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2/24/2017 AJANTA

PACKAGING
WAC II - Assignment 2

PREPARED BY

AMIT DHALIA (P16015)


KUMAR SUMEET (P16053)
MEMO

To: Mr. Deepankar Agarwal


From: ABC, Executive Assistant
Date: April, 2013
Subject: Report on whether to diversify in PET product portfolio or to focus on only glass bottles
packaging
Dear Sir,
The purpose of this report is to analyze growth prospects of continuing with the distribution of
glass bottles or to diversify in PET bottles and also, recommend right option based on best suitable
criteria.
Regards,
ABC

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Executive Summary

Ajanta Packaging is facing changing environment in the packaging industry in India. Indian
packaging industry is growing at a CAGR of 15% with the rapid transformation from glass bottles
to PET, paper boards, aluminium, aerosol and injection based other plastics. This report contains
an evaluation of options available for Ajanta Packaging whether to remain only in glass bottles
distribution or to diversify in PET bottle portfolio. Ajantas 95 % business come from glass bottles.
Glass bottles demand has stagnated because of the advent of other better packaging substitutes. As
glass bottles are brittle, heavy and expensive, various industries are shifting to PET or aluminium
for packaging. So, it is recommended that Ajanta should increase its product line to PET bottles
with glass bottles. The proposal is made after analyzing growth prospect, profit margin, industry
suitability and Ajanta competitive strength.

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Contents

MEMO ............................................................................................................................................................ i
Situation Analysis .......................................................................................................................................... 1
Problem Statement ....................................................................................................................................... 2
Options .......................................................................................................................................................... 2
Criteria of evaluation .................................................................................................................................... 2
Evaluation of Options.................................................................................................................................... 3
Option 1 evaluation: ................................................................................................................................. 3
Option 2 evaluation: ................................................................................................................................. 3
Recommendations ........................................................................................................................................ 4
Action Plan .................................................................................................................................................... 4

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Situation Analysis

In 2012, Ajanta Packaging with net revenue of US$102 million had reached in the group of top
performers of suppliers of glass bottles in India. Ajantas sales turnover had grown at CAGR of
13.7% per annum from 2008 to 2012 with an almost same profit margin of US$25 million (Exhibit
1) Indian Packaging Industry has grown by 15% and expected to increase with increasing
urbanization, changing consumer behaviors and increasing disposable income of the middle-class
family. The advent of blow technology and narrow neck press had decreased glass weight by 25%,
also increased the productivity.
Indian glass bottle industries depend on mostly Indian Made Foreign Liquor, soft-drink,
pharmaceutical, and food.
Food and beverages packaging have been contributing most in growing Indian packaging industry.
Food packaging industry demand will rise due to the arrival of organized retailers, increased
awareness of hygienic food, and increased aesthetic appearance on the packaging.
Indian alcohol industry was pegged at INR 507 billion in 2013. Alcohol consumption has been
increasing in India due to rapid economic growth and imitating western lifestyles by Indian
younger generation. According to market publishers report, alcohol industry would reach a market
size of INR 1400 billion by 2015.
85% of INR 60 billion industry of soft drink is sold in returnable glass bottles, with floating stock
of about one billion bottles valued at INR 6 billion. Many consumers now start using PET and
aluminum cans for soft drinks because these products are light in weight, durable and non-fragile
in nature. This changing preference of consumer will impact the sale of glass bottles in this
industry.
Indian Pharmaceutical Industry has been growing at a fast pace due to increase in government and
private spending, increasing disposable income and many other factors. It is expected to reach US
$15,490 million industry by 2014. Even though companies has shifted from glass bottles to PET
bottles to benefit from low weight, ease of storage and transport but due to its chemical inertness,
companies still prefer glass bottles for highly active medicines.
SWOT Analysis
Strength
- First in Indian bottle trade industry to adopt fully computerized system
- Strong relationship with global manufacturing companies
- Low freight charges due to flexible just in time delivery
- Sales and marketing team which results in lower lead time
Weakness

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- High weight compared to PET and aluminium results more transportation cost
- Glass bottle is Brittle in nature which results in high breakage rate
Opportunity
- Expanding modern retail
- Increasing disposable Income of middle-class family
- Urbanization
- Use advanced technology to reduce cost and increase productivity

Threat
- Quality conscious customers have started using other forms of packaging
- Aesthetic appearance has gained importance among consumers
- Emergent of PET bottles
- Suppliers Poaching other companies clients to reduce their cost
- Due to inflation prices of raw material is increasing and margin continuously becoming
less

Problem Statement
What should Ajanta Packaging do in future as growth prospect in glass-bottle packaging industry
was declining due to various factors?

Options
1. To continue with the existing product range and grow by getting more glass bottle customers.
2. To extend product range of PET- bottle to target new customers and markets for growth.

Criteria of evaluation
The following are the criteria for evaluation of options which numbered according to their
priority:-
1. Growth prospects: As Indian packaging industry was growing at 15% over the last few years,
companies in this sector should grow at a similar rate. If the growth of a company is stagnant
in a growing industry then opportunity to increase revenue is lost therefore it is an important
criterion.

2. Profit margin: The price reduction due to increased competition forces all competitors to
reduce margin which can lead to decrease in profit if the cost of production is not reduced.
Substitute products which are less costly can offer an alternative to reduce the cost.

2
3. Industry Suitability: The packaging aesthetics, food freshness, chemical inertness and some
other requirements decide what industry will use which packaging material. If the new product
is not a complete substitute for an old product, then the old product should be continued.

4. Strengths of Ajanta: should be given due consideration so that Ajantas market share can be
protected as it is one of the top suppliers of glass bottles currently.

Evaluation of Options

Option 1 evaluation:
The first option is to focus on supplying glass bottles and try to get more customers who use these
products.
Growth Prospects: As shown in Exhibit 2 the packaging practices have changed, beer and IMFL
industries that conventionally used glass now prefer cans and Flexible packaging. Therefore
growth prospect is declining.
Profit Margin: The cost of producing glass has decreased with new technologies, but it is still more
compared to its substitutes. The cost of raw material for glass industry is increasing whereas the
competitors have decreased the prices to gain a customer that has led to a reduction in profit
margins and increased buyers power for negotiating prices.
Industry Suitability: Chemical inertness is required in storing reactive chemicals and some food
products, so the glass bottle is perfect for this purpose, but fragility and weight make transportation
of glass bottles difficult and expensive as compared to other packaging substitutes. Increased
consumption of alcohol in India due to its acceptance among present generation gives an
opportunity for glass bottle suppliers to increase revenue.
Strengths of Ajanta: The quality, cost, and professional expertise are Ajantas strength, but the
substitution of a glass bottle with better substitute materials will decrease its market share as glass
bottles cannot compete with PET products in weight and strength.

Option 2 evaluation:

The second option is to extend product range of PET- bottle to target new customers and markets
for growth.

Growth Prospects: The PET demand is forecasted to increase at CAGR of 6.4 % till 2020.
Increasing demand for consumption of packaged, frozen and other processed foods is increasing
the growth prospects.

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Profit Margin: The market for flexible packaging is increasing so even if margin is less, profit will
increase.

Industry Suitability: Soft drink industry is growing at 5-6% annually. This industry has a floating
stock of $ 6 billion glass bottles which are breakable, use of PET bottles decrease the risk of
breakages and are less costly therefore many companies are substituting glass bottles.
Pharmaceutical Industry is another glass bottle dependent industry which is shifting towards using
PET bottles as it is low weight, small pack size, easy for storage and transportation.

Strengths of Ajanta: Ajanta has warehouses in multiple locations and four marketing office which
is suitable for starting PET bottle distribution.

Recommendations

Ajanta Packaging should increase the PET bottle portfolio as the packaging industry is predicted
to grow in future as India progresses economically. Ajanta can grow profits by supplying substitute
PET bottles to new as well as existing customers using its present infrastructure of warehouses and
established a supply chain.

Action Plan

1. Ajanta should try to find their present suppliers who are manufacturing PET products.
2. Ajantas marketing division should find out wholesale customers who get PET products from
other sources and persuade them to purchase PET and glass bottles both from Ajanta.

Word Count: 1200

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Exhibit 1. Selected financial of Ajanta Packaging
2012 2011 2010 2009 2008
Sales Turnover 102 87 79 73 61
Operating Profit 25.9 21.7 25.4 25.8 25.3

Exhibit 2. Changing Packaging Trend

Products Conventional Current Packaging


Soft Drinks Glass, Aluminium PET Bottles, Cans and Glass
IMFL Glass Glass, PET Bottles, Cans and
Flexible Packaging
Pharmaceuticals Glass, Aluminium, Triplate and PET Bottles, Glass, Aluminium
Paper Foils and Blisters