Nikhil Sipani: We need to work on how to deliver values and sustain ourselves

Rahul Kumar (RK): In an industry where paper is the biggest cost, it makes sense that companies would want to track its use, or more specifically its waste factor. How do you do it at your plant?
Nikhil Sipani (NS): I think it makes sense for companies to track waste or waste percentage, it is not just because of the cost factor though. It is important to factor sustainability as it has become a major concern for companies. Companies are now trying to minimise the impact on the environment by reducing packaging as much as possible and are also concerned about vendor wastages that significantly impact the environment.

RK: The wastage at an average corrugation plant in India is as high as 14-15%. And one realises that one of the major causes of higher wastage is the poor quality of kraft paper available to Indian corrugators. Why is that?
NS: There are many reasons. Being a paper mill owner, I can see both sides of the story and the reasons. The major point that increases wastage for corrugators is reel rewinding. Rather than mills investing in better rewinders, they should be vigilant during rewinding, where due to the negligence of the workers, joint issues arise and they lead to huge wastage at the corrugator’s end. The second major challenge is the use of silicate and limestone core pipes. It leads to an increase in wastage as these core pipes are almost twice heavier than normal fresh core pipes. 

RK:The question arises, why do mills do that? 
NS: There is humongous price pressure on mills to reduce cost and increase profitability to sustain and for that, they use these kinds of techniques for sustenance. Although these things will not last for the long term. No doubt, the last two years were good for the industry and a lot of automatisation and quality consciousness has occurred. We hope that with joint efforts of corrugators and mills these issues will be rectified.

RK: What are the other potential areas of loss at your plant: semi-automatic plant vis-a-vis automatic plant?
NS: They are completely different. Comparing semi-automatic corrugators with automatic is like comparing a Chetak scooter with a Hayabusa bike. Though Chetak has a cost advantage, you cannot compare it with Hayabusa for drive quality and speed. Still, some of the potential areas of loss are trimming that an auto plant needs to bear and semi-auto doesn’t. On the other hand, an auto plant has comparatively lower manpower costs than semi-auto plants.

RK: Running a corrugator at 300-m/min, probably the fastest in the country, would mean a new set of challenges for controlling wastage. What are these and what measures have you taken to minimise the wastage?
NS: There are various measures we have taken, such as vendor visits and process audits of vendors that have helped a lot. If we want to have good speed with less wastage, we need to focus on paper mill rewinders. Secondly, we have to analyse our paper requirements and speed. If we are running 16-bf or 18-bf low gsm paper in a high-speed machine, it’s doomed to increase wastage. We want to run the European speed with Indian low-grade paper and that is not feasible. We must optimise speed with the quality of paper to reduce wastage.

The Noida corrugation plant has 1.25-lakh sqft built up area

RK: Expertise in the corrugation industry is underrated. How much wastage is caused because of an untrained operator? How to hire a candidate and train him?
NS: It’s absolutely true and sad that there is no formal training institute or courses specifically designed to teach freshers and make them professional operators. There is no parameter to check how much wastage can be caused by a new untrained operator. Rejection and wastage can reach high levels because of untrained operators. For hiring a candidate, we need to follow the basic principle of on-hand experience values more than formal education. Always try to hire from ITI for freshers, as they have some basic knowledge.

RK: Paper cracking is a major challenge, as paper mills have increased the use of starch in paper to increase burst factor and ring crush values. How do you address this issue?
NS: This is true and we need to install testing equipment that can test coating grammage. This is the only way you can keep track of coating and reject that material that does not come in that parameter.

RK: What sort of yields should a corrugator target while creating an operating model? In terms of a profitability tree, are the existing models sustainable?
NS: People, process and technology are the key elements of any operating model of any business. Some of the corrugators are running on old conventional ways while others are going forwards with the latest trends. While creating an operating model, we need to work on how to deliver values and sustain ourselves in the process. In terms of profitability, every business wants profits, needs profit. One needs to take adequate factors in pricing to make business profitable, so in terms of profitability, we need to work on key factors of pricing as per our factory set-up no matter the model we are working with.

RK: With fluctuating kraft paper prices and corrugators operating on wafer thin margins, efficiency becomes paramount and one wonders if an average Indian corrugator is aware of his operating costs? Do you capture your production costs? How?
NS: Yes, operating on thin wafer margins efficiency does play an important role for corrugators. To increase efficiency continuous improvements in machinery, automation and productivity is a must for which one needs to adapt the latest technologies as per market. Yes, most of the Indian corrugators are well aware of its operating costs. To capture our production cost, we regularly observe our direct, indirect and overhead costs and try to keep them in an allocated budget. We make a daily cost sheet to keep a tab on our variable cost.

RK: How does one explain the investment and new projects in the corrugated box industry in the past two years? Sir, has the business environment improved?
NS: In the past two years, we have seen many new projects coming and also many semi-automatic corrugators are shifting towards automatic lines resulting in making the industry overcrowded. The market has already become overcapacity. Rapid growth and automation in the industry has improved the quality of products and services to customers but it has reduced operating margins of corrugators, therefore making industry less profitable than it could be.

Reliable’s Noida plant has capacity to convert 4,000 ton kraft per month

RK: With automated corrugation lines and high-end finishing machines, the quality and performance of the box improves, leading to optimisation of specifications and light-weighting. Does that mean the overall market will shrink?
NS: The Indian corrugation industry is expected to exhibit a CAGR of 3.7% during FY 2022-27. Yes, with latest trends, innovations and technologies the quality and performance of the boxes have improved with optimised specification. But the expanding eCommerce industry and widespread adoption of the FMCG segment are primarily driving the corrugation industry.

RK: Has our industry seen a shift in the manner in which contractual agreements are drawn between vendor and client? What kind of monitoring and evaluation systems are in place now?
NS: Yes, many of the big customers are shifting towards contractual agreement, especially in the FMCG and beverages industry, but in the past two years we have seen high and rapid fluctuations in the paper prices which is making it hard to adhere to the long-term pricing agreements. Reverse auction is a big menace for the corrugation industry. Though Covid has made many companies realise that price is not only the factor or primary factor, there are other important factors, such as long-term customer and vendor relationships. Some customers understand this. So they keep variation criteria in pricing while drafting the pricing agreements.

RK: Two emerging sectors: entry of modern retail and the therefore multicolour and photorealistic images and multicolour graphics. What are the new possibilities for printing on brown surfaces? How significant a role will digital printing play in corrugation?
NS: The entry of modern retail has increased the demand for multicolour cartons. Earlier, multicolour cartons were made using offset printing but now we can see high-end multi colours flexo machines are also available in the market with very high productivity. In the future we can see growth in high-end, high-speed multicolour flexo printing machines as well as significant growth in high-end reel printing technology in the industry for brown cartons. In the coming years, the demand for digital printing will increase, especially in the promo and display cartons segment. Thus, we can see a sharp growth in this segment as well.

RK: Which is the emerging segment that will drive the corrugated box industry? 
NS: In recent years, we have seen tremendous growth in the eCommerce segment. Also, recent challenges and troubles for the plastic industry will help increase the demand for corrugated boxes. The aggregate level of packaging in the fruits and vegetables segment is quite low in India for the domestic market. This segment is also undergoing a transition from loose to packaged. Thus, we can see a good increase in demand in this segment as well. We hope one day, the beverage industry will move back from shrink packaging to corrugated boxes as Europe has done recently after the plastic ban. It will give a huge boost to the demand for corrugated boxes.