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Case Study Uflex Ltd.



This case is about one of the Indians largest manufacturer of flexible plastic
packaging company known as Uflex Ltd. After its great success and dominance in
Indian market, company has two options; either the company should allocate its
resources locally and capture Indian market or manage its funds globally. This case
talk about various expansion facts and figures and risk factors associated with it.

Plastic films, packaged products, packaging cost, packaging films, food packaging,
packaging materials

UFLEX is a Multi Million Group headquartered at Noida, on the periphery of New
Delhi, India and having manufacturing facilities in India, Dubai, UAE and Mexico
USA, offices in Europe and North America and market presence in 80 countries
around the world. UFlex facility enjoys ISO 9001 and ISO 14001 certifications and
has FDA and BGA approvals. For their products, UFlex is part of the D&B Global
Database and winner of various prestigious national and international awards like
the top exporter of BOPET and BOPP films, and the Worldstar award for
packaging excellence. FPA, AIMCAL and the Dupont Awards in 2004-2005 are
the latest in this series. UFLEX Group came into existence in 1983 and has grown
into one of the biggest multi integrated packaging groups in the world. The group

Case Study Uflex Ltd.

is a multi faceted organization which has backward integrated its operations from
manufacture of Polyester chips, Films (BOPET, BOPP and CPP - both in plain and
metalized form), Coated Film, Laminates, Pouches; Holographic films Gravure
cylinders, Inks and adhesives to all types of packaging & printing machines,
offering total flexible packaging solutions to the entire world.

Uflex is currently promoted by Mr. Ashok Chaturvedi who is Chairman and
Managing Director of the company. Under Mr. Chaturvedi's guidance the company
has shown tremendous growth over past few years.

UFLEX is the only integrated packaging unit of its kind in India. Under a single
roof – housing a multi-million dollar integrated infrastructure – it has proven
competencies and certifications from ISO, BRC and HACCP.The Company is a
one-stop shop which offers the entire range of innovative packaging solutions. The
company’s back-end supports the demands from six continents, 91 countries and
several hundred customers. Some of the best brands in the world work with
UFLEX, to bring ideas to life. The list is a veritable who’s who of international

Case Study Uflex Ltd.

business – Nestle, Unilever, GSK, Perfetti, Cadbury, P&G, Walmart-Bharti, D S
Group, Haldiram’s, Britannia, Lays, Castrol, and Colgate Palmolive, Godrej,
Pillsbury and dozens of others. Such is the dominance of UFLEX in India that nine
times out of ten a customers’ preferred choice of an FMCG brand would have been
dressed in UFLEX technology.

UFLEX has served these brands not only through quality products but also through
regular innovations. It would hardly be surprising to know that India’s fastest
growing flexible packaging company has won every significant national and
international award. Amongst the more prominent ones are the Top Exporter
Award of BOPET and BOPP films; the 5-Star India Packaging Award; the World
Star Award; the DuPont USA Global Packaging Award; the Flexible Packaging
Achievement Award in the US and the Award for Waste Management in
Switzerland. In pursuing excellence, UFLEX has also joined hands with world
leader Hosokewa Yoko of Japan to bring to India a remarkable packaging solution:
sleeve-in-pouch (SIP). This technology has been used for brands like TATA tea
and Haldiram’s. Other innovative products include the zipper and slider action,
tamper-evident packaging – Z-Step – as also WPP bags and 3-D pouches.
UFLEX has invested heavily in a manufacturing plant in the UAE. This ultra
modern facility is certified with ISO 9001:2000 for Quality Management Systems,
ISO 14001:2004 for Environmental anagement Systems Standards, ISO
22000:2005 for conforming to Hygiene and Food Safety Application for Packaging
and the HACCP-based Food Safety System Standards.

The UFLEX story isn’t just about supplying to manufacturers. The company
spotted a need and created – the zip pouch, a versatile, modern and a hygienic
storage solution that meets the changing food habits of Indian consumers.

Case Study Uflex Ltd.

Global operations
Apart from its manufacturing plants in India, Uflex has plants in Dubai and
Mexico and is setting up one in Egypt. It has also started work on increasing
capacities in Mexico and has plans to expand Egypt in after the completion of
phase 1. The Dubai and Egypt plants cater to the growing demands of Middle East,
African and Southern European markets, while the Mexico plant looks at the
Americas. Uflex exports its goods to more than 100 countries giving them a global

UFLEX is largely a business-to-business brand. It periodically puts forward
communications relevant to this audience. A corporate campaign released recently
has, however, cut across consumer profiles and showcased the achievements of the
company. The attempt was to build confidence and put on display the vast and
versatile product range and the clients – both big and small – who patronize it.
Besides the corporate campaign, largely aimed at decision-makers, UFLEX has
been able to connect with housewives with its Zipouch range of storage bags. The
campaign was rich in visual appeal and amply demonstrated the products ability to
retain freshness longer. A measure of its success is the niche that the product has

Case Study Uflex Ltd.

been able to so quickly carve for itself. Besides this, the company participates in
major domestic and overseas exhibitions where the core competencies of UFLEX
as an integrated packaging giant are showcased.

Global Packaging Industry
The global packaging industry is estimated to be $505 billion, with Western
Europe and North America accounting for a majority of the world’s flexible
packaging demand at 28% and 27%, respectively. Flexible packaging is a $26.4
billion industry in the United States. Flexible packaging is the second largest
packaging segment in the U.S., garnering 18 percent of the U.S. $135 billion
packaging market. The flexible packaging industry directly employs a little over 79
thousand people.

Increasing demands for packaged goods
Indian packaging market is growing at an annual rate of 12 to 15% and this is
expected to grow at a quicker pace over the next couple of year. The per capita
consumption of packaged food in India has moved up significantly from 5 to 25%.
However this is yet significantly lower than the developed markets which have it
above 80% leaving large opportunity for growth. New entry of FMCG companies
in India will enhance demands for flexible packaging going forward. The Indian
packaging industry itself is growing at 14-15% annually. This growth rate is
expected to double in the next two years. In USD it is 14 billion and growing at
more than 15% p.a. These figures indicate towards a change in the industrial and
consumer set up. India's per capita packaging consumption is less than USD 15
against worldwide average of nearly USD 100.

Case Study Uflex Ltd.

Raw Material Manufacturers (RMM)
Aluminum foil manufacturers and manufacturers of plastic films such as
• Polyester films,
• Low density polyethylene (LDPE) films,
• High density Polyethylene (HDPE) films
• biaxially oriented polypropylene (BOPP) films
cater to the flexible packaging segment. These raw materials are used by the
converters to convert it into packaging material used by FMCG, Pharma and
various other industries. Uflex has a large capacity both in India as well as
overseas to produce raw materials such as plastic films, hologram sheets, inks and
adhesives and various other applications used by converters to make packaged

Converters are engaged in the processing of packaging material into packaging
products and they act as the link between the customer and the raw material
manufacturer. Nearly 60% of BOPP films and around 100% of polyester films are

Case Study Uflex Ltd.

used only after conversion. In the flexible packaging sector, conversion involves
the coating, lamination, metalizing and printing of films. Conversion provides a
value addition of around 35%-40% on the basic raw materials. Uflex has large
domestic converting capacities for making range of packing products.

Increasing Capacities
Uflex currently has manufacturing capacities in India, Dubai and Mexico. The total
installed capacity is 2, 14,560 MT/annum for films and packaging divisions. Uflex
has commenced work to expand both its Indian and overseas manufacturing
operations. Post the expansion the capacities of their overall plastic film and
packaging goods will raise to 3,41,960 MT/annum. These expansions are expected
to get commissioned gradually starting FY11 and will be fully operational by the
end of Fy12.

Domestic Expansion
Uflex manufactures various products which are directly used for packaging and
packaging material. It has current combined capacity of 1, 62,960MT pa to
produce films and packaging materials. It also has capacity to manufacture 47, 000
numbers of rotogravure cylinder and shims , it can produce 700 lac sheets of
hologram sticker sheets pa, they can manufacture 1570 numbers of packaging and
converting machines in a year which are used in flexible packaging industry, they
have the capacity to produce 72,000 MT pa of PET chips which is used as a raw
material to produce plastic films, besides that they also manufacture printing inks
and adhesives with a capacity of 9600 and 6000 MT pa respectively. Uflex is
expanding its packaging production in Jammu by 24,000 MT per annum.

Case Study Uflex Ltd.

Expansion at Mexico
USA is the biggest consumer of packaged goods worldwide. Seeing the
opportunity Uflex has successfully commissioned a plant of PET film with a
capacity of producing 26400 MT of film in Mexico. It has undertaken to enhance
this capacity by another 26400 MT of PET films, doubling the current capacity.
The management has indicated they expect the plant to get commissioned by mid
FY11E. The full benefit of the same will be felt in FY12E.

Case Study Uflex Ltd.

Resilient in times of recession
Uflex sound business profile is driven by the growth in FMCG, Pharma and Food
and Processing Industry. All these industries are not as severely affected during
recession, as they produce and sell goods and service that consumer’s use on a
regular basis, regardless of their economic status or income level. Uflex major

Case Study Uflex Ltd.

revenues comes from companies like - Britania, Nestle, Cadbury, P&G, Gillette,
Dabur, Colgate, Godrej Consumer, Castrol, Henkel, ITC, Pepsi, Coca cola etc.
hence its inherent growth story is based on the growth of these companies which
are not very much affected by the economy slowdowns.

New Innovations
Uflex were the first to offer both stitched and non-stitched WPP bags. A problem
with stitched bags is that they suffer from permeation of oxygen and moisture and
ingress of mites through the stitching which causes deterioration of sensitive
products and foods. The permeation can be reduced by using smaller stitches but
this affects the strength of the joint; in any case, the permeation cannot be totally
eliminated. Uflex have overcome the problem by developing hermetically sealed
bags using hot-melt closing. Another new development being pioneered by Uflex
is a pinched bottom construction consisting of both side and bottom gussets that
enables the bags to stand up on the bottom and be stacked in that configuration.
This is a big plus as the main front and back panels of the bag become fully
available for display and merchandising. Conventional WPP bags do not stand up
well on their bottom even if provided with side gussets; this makes it possible for
them to be stacked only while resting on the main panels with only the narrow side
panels available for display.

Risk Factors

Rise in Input costs
The largest component of cost involved in making flexible packaging films and
products is from the attributes to raw materials. The PET resin used to make films
as well as the polymers that go into producing packaging films are derived from

Case Study Uflex Ltd.

petroleum. Given the volatile trend in crude oil and demands for polymers for
other applications the pressure on the input cost is expected to fluctuate. Flexible
films manufacturer and converters have been able to pass on these costs in the
change in raw materials. We believe they would be able to do this going forward

Increase in competition
The competition is increasing with the addition of new capacities and emergence
of new global players especially from China. Entry barriers in flexible packaging is
not very high given the easy nature of business, however to complete the huge
orders from FMCG and Food processing industries one need to have large capacity
base and a performance track record. Continuous innovation in terms of design,
pattern, style and most importantly the quality of packaging have always plays a
crucial role in Indian flexible packaging market.

Higher equity dilution at low prices
Given the European problem overhang rising of funds through equity at fair
valuations may be difficult. Uflex might have to dilute equity at a low price if
markets don't rebound over the next year as they might need funds for their
expansion plans. Equity Dilution at lower levels could affect our EPS target and in
turn lead us to lowering our estimates and target price. However we do not see this
as too much of a concern as the funds required may not be too large and could be
for the short term funded through debt.

Change in government policies
Uflex has started implementing plans to put manufacturing capacity in Egypt. Most
of the raw materials for packaging industry in Egypt are heavily dependent on
imports; any change in government policy can have direct impact on the

Case Study Uflex Ltd.

manufacturing cost of the company. Environmentalists and the government are
concerned about the increasing amount of waste in Mexico and the lack of space
for its management and disposal of plastic waste. For example, PET bottles posed a
problem over 2006 and 2007 due to the lack of infrastructure for recycling;
however action is being taken to increase the level of recycling of polyester based

Gap between actual cost and standard cost
At Uflex, there was a huge gap between the actual and standard costing in the past
28 years of its operation. Reducing this difference helps clients know the actual
margins; more accurate estimates also help in reducing wastage of material.

The solution used at Uflex is designed on the Oracle E-Business Suite. Every
machine used in production is linked to the Oracle server. This includes the
weighing machine, ink dispenser, CRM machine, even the attendance system and
genset. This integration helps monitor energy and material consumption in a few
clicks. Everything is weighed and measured before and after printing. This helps
determine actual consumption and the associated costs.

As a result

• There is reduction in wastage from 12 to 4.3 %.
• 125 crore per year saving in ink consumption.
• Business analytics helps in improving market share and profitability.

Case Study Uflex Ltd.

1. After such risk factors should the company focus on local market or expand
2. What other strategies should company follow in order to reduce its wastage?
3. How should Uflex market itself globally?