AJANTA PACKAGING

(Written Analysis & Communication)

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 MEMO

To: Mr. Deepankar Agarwal, CEO

From: XYZ, Executive Assistant

Date: April 20, 2013

Subject: Recommendation on the way forward with diversification

Dear Mr. Agarwal,

Please find enclosed report on business impact due to diversification. It contains a detailed
analysis of prospects in glass packaging industry and the impact of enhancing product range
with more varieties.

Thank you for this opportunity.

Executive Summary

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In 2012, Indian Packaging industry was growing at 15% with revenues at US$14 billion. Glass
packaging accounted for 11 percent of the total packaging Industry. Ajanta Packaging with US$ 100
million revenue is one of the primary glass bottle supplier. With the rise of substitutes and changing
trends in associated industries, PET bottles are fast replacing glass bottles. Considering the changes
taking place in the market, Ajanta packaging has two options. First option is to enhance product
range with more varieties. Second option is to continue with the same product line. After evaluating
the options based on growth prospects, impact on revenue and impact on existing portfolio, it is
recommended to diversify to new PET bottle variants.

Contents

1.0 Situation Analysis 1

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2.0 Problem Statement 2
3.0 Options 2
4.0 Criteria for Evaluation 3
5.0 Evaluation of Options 3
6.0 Recommendation 4
7.0 Action Plan 4
Exhibit 1: Market size of glass bottle industry 5
Exhibit 2: Market share of Ajanta Packaging in glass industry 5

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1.0 Situation Analysis
Industry Analysis:

 In 2010, revenue of global packaging industry was estimated at US$ 500 billion with a 10-
year CAGR of 3.1 percent.
 In 2010 Indian packaging industry with a growth rate of 15 percent, contributed 2.8% to
the global packaging industry with revenues at US$ 14 billion. The high future growth rate
is expected due to expanding modern retail, increased income levels and changing
consumption patterns.
 In 2010, revenues for Indian rigid packaging (glass, PET, etc.) is US$ 11.2 billion (80%)
while remaining US$ 2.8 billion (20%) was through flexible packaging.
 In 2012, Indian glass packaging industry with a share of 11% of the total packaging
industry had a revenue of approx. US$ 2 billion (Refer Exhibit 1) and a share of 14% in
rigid packaging segment.

Company Analysis: Ajanta Packaging

 Product range includes glass bottles, vial and jars for Pharmaceutical, FMCG firms and
glass bottles for liquor and wine companies. In 2010 Pharmaceutical PET bottles, printed
bottles and crown caps were also included.
 In 2012 total revenues stood at US$ 100 million with a growth rate of 17 percent on
previous year. Increase in revenue in 2011 and 2012 is attributed to greater penetration of
glass into liquor and wine. In 2010 glass bottle packaging contributed 95 percent of the
revenue. Considering this figure for 2012, Ajanta Packaging had a market share of approx.
4.75 percent (Refer Exhibit 2) in Indian glass packaging industry.
 SWOT for Ajanta Packaging
Strengths: Tie-ups, Strong Procurement and supply chain systems, diversified supplier
base, multiple warehouse and marketing offices availability, quality of service (Customer
loyalty 90% revenue from repeat customers).
Weakness: High dependence on glass bottles.
Opportunity: Venturing into other substitutes like PET bottles.
Threat: Increased consumer inclination towards other substitutes.

Glass bottle Industry issues and trends:

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 Availability of substitutes like Tetra Pak & PET. PET bottles have emerged as a
replacement for glass. Competing features being easy handling leading reduced costs,
toughness leading to increased shelf life, flexible designing and recyclability. Growing
retailing is the driver for PET industry. PET industry expected to have a CAGR 6.4
percent.
 Increased competition, raw material costs, and operational expenses have led to reduced
profit margins. Even though new blow technology has led to reduced weight, increased
cost effectiveness and convenience for glass bottle consumers but it is still less attractive
as compared to other substitutes.
 Changing Trends in Associated Industries:
 Indian Made Foreign Liquor(IMFL): (In 2013 revenue stood at INR 507 billion,
Industry expected to grow at 29 percent.) Rising glass bottle prices has pushed brewers
towards other substitutes.
 Soft Drinks Industry: (2013 Industry revenue of INR 60 billion with industry growth
rate of 5-6 percent) Shift towards usage of PET bottles and aluminium cans to reduce
costs and improve durability.
 Pharmaceutical industry: (Industry revenue of US$ 15.4 billion) Companies are
shifting to PET bottles due to benefits of lower weight, smaller pack size and fewer
breakages. Moreover, PET’s are convenient for disposal and easier to transport.

2.0 Problem Statement

Should Ajanta Packaging diversify into PET bottle portfolio to target newer customers and
markets?

3.0 Options
1) Enhancing product range with more PET bottle varieties.
2) Continuing with existing product range with a focus on greater penetration.

4.0 Criteria for Evaluation

Evaluating based on below criteria:

a) Impact on Revenue

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 b) Growth prospects
c) Impact on existing portfolio
d) Leveraging core competencies

5.0 Evaluation of Options

1. Enhancing product range with more PET bottle varieties:
a) Impact on Revenue: Currently Ajanta Packaging operates around only in 11% of the
total packaging market available. Venturing into new PET bottle varieties will provide
access to the unexplored market and opportunity to capitalize on multiple revenue
streams.
b) Growth prospects: The high growth of IMFL, soft drink, and pharmaceutical
industries along with increasing preference for PET bottles over glass bottles by these
sectors, it is expected that PET bottles will constitute a major chunk of the growth.
The retail sector has become organised, and industry is cutting cost by using more
PET bottles. Introducing more PET varieties will make sure that Ajanta Packaging
keeps growing in the right direction where the industry is headed.
c) Impact on the Existing Portfolio: Due to increased cost and other handling issues,
existing customers of glass bottles are looking out for other options like PET bottles.
Introducing PET varieties will make sure customer are not being lost to competitors.
It will have an impact on the revenue through glass bottles, which was inevitable as
industry trend is changing. With new varieties, these losses in revenue will be
compensated by revenue through PET customers.
d) Leveraging core competencies: Ajanta Packaging has already diversified into
pharmaceutical PET bottles in 2010. The expertise in this sector can be leveraged into
other industries to capture PET market. It can build on its marketing spread and
warehouse availability to compete with existing players in PET segment. Glass being
core competency will be able to attract customers who require both kinds of bottles.

2. Continuing with existing product range with a focus on greater penetration:

a) Impact on Revenue: Glass packaging industry is highly competitive, and margins are
low due to increase in raw material price and due to competitive pricing in the market.
Even though sales turnover is highest in FY 2011-12 at 17%, there is increasing threat

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 of use of substitutes such as aluminium cans and PET bottles due to lower cost and
ease of use.
b) Growth prospects: Increasing preference for PET bottles may lead to saturation in
demand for Glass bottles. Growth prospects with increased penetration is difficult
because of high competition.
c) Impact on the Existing Portfolio: Ajanta Packaging may lose existing customers to
competitors who want to move on with PET bottles.
d) Leveraging core competencies: If PET bottles continue to replace glass bottles, it
will lead to underutilization of capacities like strong supply chain networks,
warehouse availability etc.

6.0 Recommendation
Economies of scope cannot be neglected. Introducing new varieties scores across all criteria.
Thus, it is recommended to enhance product range with more PET bottle varieties.

7.0 Action Plan

Diversification into PET bottles will increase the sales revenue and help Ajanta Packaging to
sustain in the highly competitive packaging industry. However, a study is to be conducted on
the margins that will be gained from the diversification. PET market like all segments of
packaging industry is highly competitive, and the threat of price wars is a possibility.
Additional capacity needs to be added to manufacture the PET bottles, the flexibility to
manufacture variants of PET bottles and breakeven point is to be analysed. Further, new
workforce required and feasibility of Just in time manufacturing capability for PET bottles in
line with the glass bottle is to be studied.

Total No. of Words: 1132

Exhibit 1: Market size of glass bottle industry

Market size of glass bottle industry

Market size of Indian Packaging Industry (2010) 14

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 Growth rate of Indian Packaging Industry 15%

Market size of Indian Packaging Industry (2012) 18.5

Existing Market share of glass bottle industry (2012) 11%

Market size of glass bottle industry (2012) 2

*all market size in biliion US$

Exhibit 2: Market share of Ajanta Packaging in glass industry

Market share of Ajanta Packaging in glass industry

Ajanta total revenue (2012) 0.1

Market size of glass bottle industry (2012) 2

Share of business through glass bottles for Ajanta 95

Market share of Ajanta in glass industry 4.75%

*all market size in biliion US$

Assumption: Percentage share of business through glass bottles remains same for 2012.