Ajanta Packaging Report

08-04-2013

Deepankar Agarwal

Ajanta Packaging

Dear Deepankar,

I write to you this partial WAC Report (Situation Analysis only) after going through the case and thoroughly analysing each and every aspect of the case.

Pranav Sharma

Situation Analysis:

Ajanta Packaging, a three-decade old company, established in 1981, works in the packaging industry with a flagship of glass bottle trading and packaging. It has grown from an initial capital investment of 500 dollars to among the top suppliers of glass bottles in India with a generated revenue of over 100 million dollars. Ajanta Packaging is customer-centered, loyal and cost-effective in its approach. Although 95% of the company’s revenue comes from glass bottles and 90% of it coming from repeat customers, Ajanta Packaging has tried to diversify in adopting fully computerised system, offering printing services, adopting pharmaceutical PET bottles and crown caps trading.

The major share of the company is still in glass packaging and since 2011-12, the industry had bolstered well, with adoption of new technologies, significant reduction in weight of glass bottles (nearly 25 to 30 per cent) and increase in demand and productivity. Indian packaging industry is 2.8 per cent of its global counterpart (14 billion dollars on 500 billion dollars) and is growing at 15 per cent currently in terms of revenue. The share of Ajanta Packaging is mere a figment of the nation’s packaging industry (100 million dollars on 14 billion dollars) and hence has very bright prospects of growth.

In recent years, substitutes of glass packaging like PET bottles, tetra packing and aluminium cans have started gaining widespread acceptability by the customers, retailers and distributers. The common advantages offered by these alternatives over glass bottles include inertness to external environment, handling convenience, and cost benefits. PET bottles offer light weight, durability, longer shelf life, clarity, easier recyclability and allow for better designing of the package. Global demand for PET bottles is expected to grow from 6.4 million in 2000 to 23.4 million in 2020. Another aspect is the increase in competitiveness among the glass-bottle industry players and increase in the price of raw material, operational costs due to factors like warehouse rents and freight charges.

The glass packaging industry depends mainly on three industries i.e. Indian Made Foreign Liquor (IMFL), Soft drinks and Pharmaceutical industries. The IMFL industry is 507 billion dollars in 2013 and is expected to grow to 1400 billion by 2015 with a CAGR of 29 per cent due to factors like growing GDP, relatively younger population (median age 25 years in 2010), acceptance of social drinking by both men and women, deregulations by state governments and also the forecast of possible reduction in import duty of wine and spirits (150 per cent to 50 per cent) in 2013. Due to the shift of consumers to premium liquor brands, domestic brewers are cutting cost on packaging and hence opting out of glass bottle packaging. Many companies in the soft drink industry are also shifting to PET bottles as they offer better handling, aesthetics and reduced costs. The pharmaceutical industry is also shifting to plastic bottles due to the common advantages and also the ease of display of information like expiry date, storage instructions and contents on the product.