. $quot;BOC had very little on-site business themselves at the time.$quot;
However, the dynamics of the market changed dramatically in 1995-96, when other major gas companies entered the industrial gases business. The biggest deal signed was that between Praxair and Jindal Steel.
$quot;Inox felt a bit exposed with this new interest from other gas companies in our country,$quot; admits Mr Jain, $quot;so we undertook deeper discussions with Air Products. We were familiar with them through our trading relationship and technology assistance so these discussions ultimately lead to the formation of a 50:50 joint venture in 1999.$quot;
Mr Jain is chairman of Inox Air Products, but Air Products has four representatives on the board, including Ron Sullam and Wayne Hinman, both of whom are officially retired from APCI.
$quot;Our relationship has certainly strengthened in the past 18 months,$quot; said Mr Jain, $quot;with some major on-site wins in India.$quot;
Growth Platforms for Inox Air Products
How has Inox adopted Air Products' four growth platforms in the Indian market?
$quot;The Indian market is still driven by steel and is largely going to remain that way for the next 10-15 years,$quot; said Mr Jain. $quot;Inox Air Products has to respond to the current market dynamics. The electronics sector is developing; it isn't anywhere near the rate seen in the Far East, but that will come. The demand for mobile phones already outstrips that in China.$quot;
Mr Jain expects fab plants to be built in India and states that Inox is ready to serve these investments when they are made.
$quot;India has a very strong IT sector and so there will be a large demand for chips,$quot; he said. $quot;We need chips, flat panel TVs and computer screens. Intel are investigating and the Government is looking at incentives to ensure investment is made in India - for example, Special Economic Zones.$quot;
Fibre-optics are still important in the Indian market, although less so than five years ago.
$quot;Medical applications are growing faster than the industry average,$quot; he continued. $quot;We ourselves have commissioned four nitrous oxide plants in recent years and demand for medical oxygen is growing as new hospitals are built. However, the homecare market has not even surfaced yet, mainly due to funding and the lack of health insurance cover that includes homecare services. We expect this to develop over the next four to five years.$quot;
Although Air Products is strong in the hydrogen and energy sectors, refineries and petrochemical companies still prefer to make their own investments for on-site supply of hydrogen rather than outsource to meet their needs. This is similar to the situation in the steel industry 15 years ago.
$quot;We have participated in a pilot Hydrogen/CNG automobile demonstration plant developed by the Indian Oil Company in Delhi,$quot; said Mr Jain. $quot;This is the first Hydrogen Economy project in India. Although the focus is on CNG at present, hydrogen will come.$quot;
Inox Air Products aims to follow the global growth strategy of APCI. While not all the opportunities can be realised just yet, Mr Jain believes they will be in the future.
The Indian Economy and Government Influence
What effect is the Indian economy having on the industrial gases business? What is the Government doing to ensure economic sustainability?
$quot;Since the Government loosened the shackles on business and industry in the early 1990s, the Indian economy has essentially taken off,$quot; said Mr Jain. $quot;It was late coming compared to other countries, but we were heavily influenced by the Soviet Union and the central/socialist five year planning process. That has all gone now.$quot;
There are more than one billion people in India, 200 million of which have a rapidly growing expendable income. That middle-class demographic is growing, so there is huge internal demand. The Government expects the segment of the population with expendable income to double in 10 years.
$quot;It looks as if GDP growth reached 9% in 2006 and is set to remain between 9-10% per annum,$quot; said Mr Jain. $quot;Services and manufacturing are well above 12%, but agriculture is only growing at 2-3% per year. The Government is trying to boost the agricultural sector because 70% of the population live in the countryside. This will demand better road and rail infrastructure, which will be the major driver of domestic steel demand and construction activity over the next 10 years.$quot;
Mr Jain points out that India has suffered energy shortages. This gap needs to be closed.
$quot;The government needs to provide the energy to sustain the massive growth in the Indian economy,$quot; he said. $quot;This currently involves all aspects of energy generation - including nuclear, coal and natural gas.$quot;
The Government intends to encourage infrastructure schemes. The plan is to pipe the natural gas resources in the Bay of Bengal from east India to the more industrialised west. In the meantime, private enterprises have already started at looking at more local pipeline networks for domestic gas supply in the future - Reliance Industries is one such company.
Doing Business in India
According to Mr Jain the Government mindset will take time to change, but he thinks that India has come a long way from the business interference of the 1970s and 1980s.
$quot;We do not have full capital convertibility, or total foreign exchange freedom, but tax burdens have been very much reduced,$quot; he said. $quot;In our early days, duties on imported equipment were as high as 85% but now that has come down to 5%. Corporate Tax is currently at 33%, there is no dividend tax and no long term capital gains tax.$quot;
$quot;In fact,$quot; he continued, $quot;Government tax revenues are exceeding expectation, which should mean further relaxation of rates in the future. This is good news for India, Indian companies and foreign companies wanting to invest in the country.$quot;
$quot;In the gas business, there are excise duties applied to gases sold by large companies. We are slowly moving to a VAT-type system.$quot;
The Indian Government wants to protect the smaller companies in the industrial gases business, so many of the smaller gas companies are exempt from excise duties. According to Mr Jain, this makes for a healthy competitive environment.
Where is the Inox Group today?>/strong>
Inox Air Products has accelerated its investment in both gases and services.
$quot;We have become the largest merchant gases business in India,$quot; said Mr Jain. $quot;We have overtaken BOC Gases India in this market.$quot;
IAP has also invested in some large on-site businesses in the past year. These include a 1,250 tpd ASU supplying Ispat Steel near Mumbai, which started up in 2006, a new 850 tpd unit in Gujarat being commissioned as we go to print and another 1,250 tpd unit due to come on-steam in 2008.
The company saw its gases business increase by 20% in 2006 and Mr Jain believes this growth will continue at a similar rate when IAP's other on-site supply schemes come on-stream.
$quot;It is difficult to comment on the total size of the Indian gases market because it is highly fragmented,$quot; he said, $quot;with a number of smaller gas companies and distributors that do not declare their financial results.$quot;
The Indian gases business follows two divergent lines of activity, he said. The larger, multi-national companies focus on on-site opportunities and on growing their bulk business, while the smaller companies and distributors cater to the local cylinder markets.
$quot;The structure of the market is changing,$quot; said Mr Jain. $quot;A number of smaller companies have fallen by the wayside - but they perform a very important function by supplying local demand for the basic industrial gases. The larger companies cannot always compete with the small gas companies and distributors in the cylinder business on price alone. Instead they can offer other services such as the improved safety and reliability that Indian and international companies are requiring these days.$quot;
Inox India Ltd, formed in 1992, continues to increase its output of cryogenic tanks and vessels as demand in India and neighbouring regions grows. The company offers project management services in cryogenics and successfully commissioned the second launch pad for the Indian Space Agency in 2005. They have recently produced their first semi-trailers specifically for the Indian gases market and already export semi-trailers.
$quot;Our exports are growing,$quot; said Mr Jain, $quot;driven by our quality of product and our cost competitiveness.$quot;
The company's fluoro-chemicals business (GFL) is listed on the stock exchange. GFL was formed to market refrigerant gases and now supplies HCFCs (R22) to client companies, having fully moved away from CFCs.
$quot;We are conscious of the drive to phase out HCFCs too,$quot; said Mr Jain, $quot;and are building on our fluoro-chemicals business by moving into downstream use of such products. We have just invested $100m in a 6,000 ton per year PTFE facility, using fluorinated and chlorinated compounds as raw material feed-stocks for the new plant.$quot;
Inox has also invested in some wind power; the government is encouraging this by reducing energy tariffs for heavy users who do so.
While China is receiving a lot of global attention, India is also making its mark.
$quot;Lakshmi Mittal and Ratan Tata are leading the way on the international platform and I think this is the tip of the iceberg$quot;, says Mr Jain. $quot;The Inox Group is focused on the Indian economy, we have a good relationship with our joint venture partner Air Products and our gases business is expected to grow enormously over the next 5-10 years.$quot;
Big changes are happening in India. State-run enterprises such as the Steel Authority of India (SAIL) are now outsourcing their current and future gas requirements and many private enterprises have already embraced the concept. So IAP - and, no doubt, others - expect to have to meet substantially increased demand in the next 10-15 years.
Inox India is a growing success in the global market, claims Mr Jain.
$quot;We are now aiming for the company to be a truly global player - although India is our home base. We continue to work with customers to realise their full potentials and with the authorities to ensure that supplies and services are provided while always maintaining health and safety standards.$quot;