Market Movers CS Jubilant

8/7/2019 Market Movers CS Jubilant

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Case Study:Jubilant Organosys

An excerpt from Market Movers:

Lessons from a Frontierof Innovation

Full Market Movers report, and its companion piece,

Developing Value, are available at www.ifc.org/enviro

and www.sustainability.com/marketmovers


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Case: Jubilant OrganOsys

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Started in 1978 as a bulk chemicalsproducer, when Indian industry wasprotected behind high tariff walls,Jubilant Organosys found itselfforced to rethink its business modelafter the opening up of the Indianeconomy to global trade and com-petition in 1991. The liberalisation

included a gradual reduction ofcustoms duties on chemical prod-ucts, the prices of which plungedto 30-year lows in the second halfof the 1990s. The profits of manyfirms in the industry were severelydepleted.

Jubilant reckoned that it was goingto be hard to succeed in this new,competitive global market. So itdecided to shift into higher valuegoods and, over the next decade,

transformed itself from an essential-ly bulk chemicals manufacturer intoa low-volume fine and specialitychemicals producer, with a growingfocus on supplying the pharmaceuti-cals industry. It moved itself strategi-

cally higher up the value chain.The company has traditionally reliedon an unusual source for its rawmaterial. Most chemicals firms of itskind rely on crude oil-based feed-stocks. But accessing them can posea problem, as their prices are highlyvolatile and their supply sometimesuncertain. So Jubilant decided to usemolasses as its feedstock. Molasses isa waste product from the manufac-ture of sugar from cane, and Indiais a huge grower of cane, second in

the world only to Brazil. The priceand supply of molasses are signifi-cantly disrupted only by an extraor-dinary monsoon. Thus Jubilant wasable to stabilise its cost base.

Coincidentally, the choice marked aswitch to a more environmentally-friendly way of producing the sameproducts. Molasses is a renewableresource. Its use provides gainfulemployment for the sugar industryswaste and avoids the need for envi-

ronmentally-intensive oil extraction.

India is today recognised as a lead-ing global player in generics anda supplier to the pharmaceuticalsindustry. This success has been

driven by its growing skills base, bybig improvements in quality, andby a new breed of entrepreneur.Jubilant has been part of this evolution, and many of its fine chemicalsproducts are now destined for bigpharmaceuticals manufacturers.Revenues from international salesaccount for about 60% of totalrevenues for the Fine Chemicalsdivision. Even purchases by domes-tic customers often end up in inter-national markets, as customers are

frequently the outsourced opera-tions of international companies.

Jubilant has also developed thecapability to come up with newproduct ideas (it employs 1,200scientists, who account for almosta quarter of its total staff), and tosell them to western businesses.Jubilant carries out the research inIndia, sends samples to potentialcustomers and then manufacturesthem in bulk in India when it has

found a buyer. Much of this workis done for life-sciences firms andJubilant describes its future strategyas being to become the first-choice outsourcing partner of thelife-sciences industry.

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Sstaiabiit fmac

What differentiates us is the EHS

As might be expected from achemicals and pharmaceuticalscompany, Jubilants main focus on

sustainability has been directedat EHS environment, health andsafety standards. Many of theseare imposed by legislation, butJubilant has gone far beyond localrequirements. It is a major supplierof carbamazepine15 to Novartis,for example, which it producesat a facility that has gained theapproval of Americas demandingFDA (Food and Drug Administration).Jubilants facilities are also OHSAS18001 certified, and the company

has been providing training tofoster a stronger safety culture, andstrengthening occupational safetysystems and infrastructure.

Shyam Bhartia, Jubilants chairmanand co-founder, says that thecompanys rapid growth has beenfacilitated by its sustainabilitystrategy. It has helped both itsinorganic and its organic growth the former by making it easierto buy companies in developedmarkets (Jubilant, for example,currently has some 700 employeesin the US), the latter by helping itgain a local licence to operate in asector that is particularly sensitive, inIndia as elsewhere. To raise its localprofile the company has made itsown medical facilities availableto local communities, supportedlocal schools by providing teach-ing materials, and set up womensself-help groups. This has helped

Jubilant avoid the problems othercompanies have faced in India,where there has frequently beenstrife and mistrust between localinhabitants and their corporateneighbours.

Jubilant has been a pioneer in en-couraging sustainability reporting inIndia, producing its own corporatesustainability report (audited byErnst & Young) since 2003. It was

one of the first companies in Indiato produce such a report alignedwith the Global Reporting Initiative,and has released its 2006-07 reportin line with the G3 Guidelines atapplication level A+.16 Jubilant be-lieves that this degree of transpar-ency, which is still rare in emergingmarkets, has helped in attractinginstitutional investors. Their owner-ship of the company increased from7% in 2004 to 32% in 2006. Jubilantbelieves that its EHS record is alsohelping to reassure customers thatit can be a reliable partner over thelonger term, and it has seen a rise inthe volume of long-term contracts(those for over one year) in 2007.

Sustainability is now built into newproducts right from their conception.As the company produces substantial

quantities of effluent, the cost ofeffluent treatment is a prime concern.Businesses in the group cannot putforward new proposals unless theyinclude EHS cost considerations. Inthe future, customers will come toyou with the expectation that youwill just practise good EHS manage-ment, without expecting to payextra for it, says Rajesh Srivastava,president of the fine chemicalsbusiness. Customers, he says, are

evaluating you against other compa-nies in India and China who have thecost advantage What differenti-ates us is the EHS.

To deal with effluents, as long agoas 1984 the company set up thelargest waste-treatment plant inthe country for producing biogasfrom distillery effluents. The energycreated now saves the companythe equivalent of 250 tonnes ofcoal a day. Part of the companysbio-degradable waste is also usedto produce organic manure, whichis being used in progressivelyincreasing quantities by farmerssubstituting chemical fertilisers.And part is also used for cropirrigation after treatment, as itstill contains nutrients helpful forplant and soil. But it took two to

three years to convince the farmersthat the company was not merelytrying to dump dangerous effluenton them. Jubilant employed anagricultural technical universityto train the farmers on newtechniques and to convey that thecompany was genuinely interestedin their welfare. Jubilant madethe farmers partners, says AshokGhose, the companys chief ofEnvironment, Health and Safety.

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15An active pharmaceutical ingredient related to central nervous system disorders. Novartis holds the patent for this formulation.16 For more information on GRI application levels see the Sustainability Reporting Guidelines available at www.globalreporting.org/ReportingFramework/G3Guidelin


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Jubilants business model isbuilt on its ability to providehigh value-added specialitychemicals and quality researchand development services to

clients in a cost-effective man-ner. Yet cost-competitivenessis a challenge in India wherecosts are higher than in coun-tries like China and whereenvironmental regulation isbecoming more stringent.However, Jubilant has succeededin integrating management of

environmental issues through-out its operations and therebyreducing costs. Effluent treat-ment costs, for example, arebuilt directly into product

development costs. The com-pany has also chosen to usemolasses abundantly availablein India as a by-product of sugarproduction as its chemical feed-stock. Molasses has less cost andsupply volatility than the crudeoil-based feedstocks used byinternational competitors, and

is also more environmentally-friendly. Jubilant reuses wastes,converting some to biogas saving the company money bymeeting its energy needs in

place of coal. Jubilant also usesbiodegradable effluents forcrop irrigation, which it sup-plies to the surrounding com-munities for free, helping buildgood relations and reduceoperating risks.

Aimi f t t

There is pressure on health-carecosts in all economies, and that

looks set to carry on pushingdrug prices down. And there isincreasing demand for faster andmore frequent new products asexisting drugs come off patent andbecome generic. In that challengingenvironment, Jubilant is hopingfor continued rapid growth, basedon its relatively low (though rising)cost base and its ability to retainhighly qualified scientists.

It is Jubilants aim to be among

the top three in the world in allits major markets. The company isclose to being the second largestproducer of pyridine17 and itsderivatives globally, catering

to leading pharmaceutical andagrochemical companies. Givenits strong customer relationshipsand its proven reliability, Jubilant

expects to be the market leaderin the near future. In the marketfor solid polyvinyl it is third in theworld with 75% of its productionexported, mostly for chewing gumto firms like Wrigley and Cadbury.It holds a similar position in themarket for latex additives to tyres,and it is the worlds second largestproducer of carbamazepine. Thecompany acknowledges, however,that increasing globalisation andinternational competition are

going to require it to compete withmultinationals not only financially,but right across the triple bottomline of economic, social andenvironmental performance.

To continue to build its interna-tional presence will require morecross-border takeovers and thepositive image created by Jubilants

sustainability reporting and itsEHS activities help in making suchmoves. They also help in recruitingand retaining the top-notch scien-tists that are so vital to the com-panys future.

As the company continues togrow and expand internationally,the scrutiny of its activities willalmost certainly increase. Stricterenvironmental regulations arelikely in future, including the EUs

new REACH legislation,18 whichhas recently come into force.Jubilant is well aware of thesechallenges and knows it will needto innovate constantly to meetnew requirements. As a fullyfledged member of the globalpharmaceuticals community,Jubilant will also have to addresssome of the most advanced andvexing issues facing the industry, inthe areas of bioethics and the useof new technologies in research and

development.

Increasing globalisation and international competition are going to

require Jubilant to compete with multinationals not only financially,

but right across the triple bottom line of economic, social and

environmental performance.

bOx 6: integratiOn

17 Pyridine is a basic organic chemical, a building block and solvent in agrochemical, pharmaceutical and other industries.18 REACH is the European Union legislation on the Registration, Evaluation and Authorisation of Chemicals. It is intended to standardise the way chemical substancesare evaluated for impacts on health and environment, and affects chemicals that are manufactured or imported into the EU in quantities of greater than 1 tonne.


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Since its origin in bulk chemi-cals, Jubilants existence hasdepended on more thancompliance with increas-

ingly stringent environmentalregulations. To obtain andkeep an informal, societallicence to operate, the com-pany depends on local supportfrom those who are affectedby issues such as resource use,environmental impacts and

local traffic increases. This is achallenge, given that JubilantsIndian factories are in ruralor semi-rural regions, where

community trust in industry isfrequently low. Proactive en-gagement which involves thecommunity, rather than merelyseeing them as beneficiariesof charity, has been criticalto creating understandingand trust, pre-empting prob-

lems and creating a positiveoperating environment. Thisapproach to the communityhas also sped up government

environmental clearances, forwhich community consultationis a pre-requisite, and strength-ened customer relationshipsby providing assurance thatthe company is identifying andmanaging this particular set ofnon-traditional risks.

bOx 7: Quality OF relatiOnsHiPs

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FoundedFounded in 1978 originallyas Vam Organics. It changedits name to Jubilant OrganosysLtd. in November 2001.

ownerShIp STruCTureListed in India since 1981 shares are traded in Group B1at the Mumbai Stock Exchangeand at the National StockExchange of India

SeCTorPharmaceuticals, agrochemicalsand chemicals

heAdquArTerS

Noida, Uttar Pradesh

operATIonSSeven manufacturing locations:Gajraula (Uttar Pradesh),

Nanjangud (Karnataka),Roorkee (Uttarakhand), Nira(Maharashtra) and Samlaya(Gujarat) in India plus Salisbury(Maryland) and Spokane(Washington) in the US

MArkeTS130 customers in more than50 countries worldwide,including US, EU, Japan

MAIn CoMpeTITorSVertellus (USA), Koei (Japan),Lonza (Switzerland),Chang Chun (Taiwan),Dr Reddys (India),Cipla (India),

Hisun (China)

eMployeeS3,425

MArkeT ShAreAminopyridines 75%Lutidines & Collidines 56%Pyridine and Picoline ~ 40%

AwArdS And reCognITIon

2007-08: Golden PeacockAward for CorporateGovernance

2006-07: Golden PeacockAward for Safety Managemen(Gajraula unit)

2006-07: National Awardfor Excellence in EnergyManagement, Pharmaceuticalsector by Confederation ofIndian Industry (Nanjangud unit

2006-07: Gold Award forSafety Performance (Nira unitby Greentech

2005-06: Golden PeacockAward for Corporate SocialResponsibility (Gajraula unit)

Jubilant Organosys is an integrated pharmaceuticals industry player, one of the largest

custom research and manufacturing services companies in India. Jubilant has a presenceacross the pharmaceutical value chain: from drug discovery, functional chemistry and clinicalresearch services to custom research and manufacturing for advance intermediates, finechemicals, active pharmaceutical ingredients and dosage forms.

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Measuring and benchmarkingenergy and resource consumption,Jubilant identified gaps andimproved performance withlinks to the bottom line.

Jubilants use of sugarcane molas-ses as feedstock means lower costand greater reliability of supplycompared with internationalcompetitors.

Jubilant re-uses effluents asproduction inputs and for biogas,which reduces operating costs.For example, biogas saves Jubilantthe equivalent of 250 tonnes ofcoal a day, with corresponding costsavings and lower CO2 emissions.

Currently, the payback period forinvestment in biogas plant isthree years.

2. licc t at fmcmmit mt

Many facilities are in economicallybackward regions. Disparitiesbetween employees and the localpopulation plus general distrustof the chemical industry couldcause tensions and disruption.

Jubilants participatory approachto social investment, however,brings tangible benefits: avoidanceof social conflicts, support fromfarmers and ease in obtainingenvironmental clearances.

Jubilant gained the trust ofgovernment, which started usingthe company as a partner onvarious social projects.

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3. Accss t caita ttasac a sstaiabiitac

Sustainability, transparency andaudited reports give national andinternational investors confidencein the company.

Major international investors likeCitiGroup and General AtlanticPartners are considering Jubilantssustainability credentials beforedeciding to invest.

As confidence increased, institu-tional investors increased theirstake from 7% of Jubilantsshares in 2004 to 32% in 2006.

Jubilant business Case Matrix

Environmental

Performance

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