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Interview

with Dhruv Puri, Director, Global Drilling Fluids & Chemicals Ltd.

10.12.2010 / Energyboardroom

You founded Global Drilling Fluids & Chemicals Limited twelve years ago in a moment where no other local player was active in this niche. How challenging was that?

It hasn’t been that difficult exactly because by the time we decided to set up Global Drilling Fluids & Chemicals Limited most of the drilling fluids were being imported into India. There was very little technology available internally and, with the exception of the downstream industry, Indians always saw the oil and gas industry technologically dominated by American and Canadian technologies. Even today if you look at exploration companies like Schlumberger, Halliburton, and some Canadian companies, you will see that this perception is still largely in place. So our first focus was to manufacture products nationally, knowing that across all sectors Indians hate to import.

In the oil & gas sector we found that there was absolutely no Indian company in the fluids drilling sector up to twelve years back. Even today we find some companies but they do not cover the whole range of products as Global Drilling Fluids & Chemicals Limited does.
Were you only focusing on the Indian market?

In the beginning we focused on the Indian market, since here it was easier for Global Drilling Fluids & Chemicals Limited to emerge as a competitive player. ONGC was a very helpful organization like a lot of other Indian PSUs were to Indian start-ups. People call them inefficient, but the truth is that they have been really the engine of growth of the local oil and gas industry. So our first clients were ONGC and OIL, they were very helpful to provide us benchmarks to develop our products. In only four years Global Drilling Fluids & Chemicals Limited became the top suppliers for ONGC, the biggest drilling fluids consumer of India.

But to go international was not so easy. Drilling fluids represented 7 to 10% of drilling costs and companies were unwilling to try Indian products for the first time. They thought that, with little costs depending on drilling fluids, it was not worth the risk of trying a new supplier.

Global Drilling Fluids & Chemicals Limited first strategy was to target the big guys instead of going to the end-users. The reason for doing so was because they had the set-ups and the risk appetite to buy from us. Our strength with ONGC showed international players that we had been successfully competing with them in the Indian market, and that we naturally had the technology and quality necessary to provide them what they needed. Therefore, the biggest stepping-stone was to supply to companies such as Halliburton, which were already providing services to ONGC and knew us through them. They served as international windows to open a much broader spectrum of clients for us.

Once Global Drilling Fluids & Chemicals Limited started selling to them, we started to get smaller companies who wanted to be very cost-effective. They started buying from us one of the thirty or so products that they required to test our quality and performance. As satisfaction followed, their orders gained momentum.

How the recent economic crisis affected your activities and your growth prospects?

Actually the financial crisis has been very positive to Global Drilling Fluids & Chemicals Limited. Earlier on, companies would say that chemical costs of around 10% were not important because they were making so much money otherwise. Now that the financial markets and prices came down, every CEO or purchase manager is told to cut costs. More importantly, companies started to take that risk because it was very important for their survival. So you had a lot of companies who decided to cut costs and try out India. This meant that many trial orders were given and Global Drilling Fluids & Chemicals Limited product quality surprised new clients due to our high international standards.

Secondly, the oil and gas exploration sector is a very ‘small’ industry. If you look at their workforce, they change from company to company. This means that there is a lot of discussion and exchanges of ideas between the employees of different companies. You would typically find that if there was an American mud service company working in Sudan they would finish that project, go back home and discuss with their Canadian colleagues ‘hey, there is this Indian Global Drilling company, they have provided us great products at very nice prices’. The growth of Global Drilling Fluids & Chemicals Limited was spurred mainly by these two reasons.

Our international clients’ organic growth represents an important increase on their drilling fluids demand, around 20 to 30% per year. Furthermore, when you are partnering with these global companies in local markets, there is a part of the business that they are never interested to do. But because there was no local infrastructure available, they were forced to do it. Many jobs are subcontracted to us because, as a small company, Global Drilling Fluids & Chemicals Limited is more suitable to cost-efficiently build-up such infrastructure.

When Global Drilling Fluids & Chemicals Limited goes international, what’s your strategy to further penetrate new markets?

When you look at our share in the Indian market, you will see that if you’re the provider to ONGC you’re providing already most of the local market. We constitute almost 60% of the chemicals that ONGC buys, and among the products that are manufactured by us we provide almost 100%.

Because Global Drilling Fluids & Chemicals Limited already has 80% of the Indian market there is not much scope for growth nationally. But internationally we are too small for our growth to saturate in the next 10 years. We started with 100% production directed to the Indian market and nowadays our figure is of only 18%.

In the last two to three years a lot of our costumers have demanded extra products from us – and this constitutes a major strategy to further penetrate international markets. If you’re providing a basket of products to them and they are happy with our services, they will ask for a few extra products they would like us to produce. Even though we might not produce them we start manufacturing or we find a supplier for them. At the start we sell these products pretty much at production costs, but once we build a market for them we move on to set up specific manufacturing capacity and start profiting. So I can say that our strategy is product based, first introducing a few of Global Drilling Fluids & Chemicals Limited’s products to then expand our product and client’s portfolio.

With six manufacturing facilities, how flexible are you to supply the specific demands of your clients?

In India most of our facilities are semi-mechanized, what means that if one of our clients has a small order we can private-label for him as much as we can do it for a big company.

How do you manage to be cost-efficient and how do you finance Global Drilling Fluids & Chemicals Limited growth?

This is an advantage that we have always enjoyed in India. If you look at the American model, when the demand improves they shut down the whole machine and set up a bigger one. In India, because finance has always been expensive, people are very conservative in their spending. Over the years, we have collected small and large machines, all of them are functional. So if you look at one of Global Drilling Fluids & Chemicals Limited manufacturing facilities, we have a machine that makes five tons a day, another that makes fifty tons a day and we have a machine that makes hundreds of tons per day, all side by side in the same manufacturing facility. This is something that gives us a lot of flexibility to work with both big and small companies with very specific requirements.

But sometimes the growth comes so fast that you’re really stuck. Today Global Drilling Fluids & Chemicals Limited is in a situation were our biggest challenge is to manage growth due to a very large demand. And finance is still an issue in India as the financial system has been liberalized only in the higher levels. If you’re looking for a $100 million investment or loan there is provision to get, but if you’re a smaller company looking for smaller funding for expansion it’s a lot more difficult.

We don’t fell that at this point in time going public is a good option. A lot of the funding comes from Global Drilling Fluids & Chemicals Limited’s promoters and from our banks. Another advantage that we have is that when we go to newer markets the payments are in advance in most cases. For instance, when we go to Africa they know that their bank’s reputation is not very good, so the money comes before. Therefore, costumers have contributed a lot to our funding. So as far as finance is concerned, Global Drilling Fluids & Chemicals Limited’s growth has been greatly financed through revenues and promoter’s resources. However, if we had a form of large external funding, it would allow us to grow much faster.

You have to understand that in India 100% growth is nothing crazy. A lot of companies achieve it, it’s not very abnormal. If you look at the returns, 30 to 35% is something very common; last year even mutual funds have 25 to 30% returns. So yes, if you go public people would be happy to invest. But as long as we continue to grow at these higher rates, we will create value to ourselves before thinking on attracting other shareholders to our business.

What are your main expectations for Global Drilling Fluids & Chemicals Limited in the next three to five years?

We would like to further develop Global Drilling Fluids & Chemicals Limited brand name to a very large extend. In the coming years we will not only be manufacturing chemicals we will also be entering the service sector. In order to do so we will try to buy-out another company so we become forward-integrated. Global Drilling Fluids & Chemicals Limited has reached a stage where we fell that backward integration is not that critical since we have enough strengths. If you’re a trader with a strong manufacturing base behind you’re always in advance above other traders. We have already built up that advantage, now we need to capitalize on it.

For the coming years we expect the existing business to grow at very fast rates and to, as I said, possibly acquire current partners. Secondly, we would like to develop our presence in foreign markets going from representative offices and agents to be actually based in our main markets directly or through JVs.

For instance, by next quarter we expect to have a full-fledged warehouse facility in Dubai that will cater the GCC area. We are looking at some sort of set up in Nigeria because that is a very insulated market from the rest of the world. In Africa we are looking for JV partners because there you do need the local contend. We are also expanding into Turkey because Iraq is an important market catered by there. In Europe, Dubai or even Malaysia we are looking at having Global Drilling Fluids & Chemicals Limited own subsidiary.

As a final message, how would you like the international oil and gas community to perceive Global Drilling Fluids & Chemicals Limited?

We would like to portray Global Drilling Fluids & Chemicals Limited as a complete solution provider. This is something that has come about in the last three years and was not something that we decided to do. Instead, our costumers gave us the inspiration by always demanding a higher range of products and services from us. As a result, if you look at our turnover, about 20% is made of products that we don’t usually manufacture, where we had no know-how to even trade-in, but our costumers insisted that we could further supply them. This is very satisfying. As a result, last year Global Drilling Fluids & Chemicals Limited was awarded the OceanTech award for the best oil field company in India.

If you look at the Middle-East, Global Drilling Fluids & Chemicals Limited has not been recognized as a low-cost producer, but as we start distributing our manufactured products ourselves, there will be a much greater competitive advantage. Even if Global Drilling Fluids & Chemicals Limited went with higher prices to Dubai, we would still be 20 to 30% more competitive than our closest competitors. With the globalization of the world economy we have to be a very lean and efficient organization. This is what Global Drilling Fluids & Chemicals Limited has been and we don’t plan to loose it as we grow big. We have been able to avoid that – each of our facilities run totally independently and we have very loyal employees that give us our greatest strength and competitive advantage.

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