PROMISING INDIA

A lot has changed in India over the last decade. With consistent macro-economic growth and

rapid urbanisation, an average Indian has more income at his/her disposal. The urban middle-class Indian is no

longer willing to compromise when it comes to a quality standard of living. This tendency combined with the enormous opportunities in sectors like pharmaceuticals, Fast Moving Con-sumer Goods (FMCG), retail (both the traditional brick-and-mortar and

online) have fuelled the stupendous growth of the packaging industry in India.

Companies are fast realising that in the present market scenario volume-play has to be as good as value-play. Increasingly, FMCG as well as

A PACKET FULL OF SUNSHINE

From ketch-up, pickles and juices to cosmetics, medicines and auto-lubricants, packaging industry is playing a more noticeable

role than ever before. Neeraj Bidlan explores where this sector will take India’s ship of progress.

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URBANISATION AND CHANGE IN LIFESTYLE HAVE CERTAINLY TRANSFORMED THE CONSUMPTION PATTERNS. MOREOVER, INCREASED AWARENESS ABOUT PRODUCTS FOR WOMEN’S HEALTH AND BEAUTY, CHILD CARE, MEN’S GROOMING HAVE SPURRED DEMAND FURTHER.

Ashok Goel Vice-Chairman & MD,

Essel Propack

DRIVING GROWTHIf we take a look back, Indian pack-

aging sector has always been quite fragmented with un-organised players having a larger pie of the markets. With the company-client base becom-ing increasingly aware of packaging needs for their products, the sector is getting far more organised players.

According to the data (available in the public domain) from Indian Insti-tute of Packaging (IIP), the packaging sector is presently valued at $27.6 billion and is expected to reach $43.7 billion by 2016, and $60 billion by 2020. Clearly, the opportunities ahead for the industry are vast. On the other side, India’s per capita consumption in terms of packaging is a mere 4.3kg, whereas other developing countries like China & Taiwan have about 6kg and 19kg per capita consumption respectively. With the Indian middle

class population expected to reach 580 million in 2025 from 50 million currently, Indian packaging sector is on the verge of receiving a major volume thrust.

Ashok Goel, Vice-Chairman & Managing Director of Essel Propack agrees, “Urbanisation and change in lifestyle have certainly transformed the consumption patterns. Moreover, increased awareness about products for women’s health and beauty, child care, men’s grooming have spurred demand further.”

It cannot be denied that India is the fifth largest retail destination globally and has emerged as the second most attractive market for investment. Foreign direct investment (FDI) in multi brand retail will be a boon for the packaging industry in the up-coming years. At the same time, the necessary conditions for the foreign investors to source raw material from within the country will act as an added advantage.

Apart from this, the Union Govern-ment’s recent ‘Make in India’ cam-paign to promote the country as a manufacturing hub will mobilise more market options for the packaging in-dustry. The implementation of Goods and Service Tax (GST) bill also augurs well for the sector.

INDUSTRY STRUCTURE

Indian small-and-medium en-terprises (SMEs) manufacture more than 600 to 700 types of packaging machinery and equipment in India. The case conversion cycle of the SME units has been satisfactory since the past few years, which reflects the potential of SMEs in the country. With the Indian government’s increased focus on SMEs, Indian packaging industry would certainly be benefitted. However, as mentioned earlier, it is the growth of end-user industries like pharmaceutical and FMCG that will add sustainability and scalability to the Indian packaging industry. While these sectors are already emerging as winners, food grade packaging is also providing opportunities with margins even ranging to the tune of 20-22 percent.

pharmaceutical companies are using packaging as the new avenue to estab-lish products and build brands. This is where packaging industry is becoming part of India’s next growth story.

While walking through a depart-mental store and picking up groceries, the first thing about products that appeal to you are their high quality and attractive packaging. Fresh Juice in six-layer tetra cartons, cookies and tea leaves in re-sealable bags, health drinks in metal cans, and shampoos in use-and-throw sachets: there’s anything and everything to catch the consumer’s eyeballs.

Furthermore, the departmental-store trend is also catching up in Tier II and Tier III cities as manufactur-ers are opting for better packaging to maintain a longer shelf life for their products. Meanwhile, the recent emer-gence of online retail sector has made safe delivery (and thereby adequate packaging) of products a top priority.

All this indicates that the role of packaging has become more dynamic than it ever was.

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Let us take a look at the various kinds of opportunities provided by different sectors to the packaging industry.

Pharmaceuticals: Gone are the days when medicinal herbs bundled in a leaf used to be the only form of medication available to cure all your ills. With a revolution hitting the pharmaceutical industry, suitable packaging has become indispensable. Drugs need more care in the way they are packed. They need to be protected from biological contamination and physical damage. Their potency to cure disease should not be hampered by counterfeits. And last but not the least, they should be designed to be child safe. With so much required from a pharmaceutical packaging, in-novation has to go hand in hand with economical solutions.

Currently, the pharmaceutical industry is witnessing radical changes and is growing at an impressive rate. In the coming years, India’s drugs and pharmaceutical sector is expected to grow at a compound annual growth rate (CAGR) of 14 percent to reach a turnover of `2,91,000 crore ($47.06 billion) by 2018.

For companies involved in pharma-ceutical packaging, these are exciting times. Buoyed by the booming domes-tic pharmaceutical sector, the rising segment is on a growth trajectory at a CAGR of 15 to 20 percent.

Consumer Goods Packaging: industry is pacing forward along with the country’s fourth largest sector, the FMCG segment. The market size is estimated to grow to US $74 billion by 2018. Given the number of major players in this sector, packaging plays a vital role in creating a product’s pres-ence against the competitors. With consumers increasingly looking for features like leak-proof, easy-to-carry and an eco-friendly packaging mate-rial in the items they buy, the scope of the packaging industry has widened even further.

Usually, packaging companies have a contract of 5-7 years with an FMCG company. This ensures stable growth oriented opportunities for major packaging names like Essel

Propack, Manjushree and Moldtek Packaging. Additionally, changes in packaging trends are opening newer product platforms. For example, conventional bottled milk containers have been replaced by flexible plastic

bags and recently with tetra packs, aluminium tubes for toothpastes have been rejected over laminated tubes, packaging of shampoos has switched to glass and high-density polyethylene (HDPE) containers and sachets. A stable growth in the household care, personal care, food and beverages segment hold a lot of promise for the packaging industry as well.

Food Processing Industry: Food processing industry is one of the largest industries in India, ranking fifth in terms of production, growth, consumption and export. Recently, the Government of India has adopted major policy decisions of commer-cialising agriculture and developing the food processing, preservation and packaging sectors. Furthermore, India is the second largest producer of vegetables and third largest producer of fruits in the world.

According to industry estimates, the packaged food segment is ex-pected to grow 9 percent annually, to become a `6-lakh-crore-industry by 2030. Moreover, food packaging domi-nates the overall industry in terms of volumes and growth. This is expected to be dominated by milk, sweets and processed poultry products’ packaging going forward.

Lubricants: The Indian lubricant’s industry is the fifth largest in the world in terms of consumption after the US, China, Russia and Japan. Improvement in road infrastructure, increased usage of automotive trans-portation, rising demands from the rural areas, and growing support from the government are some of the fac-tors adding volumes to the lubricant’s market. This sector is growing at the CAGR of 18 percent and is expected to exceed $7713 million by 2017 due to major push from the automobile industry. A positive effect of the sec-tor’s growth will also be seen on the packaging companies that provide for the former sector’s packaging require-ments.

After the long analysis of the sec-tors that are steering the packaging industry’s progress, we will now focus on some of its leading players like Es-sel Propack, Manjushree Tech, Uflex, Mold-Tek and Balmer Lawrie.

ESSEL PROPACK Essel Propack is the world’s largest

packaging company with 25 units operating across 15 countries includ-ing India, the US, UK, Poland, Ger-many, and Egypt. Recently, they have expanded operations in Mexico and Columbia to tap the Latin American business markets. Its products are ex-tensively used for packaging purposes in segments such as cosmetics, foods, pharmaceuticals and toothpaste.

In India, the company is a pioneer in the production of laminated tubes, which has replaced aluminium tubes. Currently, Essel Propack enjoys 33 percent of the global market share for oral care tubes. It has also witnessed growth in cosmetic and pharma seg-ment in markets like the US.

One sector on which Essel Propack

Indian SMEs manufacture more than 600 to 700 types of packaging machinery and equipment in India. The case conversion cycle of the SME units has been satisfactory since the past few years, which reflects the potential of SMEs in the country.

PROMISING INDIA

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is concentrating to create its brand value is the FMCG sector. The term ‘fast’ is always associated with FMCG because of its speed in all aspects in-cluding product delivery and product development. Since packaging plays a crucial role in defining the overall presence of the products, Essel Pro-pack is scaling up packaging solutions by specialising in laminated tubes, customised closure and dis-pensing systems.

In terms of financials, the company registered a growth of 16 percent in global sales and 22 percent EBITDA growth in FY2014, which was on top of similar performance in the previous year. The recent ramping up of the Po-land unit and the long term contracts in Europe have brought a strong turn-around in operations in the region.

With respect to the industry, Essel Propack has a decent EBITDA margin of 18 percent, and PAT margin of 5 percent. Its varied line of products catering to so many different seg-ments make this company’s growth story very promising in the packaging sector.

MOLD-TEK PACKAGINGMold-tek’s grade plastic packag-

ing products comprise of containers for pharmaceuticals and cosmetics, child-resistant caps and bottles, and blow moulded shampoo and medicine pack catering to leading brands of paints, lubricants, pharmaceuticals, FMCG and cosmetics. It is a leading manufacturer of high quality rigid plastic packaging product with over 25 percent market share in lube and paint packaging segment. Additionally, it is also a domestic leader in injection moulding, with 6 plants of around 25,000 TPA capacity.

Another product that has placed Mold-tek in the big league is pail packaging (cylindrical container).

The company manufactures airtight and pilfer proof containers for paints and lubricants. Further, Mold-tek has pioneered in in-mould labelling in India. With most companies switching to this over traditional labelling, the company stands to reap major benefits in future.

To meet the diversified requirement of its clients, Mold-tek is expanding its operations through plans in the pipeline to expand capacity by 50 percent with an outlay of `4 crore. A manufacturing unit with a capital layout of `10 crore is due to be set up in north India. The management of the company sees a prospective 25 percent contribution from the food process-ing segment; the segment currently contributes 5-7 percent to the business of the company.

On the financial front, Mold-tek have had a top-line and bottom-line CAGR of 19 percent and 5 percent

respectively for the past 5 years. The company registered a growth of 57 percent in the bottom-line at `9 crore in FY14 over the last fiscal. It has an EBITDA margin of 24 percent and is improving on Y-o-Y basis, which exhibits the company’s potential and sustainability.

MANJUSHREE TECHNOPACKManjushree is involved in the man-

ufacture of plastic packaging products like containers and jars for multi-national companies in the FMCG, pharmaceutical, food processing and agrochemical sectors through an ongoing process of research-oriented design and development. The com-pany is a major player in the beverages segment. With its base in South India, Manjushree dominates 60 percent of the southern beverages’ market. The company also has plans to expand and enter new segments like liquor,

dairy and edible oil packaging. Over the last few quarters, companies such as United Spirits, Reckitt Benckiser, Bacardi, Diageo and Big Cola have been added to Manjushree’s client list for PET bottles.

In recent times, the company has adopted certain strategies to strengthen its position aand relation-ship with the clients. These include the successful commissioning of the PET preforms division at Bidadi in Bangalore, brown field expansion of facilities, and unification of operations at blow moulding division. Financially speaking, the company’s top-line and bottom-line has seen a CAGR growth of 31 percent and 25 percent respec-tively over the last 5 years. Further, an EBIDTA of `82 crore in FY14 prom-ises a decent outlook. Going forward, on the back of research in innova-tion and business development and efficiency in operations, Manjushree would hope to strive for better margins.

THE ROAD AHEADWith the waves turning their course

in favour of the Indian economy, relatively new sectors like the pack-aging industry look promising. As discussed earlier, the numbers reflect positive as well consistent growth for the companies in this sector. How-ever, like any other industry, there are certain challenges as well. The margins of the companies have witnessed some pressure due to the presence of the unorganised players. However, GST is expected to benefit the organised play-ers more than the unorganised ones. All in all, with improving infrastruc-ture and favourable business environ-ment for manufacturing in India, packaging sector has a huge potential and promises to add the extra spark to India Inc.’s growth story.

FINANCIAL PERFORMANCE (`/CR)

Particulars FY11 FY12 FY13 FY14

Net sales 1408.34 1583.71 1831.77 2126.63

EBITDA 273.55 274.89 343.36 375.74

% Margin 19% 17% 19% 18%

PAT 47.27 51.35 80.96 107.83

% Margin 3% 3% 4% 5%FINANCIAL PERFORMANCE

(`/CR)Particulars FY10 FY11 FY12 FY13 FY14

Net sales 149.03 216.18 309.78 361.22 437.69

EBITDA 25.61 41.95 50.2 69.75 82.33

% Margin 17% 19% 16% 19% 19%

PAT 10.57 14.59 20.51 24.14 26.14

% Margin 7% 7% 7% 7% 6%

FINANCIAL PERFORMANCE (`/CR)

Particulars FY10 FY11 FY12 FY13 FY14

Net sales 121.07 149.07 175.11 192.19 255.63

EBITDA 14.95 16.41 17.54 14.5 21.03

% Margin 12% 11% 10% 8% 8%

PAT 7.36 8 9.33 5.78 9.07

% Margin 6% 5% 5% 3% 4%

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