Assignment 1: Ajanta Packaging

A report submitted to
Prof. Preeta Vyas

In partial fulfilment of the requirements of the course

Written Analysis and Communication – I

By
Piyush Sevaldasani
Section C
Roll no. 188175

On
08-07-2018
 MEMORANDUM

To: Deepankar Agarwal, Partner

From: Piyush Sevaldasani, Executive Assistant

Date: July 8, 2013

Subject: An examination of factors to be taken into consideration while deciding

diversification to PET bottles

Considering the recent growth of alternatives in packaging materials such as PET, plastics,
tetra packs etc. and the price war initiated by the competitors, I have presented below an
analysis of factors which needs to be considered while making the decision to continue with
the present business of supplying the glass bottles or to diversifying into PET bottles.

Various factors such as the growth in the global packaging industry, Indian packaging industry,
new alternatives available in the market, the growth of various Industries in India, financial
statements of Ajanta and the price war initiated by the competitors in the glass market has been
considered for analysis.
 Situational Analysis
In the recent times, new alternatives to packaging material have arrived in the market. These
modern packing materials solve many shortcomings of the traditional packaging materials.
Conventional forms of packaging such as glass are fragile, heavy and costly. On the other hand,
new packaging materials made up of plastics (PET), paper cardboards etc. are cheap, durable
and light in weight making it convenient for transit purpose. Also, plastic can be customised
easily.

Ajanta Packaging, the supplier of glass bottles, is facing fierce competition from other packing
alternatives such as PET in the market. Though the company has seen enormous growth in the
past from 1981 to 2012, the growth in the past five years has been quite stagnant with
decreasing operating profit margins (see exhibit 1). It has always been a quality focused and
customer centric firm. Over the years it has established a robust procurement and supply-chain
system. It has eliminated risk from operations by increasing the number of suppliers. Also, it
has established various warehouses across the country to provide customers with service on
time leading to lower inventory cost. Lower freight costs have led to more sales for Ajanta.
Another astounding fact is that 90% of the revenue proceeds comes from recurring customers.
This is seen as a good sign as despite cheaper alternatives present customers are satisfied with
Ajanta owing to quality CRM practices.

The Indian packaging industry has seen five times growth rate over last few years as
compared to the global packaging industry, and it is expected that growth would further
increase. One of the primary sector leading such an enormous growth has been the FMCG.
India, in the recent past, has seen an increase in consumer spending owing to rising income
levels and varying consumption patterns. This increase in FMCG has led to innovations in the
packaging segment. Glass bottles are now 25% lighter, and customisation as per product has
evolved. This could create more demand for glass bottles.

Even the Liquor sector has seen an increase in demand owing to a cultural shift to the west
and acceptance of social drinking. But the real struggle which Ajanta would face here is
providing price competitive glass bottles as alternatives are very cheap. Also, the glass-bottle
industry itself has seen a trade war where other suppliers have started to reduce prices to
attract new customers. On the other hand, increased inflation has led to a surge in prices of
raw materials making it very tough to compete with plastics and tetra packs, and this has led
to decreasing operational profit margins for Ajanta.

The global demand for PET is expected to increase at 6.4% while the packaging industry
globally is expected to grow at 3.1% implying decreasing demand for conventional
packaging. Following the trend in India, the soft drinks industry has moved from glass to
PET bottles to reduce costs and enhance the durability. Higher breakage leads to a decrease in
profitability.

Total Indian packaging industry is approx. $14bn, of which the share of glass packaging is
11% i.e.$1.5bn. Also, the share of glass-bottle for Ajanta is 95% of $102mn, i.e., $97mn.
Thus, the share of Ajanta in total glass packaging industry comes out to be only 6.3% leaving
huge scope of exploration for new customers.
Exhibit 1: Calculation of Operating profit margin for Ajanta Packaging from 2008 to 2012

Particulars 2012 2011 2010 2009 2008

Sales Turnover (in $mn) 102 87 79 73 61
Operating Profit (in $mn) 25.9 21.7 25.4 25.8 25.3
Operating Profit percentage 25% 25% 32% 35% 41%

Number of words in the main body: 544