Financial Daily from THE HINDU group of publications
Thursday, Jun 13, 2002
Essel Propack eyes pharma sector for healthy growth
Shyam G. Menon
MUMBAI, June 12
PACKAGING major, Essel Propack Ltd (EPL), has identified the pharmaceuticals sector as a thrust area for growing the use of its products.
Conversion of potential users from their currently used packaging materials to laminated tubes is among the avenues proposed to develop EPL's business.
In its 2001 annual report, the Rs 382.5-crore EPL (consolidated revenues) notes that pharmaceuticals sector is the single largest user of aluminium tubes.
There is a visible increase in OTC products from pharmaceutical companies and most of them are being packaged in laminated tubes. However, overall, the sector represents only about 10 per cent of all laminated tubes.
"This segment has been identified as our thrust area and we are putting more resources into developing it in terms of manpower and innovation in laminates,'' EPL has said.
Worldwide, there are three global players in laminated tubes, accounting for roughly 50 per cent of the market. EPL is the biggest of the three.
Laminated tubes are as yet only 37 per cent of all tubes used, aluminium still the leader with 45 per cent share. Plastic has a 16 per cent share and others, 2 per cent.
The growth of laminated tubes, eroding the share of aluminium tubes, has happened courtesy in the main the dentifrice (oral care) segment, where laminated tubes are the preferred package of choice.
The segment is dominated by MNCs - Colgate-Palmolive, Unilever, Procter & Gamble (P&G) and GlaxoSmithKline. These companies are restructuring and consolidating to increase efficiencies and costs.
"Consequently, partnership with them is of great importance. Essel Propack is perhaps the only supplier who has long-term supply relations with all the Big Four,'' EPL said.
It may be recalled that in April, EPL had disclosed plans to set up a $20-million plant in the US to service the needs of P&G.
The five-year contract was projected to raise the company's revenues by 15-20 per cent, besides enhancing its global market share from 25 to 30 per cent.
There still remains between 3-4 billion aluminium tubes in the oral care segment. Globally, this user industry is growing at about 2 per cent in developed markets and by 5-7 per cent in developing markets.
"This obviously represents great potential for our future growth,'' EPL has said.
The cosmetics industry is also expected to contribute to higher use of laminated and plastic tubes. EPL has two operational bases for plastic tubes - India and Indonesia - the business from which is projected to grow by 15 per cent annually.
The company recently commissioned a new lamination facility in China. Some of the businesses serviced so far from rented premises would be transferred to this plant, a senior EPL official said.
The new facility has capacity for 400 million tubes, EPL's total capacity on the ground in China, including two other locations, now exceeding a billion tubes.
EPL is known to be pursuing a target of 50 per cent share of the global market for laminated tubes by 2005. Its total capacity, as disclosed in April 2002, was 2.8 billion tubes at 15 manufacturing locations worldwide, projected to touch 7 billion tubes by 2005.
India, with a 40 per cent share in EPL's revenues, is the company's biggest market. This is projected to dip to 30 per cent by 2003.
Around then, the Chinese market where metal and laminated tubes currently enjoy an even share, is estimated to grow and account for 30 per cent of EPL's revenues.
Its future action plan, as set out in the 2001 annual report, includes in addition to being a world leader in the packaging of dentifrice, cosmetics, toiletries and pharmaceuticals, building in multi-level security features into tube packaging design to help customers easily identify counterfeit tubes and production of bio-degradable packaging materials.
Crisil today reaffirmed the `AA' rating assigned to the Rs 100-crore NCD programme of Essel Propack.
The `P1+' rating assigned to the Rs 40-crore commercial paper programme of the company was also reaffirmed.
Besides, noting the "comfortable'' financial risk profiles of EPL and the Essel Propack Group (EPG), Crisil's statement said: "EPG's large overseas investments have, however, resulted in significant increase in debt levels, impacting the group's consolidated gearing, which was comfortable earlier.
"After adjusting for goodwill of Rs 310 crore, the consolidated gearing rose 1.3 times as on December 31, 2001.
"Crisil, however, expects that in line with EPL's past financial policy, EPG will use its healthy cash accruals to improve its capital structure to a comfortable level. Although there has been an increase in the level of short-term lending to Essel/Zee group companies, the ratings factor in the management's stated intent that there will be no major investments in any projects unrelated to EPL's business, as well as its commitment to reduce the level of short-term lending by June 2002.''
Send this article to Friends by E-Mail
Stories in this Section
The Hindu Group: Home | About Us | Copyright | Archives | Contacts | Subscription
Group Sites: The Hindu | Business Line | The Sportstar | Frontline | Home |
Copyright © 2002, The
Hindu Business Line. Republication or redissemination of the contents of
this screen are expressly prohibited without the written consent of
The Hindu Business Line