Memo

To:
Deepankar Agarwal
Partner,
Ajanta Packaging

From:
Executive Assistant,
Ajanta Packaging
06th September 2020
Subject: Analysis of various factors while determining the growth strategy for the company

Situation Analysis:
As per the latest reports, customer preferences in the packaging department have shifted from
traditional packaging to more flexible and convenient forms. Consumers have become more
educated, aware, and are now demanding superior quality at the lowest price. The packaging
is a factor that contributes to revenue by catching consumers' perception but adds a cost to the
product. The more the package's price, the more will be the product's price, and in a highly
competitive market, consumers tend to shift to substitutes.
 
The Indian packaging industry in 2010 stood at US$14 billion and is estimated to be US$23
billion in 2014, registering the growth rate of 15% per annum. Though there is scope in the
packaging industry, the share of glass packaging was only 11% of the total packaging in 2012
and is estimated to witness a sharp decline in the coming years.
 
The glass industry is an oligopoly industry, dominated by a few big suppliers, who indulged
in undercutting the price to expand the customer base. It resulted in a lower return in the glass
industry. With aesthetics gaining popularity, buyers are now demanding unique packaging.
The demand for products like soft drinks and beer has become seasonal over the years.
 
Ajanta Packaging is characterized as a quality-focused and cost-effective firm. The strong
back-end operations with efficient supply chain systems have been a competitive advantage
for the company. The firm emphasized on providing on-time delivery, resulting in higher
customer satisfaction. Having acceptable customer relationship management practices, the
firm enjoyed goodwill in the market, and 90% of its' income comes from regular customers.
 
Compared to the previous year's data, the percentage of total income has increased from last
year, but it has never crossed the benchmark set up in 2009. Operating profit percentage has
declined over the years, registering only 23.96% compared to 40.03% in 2008 (Exhibit 1). It
is because the operating profit has remained stagnant over the years despite the packaging
industry's growth. Even with diversification into glass printing services and reducing glass's
weight by 25-30%, the glass packaging department's revenue has declined. (Exhibit 1:
Operating Profit Excluding Other Income). Since its inception, Ajanta Packaging has been
over-reliant on the glass sector as 95% of its proceeds are from the glass sector.
 
PET Bottles, as an alternative to glass bottles, has gained widespread acceptance worldwide.
These are less costly, recyclable, easy to carry, lightweight, limpid, and durable leading to
longer shelf-life. By 2020, the global market demand for PET bottles is expected to reach
23,452,281 tons. 
 
The high cost of raw materials due to inflation resulted in increased glass bottles' prices. The
Indian Liquor industry is, therefore, now looking for flexible packaging and other
alternatives. Tetra Pak cartons have become quite common in the beer industry. Along with
PET bottles, aluminium cans have now acquired a significant share in the soft drink and the
liquor industry. These alternatives have been successful in replacing the old traditional glass
bottle packaging. The Indian pharmaceutical industry, estimated to become US$ 15,490
million by the end of next year, has also shifted its focus primarily on PET bottles since glass
bottles were heavy, difficult to store, transport, and have high instances of breakages.  
 
With changes in consumers' attitudes and widespread availability of cheaper alternatives,
there is less scope for Ajanta to continue with the current product line.
 
Problem Statement: 
Whether Ajanta Packaging should indulge in the diversification in its product line, shifting
the focus to flexible packaging and PET bottles, or believe in its strength and continue with
the same product line? If diversified, what will be the new product portfolio of Ajanta
Packaging?
 Word Count: 604 words

EXHIBIT 1: Selected Financials for Ajanta Packaging

(In US$ Millions)
2012 2011 2010 2009 2008
Sales Turnover 102 87 79 73 61
Other Income 6.1 3.6 3 2.8 2.2
Total income 108.1 90.6 82 75.8 63.2
% change (As compared to previous year) 19.32 10.49% 8.18% 19.94% -
%
Total Expenses 82.2 68.9 56.6 50 37.9
Operating Profit 25.9 21.7 25.4 25.8 25.3
Operating Profit as % of total income 23.96 23.95% 30.98% 34.04% 40.03%
(Operating Profit Percentage) %
Operating Profit Excluding Other Income 19.8 18.1 22.4 23 23.1