Can India be a packaging superpower?

Mihir Joshi looks at key Indian companies and analyses the financial data from the top-line packaging converters. He says, "Indian packaging is at the threshold of explosive growth "

21 Feb 2013 | By Mihir Joshi

As the Q3 earnings of Indian companies for fiscal year 2013 filter through, there are more positive surprises than disappointments in the results declared so far. About 46% of the companies have reported profit numbers which are better than street expectations versus 38% of the companies who have delivered profits lower than expectations.

In terms of revenues about 41% of companies have beaten market expectations and only 24% have missed earnings expectations. This is according to data compiled by a leading global brokerage firm.
ITC logged a stellar performance in the quarter ended December with 23% a growth in net sales and 20.6% increase in net profit. Though the paper business’ revenue grew in single-digits by 8.5% and profits remained flat. A better-than-expected 21% year-on-year rise in third quarter net profit at Rs 2,052-crore was helped by strong growth in FMCG and agri businesses.
ITC’s Paperboards and Specialty Papers Division, remains India’s largest. It's business caters to requirements through its four factories, seven sales offices and a network of more than 50 dealers in India, along with an international trade network of 18 distributors / agents and four finishing operations.
TCPL Packaging
One of India's largest manufacturers of printed folding cartons TCPL Packaging is one of the largest exporters of printed cartons from India. Exports constitute approximately 17% of TCPL's annual revenues.  
After enhancing and consolidating its presence in the FMCG packaging sector during the fiscal year 2012, TCPL has gone from strength to strength, they reported a standalone sales turnover of Rs 95.03-crore and a net profit of Rs 3.83-crore for the quarter ended December '12. TCPL Packaging has given 43.43% returns over the last six months and 81.12% over the last 12 months. The foreign direct investment (FDI) in the retail sector will provide further impetus to an already prospering Indian packaging industry in general and packaging majors like TCPL in particular.
Rollatainers is one of the largest integrated packaging firms in the country, with operations in Haryana and Karnataka. For the last three decades Rollatainers has been catering to a wide range of packaging requirement. Rollatainers has installed over 1,000 machines in India and abroad and is one of the largest producers of lined cartons in India.
Rollatainers has reported a sales turnover of Rs 12.93-crore and a net loss of Rs 0.70-crore for the quarter ended September 2012. Its board in January 2013, approved the issue of bonus shares to shareholders in the proportion of 3:2, that is three bonus equity shares of Rs 10.
Packaging growth
I studied the balance sheets of Orient; as well as Paper Products and Uflex. One thing seems clear for a packaging firm in India (folding carton or flexible packaging) to have high yields; a steady growth of 25% is a must. Anything less is unjustifiable and will impact the operating profitability.
This makes one wonder to what extent international companies with deep pockets are so over-awed by the market size of the Indian market. A case in point is, as Victor Mallet states in his cogently argued piece in The Financial Times, MeadWestvaco, the US packaging group is taking a bet on the inevitable growth of the consumer goods market in India by buying a local packaging company and announcing plans for a $180 million of investment over five years.
Some of it is due to the big announcements like the Foreign Investment Promotion Board (FIPB) green signal to Ikea's proposal. The original proposal involved an initial investment of $600 million (approximately Rs 4,300-cr) for 10 stores in India. This is out of its total plan of investing $1.5 billion. 
FDI in retail will add to growth. The per capita packaging consumption in India is 1kg, which appears to be meagre when compared to 14kg of Australia and 15kg of Japan. The numbers suggest opportunities for India.
Having said that – with all the tugs and pulls in the retail space, the best policy for the players
continues to be, "wait and watch"; even for the single brand foreign retail space.
Can India become the fourth largest packaging nation?
The buzz from IndiaPack was what Dr D Purandeswari, Union Minister of State for Commerce and Industry, Government of India said while inaugurating the four-day show, "the $24.6bn worth Indian packaging industry has 22,000 firms comprising of raw material manufacturers, machinery suppliers, ancillary material of which 85% units are MSMEs. India is at the threshold of explosive growth."
Today, India is the sixth largest packaging market worldwide with sales of $24.6bn in 2011. The packaging industry is expected to grow at 12.3% CAGR during next 4-5 years to become fourth largest global market, with sales of $42.7bn.
Today the 11.5 million tonne Indian paper industry comprises of 5.3 million tonnes paperboard. Besides growth, India will see increasing awareness regarding clean water, safe food and pharmaceuticals will drive this growth. With increasing retail sector, the concept of track and trace devices especially for product identification such as 2D barcodes, radio frequency identification (RFID) will penetrate aggressively in the packaging industry.
Our assessment about packaging
The product mix is shifting from tertiary  packaging towards consumer packaging using recycled and virgin boards.
(Mihir Joshi scrutinises print stocks plus he blogs about print)