Ramu Ramanathan (RR): Was 2014 a good year?
Vimal Kedia (VK): Yes. Manjushree Technopack should be able to grow by 20%. This is because of our large base. Our capacity is 1,00,000 metric tonne and last year we achieved more than 70%.
RR: I visited both your plants and was impressed with the super specialisation. How do you decide how and where to invest?
VK: One thing is clear. Whatever we do, we adopt the best technology available. For me, that is the key to success. The moulds, which are the heart of any plastic machine, are purchased from OEMs only. We can cut down the cost by 25 to 50% by purchasing from other manufacturers but it is not worth it. A Mercedes is always a Mercedes. It is the same with PETs and preforms. Also, we always plan ahead of customer requirements. If I see a growth of 15% with ‘X’ number of customers and production, then we map the growth for the next three years and plan. In India, customers do not get into any advance contracts from their vendors. Usually, they ask you to produce more when there is a rise in demand. At our new factory in Bidadi, we already have 10 Husky injection moulding systems, and six ASB machines. These machines are part of a bigger plan. It ensures cavity-to-cavity and shot-to-shot repeatability and reduces variability further downstream in the beverage packaging line.
RR: Is this the biggest facility in India?
VK: It is a huge facility with a production capacity of 80,000 metric tonne. It is perhaps one of the largest in South Asia. Today, we are the largest partners of Coca-Cola as well as Pepsi, Bisleri and other seasonal beverages. The factory has been designed to adopt total automation. There is no manual handling of material or products. It has all the Good Manufacturing Practices (GMP).
RR: One thing I noticed is the Class 1 lab clean atmosphere. Why is this so important?
VK: It is required for food packaging products, to maintain the basic hygiene, so that there is no contamination from human hair, dust particles or insects. In both the plants, Bengaluru and Bidadi, we have ensured that there is a pressurised airflow with no air openings inside the factory. This is to maintain hygiene. Recently, we converted two factories into one, which has a Class 1 lab clean room and an ultra clean room for pharma models.
RR: What about liquor or toilet cleaning manufacturers?
VK: A liquor manufacturer or a manufacturer of toilet cleaning materials, such as Reckitt Benckiser, Harpic or Lizol, does not require clean room facility. Yet, even these manufacturers have converted their factories to clean room. With the new food laws coming in, we anticipate that the laws will be stringent and it will be a basic manufacturing requirement. Mind you, in the next five years, the growth in this sector is going to be huge, especially with FMCG products tripling in demand. The economy will pick up in right earnest after 2018. By 2020, we expect the economy to absorb at least three times the FMCG and other products than what it is today.
RR: This is based on Technopack’s recent report...
VK: See, the per capita income in India three years ago was Rs 6,500. This Rs 6,500 figure will be Rs 10,000 in the next three years. When spending power in rural India comes to Rs 10,000, it would be big money. This will increase the spending capacity among the rural population, and as a result, demands for things like toothbrush, paste, soap and small portions of shampoos will increase. Rural India is growing in a big way and there will come a time when there will be no unskilled labour available in the country.
RR: So, you are suggesting that changing consumer tastes, thanks to a growing and richer middle class, will ensure the growth in the packaging industry.
VK: Yes. The per capita income will rise. We are adding at least three crore people to the middle class every year. In the next three years, these additional nine crore people, besides the existing ones, will be the largest purchasers. This is how modern retail will grow and everyone will be successful. We have already witnessed this in Flipkart, Amazon and e-commerce success stories.
RR: Under such circumstances, is scalability the key?
VK: Scalability and ready to scale any time is the biggest capability. Scalability as and when required depends on whether you the have extra space and ready premises available to house the machines and finished products. Availability of connected power and fluid cash flow are other factors.
RR: In PET business, what is the debt to equity ratio and what is the business model?
VK: Models are the same, but our industry is very capital intensive. So, CAPEX to turnover ratio is just 1.5 times, whereas it is three times in other industries. There is a stiff competition in the market. Every day, new units emerge and shut down. The process of shutting down a business is slow, as the owners continue to struggle for survival. Going forward, what we understand from our experience is that consolidation will happen not only in our industry, but also in every other industry. This is because smaller players will not be able to sustain. For instance, the prices of shampoo packets/bottles have not changed much in the last 15 years. They have maintained the price in spite of raw materials cost increasing three-fold. This is because they tend to reduce their own margins. This means, vendors have to reduce their margins and everyone is surviving due to scalability.
You will have to scale up, or you will fail to survive. For example, two years ago, PET raw material was priced at an average cost of Rs 70. Now, it is at Rs 100 plus, which is a 50% increase. With this, working capital, debt and everything else increase by 50%. How can you sustain 50% working capital? This is why scalability is required, and this is why consolidation will happen.
RR: Is there unhealthy competition in the PET market?
VK:There is a competition in the market in the form of unorganised sector. Customers are not willing to increase the prices. Hence, we see a downtrend. However, we are trying our best to bring down other costs. We are looking forward to better results in the third and fourth quarters. In the preform segment, we have built large capacities, which we supply to beverage majors and when the supply is more, buyers get a chance to buy at a lower price.
RR: You cater to an array of brands. How are you coping with the blood bath in terms of pricing, margins and all the service you provide, like the 1.5 lakh square feet dedicated to FGA?
VK: We are scaling up to keep ourselves ready for any onslaught. The enterprise I am building will pay for itself tomorrow. Today, there are 1,000 players operating in the market. When this number reduces to 50, then I can play my cards. This clean room has cost me money. Running the clean room is an additional cost.
RR: So, how much does Manjushree have to do to educate customers?
VK: There are two types of customers. One is the multinational lot, where we do not need to educate them. They bring international experience and tell us what they want.
RR: And domestic clients?
VK: We do a lot of work with regional customers and try to bring in new technologies available. Usually, they try to adopt what their competition or the multinationals are doing. Sometimes, multinationals have multiple layers of decision-making process. Their principals have to approve every millimetre of the design. I am not sure whether this is good for India or not, but they are here.
RR: You have important customers who have developed their brands through packaging...
VK: Today, every company and every brand understands the value of packaging. These days, they spend on new designs, new convenience methods, like flip-top closures, flip-open closures, good labeling and good dispensing system. Like in tomato ketchups, there is a silicon valve, which makes sure that the last drop is sucked out. Even in oil bottles, you must have seen, there is a special cap with a net-type fitting to avoid spillage. Automobile motor oil has a bent neck or an off-centre neck, to pour easily without spilling. These kind of value additions cost extra money for packaging, development and moulds. But then, whatever is required has to be done. So, those values are added.
RR: In terms of segments, where do you see growth?
VK: The food segment. Indians spend 50% on foods. Everything else is secondary.
RR: I see. That explains your GMP at the factory.
VK: That’s because 80% of Manjushree’s customers are food buyers. Manjushree supplies to clients in confectionery, tea and food supplements segments, such as Tata Tea, Mondelz India (Cadbury Bournvita), GSK Healthcare (Horlicks), Perfetti and P&G, among others. We make multi-layered packaging, used to store food items longer by keeping the moisture out. Multi-layered packaging finds use among sauces and ketchups, dairy products and juices. We supply to Unilever (Kissan), Del Monte and Heinz in this segment.
RR: How much of your production is export oriented?
VK: About 10%. This is mainly in preforms.
RR: Will preform export be on the ascendency?
VK: It will. We are increasing our percentage year-by-year. The percentage will not increase much as our base is higher every year. Last year, we clocked Rs 45 crore. This year, we are eyeing Rs 65 crore.
RR: Only in preforms?
VK: Yes. This way, if you see, the last year’s export was 25%, which is reasonable.
RR: What is the future for Manjushree? Will it be through inorganic growth and multi-locational plants?
VK: Recently, we announced the delisting of the company. We plan to multiply manufacturing plants or go inorganic, if there is an opportunity in India or outside. We understand that unless we scale up and keep the lead, it will be difficult.
RR: What about shrink sleeves…
VK: We are not into shrink sleeves. We procure it from the established players. We will soon be adding a separate facility for the manufacturing of multilayered shrink films, which are used for collating bottles. These multi-layered films can replace cartons for the packaging of beverages and bottles. Soon, we plan to get into the printing business.
RR: How so?
VK:This would be a CI flexo unit supplemented with print capabilities. Our initial set-up was printing, based out of Assam, wherein we were into flexible packaging and rotogravure.
RR: That would mean learning a new process...
VK:The basic principles are the same. When something is completely new to you, you tend to get a little scared. Since this was our core business and in those days, we were small, we had enough time to learn. Those were the days in Assam when you would not even find the nuts and bolts. You had to source it from Kolkata. We had a person positioned permanently in Kolkata just to get the spare parts. We had to train ourselves to dismantle and assemble the machines. Thus, printing is not a huge shift for us. Besides, in flexo and rotogravure, there are thousands of units and there is an easy availability of trained manpower.
RR: Your numbers look quite healthy. What is your vision for the next five years?
VK: We should triple our capacity and turnover. By 2020, we should be a Rs 1,500 crore company. This year, we should cross Rs 500 crore.
RR: Rs 500 crore is equal to one lakh tonne conversion.
VK: No. It is equal to 65,000 metric tonne of production. Our rated capacity being 85,000 to 87,000 tonne, we will be able to cross the Rs 500 crore mark this year. It is with two lakh metric tonne conversion that we will be able to triple the capacity to Rs 1500 crore. As I see it, processed food packaging will generate half the revenues, followed by personal care at 27% and pharma at 6%. The big growth will emerge from the alcoholic beverages business. This contributes very little to our business, but demand has been growing at 15-20% annually.