The Hindu Business Line : Essel Propack bets big on `minitube' technology

IT'S a small product that promises Essel Propack Ltd (EPL) a big business. The company, with a 32 per cent share in the global laminated tubes market, has perfected the technology for making small laminated tubes to address huge conversion opportunities at the bottom end of the pharmaceutical and FMCG markets.

In its 2004 annual report, Mr Ashok Kumar Goel, Vice-Chairman and Managing Director, said the company had "recently developed a new, path-breaking packaging technology for making small tubes, which is targeted at the pharmaceutical and consumer products industries where new price points evolve continuously.

"This unique proprietary technology is termed as `minitube'. With the prevalent technology, making small tubes is not commercially feasible. The new technology has made the company overcome this drawback and enabled it to produce laminated tubes in small diameters. This is a brand new sector."

Mr Goel said that along with its `invisible seam' technology, the minitube would "greatly expand" the laminated tubes market for Essel Propack. The invisible seam is a high-end application that the Rs 676 crore-company is yet to introduce in India.

Asked about the minitube, Mr R. Chandrasekhar, Chief Operating Officer (Global), Essel Propack, said, "We introduced this technology in India in October 2004 and created capacities for manufacturing. Today, we are totally booked in terms of capacity utilisation and the products using this technology are doing well."

What made Essel Propack get into this space?

According to him, Essel Propack's studies had revealed an interesting side to the booming market for small packets, primarily sachets. These packages were originally introduced to entice the low-end customer into buying a branded product so that he could migrate to bigger packs. But in many cases, the intended migration was not taking place.

It had nothing to do with the product or its price. What appeared to dampen a smooth graduation was the total change in packaging that happened in the journey up the value chain, from sachets to tubes or other packaged forms. A tangible bridge in the packaging format was needed — for example, buying a very small tube at the market's low-end and graduating to a bigger tube later on. There seemed, therefore, a case to shrink the size of the laminated tube further, which is what the company has cracked with its minitube.

The small tube is also argued to be cheaper than the sachet when compared across volumes. "If one were to take the cost of a product in a sachet and extrapolate it to a minimum volume sold in any other form of packaging, the sachet is actually more expensive," Mr Chandrasekhar said.

For Essel Propack, the small tubes also have a direct impact on its asset turnover ratio. "The frills that are associated with large machines are not needed for making a small diameter tube. You can bring down the capital cost of equipment," he said. Being a value-added technology, Mr Chandrasekhar argued, the small tubes' margins are comparable with those of bigger ones.

Leading names from the oral care and cosmetics segments have tried out the product and EPL's 16 mm diameter tube has opened up new price points with toothpaste, for example, getting sold at Rs 4 or Rs 5. "We need to get still smaller for the pharma sector because they sell at 5-10 grams," he said. The company can go down to a 13-mm diameter at present.

Mr Chandrasekhar was tight-lipped on the commercial opportunity presented by this foray into the large-volume low-end of the packaged market as well as the potential for miniaturisation in the plastic tubes segment. The market size should be big for the company's small tube. Albeit not the right product for comparison, domestic FMCG majors have 60-65 per cent of their shampoo sales moving in sachets.

That points to the opportunity at hand, particularly when multiplied across geographies. In the second half of this year, Essel Propack plans to introduce its small tube technology in China and in the US.

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Essel Propack bets big on `minitube' technology