70-80% of input material in the print process is produced using the imported raw material. How will this affect your business, plus the pricing negotiations with your customers?
I see a pro and a con to this situation, the pro is that the quality of raw material we get as an import is excellent; there is a consistency in their quality. Thus we can offer superior print output to our customers.
The con is that even after so much noise about the make-in-India offer, no raw material supplier in India has seriously looked in the direction to lower the imports of their raw materials. Hence we continue to stay highly dependent on dollar fluctuations.
It is also seen that recent raw material price hikes are about global situation arising out of supply constraints due to environmental issues, key supplier sites shutdowns, increasing trade barriers, commodity and crude oil pricing among others and not only Forex fluctuations.
While all pressure is stepped only on the converters, the raw material suppliers like to push the pricing based on a weaker rupee, but the same advantage is not passed on once the rupee is stable. If we see last two years, the rupee has been at 68, getting to 64 levels before the current situation of getting back to 68. The converters did not see any price benefit when the rupee was stable at 64. Ideally, if there is so much dependency on the Forex, then, the raw material pricing should be tagged to global dollar prices. We can then have price revision based on the Forex movement upwards or even downwards to be fair to all stakeholders.
The pricing hikes definitely put pressure on the business both in profitability and also in retaining customers.
There is a very small, select set of customers who are flexible and understand this increase. However, 90% of customers do not accept this increase positively, where they immediately go for an alternate vendor who is mostly newcomers who want to get some jobs running. This is not a healthy and sustainable practice and harms the industry in the long run.
How will your company absorb this price increase? What is your strategy?
As an industry, we need to look at product innovation, material re-engineering, packaging specs review with the brand owners. We also need leading raw material manufacturers to sensitise the brand owners on the global situation on pricing.
As a company, we shall like to focus on efficiency, efficiency, and efficiency.
Will this raw material inflation temper your company’s outlook for the year? What is the percentage you are looking at?
Yes, the bottomline positively gets affected and it’s something beyond our control. As of now, we see a pressure of around 4% to 5% on converters margins due to the recent price hikes. Since the brand owners do not review prices based on input costs, the pressure is entirely on the converters.
From an export point of view, a strong dollar will boost turnover. Your comments?
This is true when the majority of inputs costs are local.
Since our industry has very high input costs which is fully dependent on imports, (the main issue being discussed herein point one) we are severely impacted by input costs due to a strong dollar. I would personally not see a major boost in exports due to this factor. Our local value addition is relatively small in the final sales pricing.
Secondly, a strong dollar also impacts any new Capex investments limiting the industry to expand the capacities for the export market.
However, I firmly believe that India has a huge potential for exports if we achieve process standardisation and develop strong technical skills in the print industry. We can do wonders.
When the top-level delegation met the GoI representatives, they were asked what is the revenue the print and packaging industry contributes to the Exchequer? Can you hazard a guess?
Would not like to guess, in fact would love to get the statistics from you.