Ajanta Packaging (“AP”) has become a leading supplier of glass bottles

through offering customers a wide range of quality products at

competitive rates as well as superior customer service. AP is able to
achieve this by having:
- a large and diversified supplier base
- the necessary supporting infrastructure (i.e. MIS and strategically
located warehouses)
- a work culture that focus on JIT delivery
Financials for the year 2012 reflect AP earned revenues and profits of
$108 million and $25 million respectively. Profit margins have however
reduced to 25% from a level of 40% in 2008 due to significant increases
in total expenses (exhibit 1).
However AP has not been able to correspondingly increase its rates due
to two reasons:
(a)many direct competitors engaging in practices of lowering
prices/rates and
(b) the existence of PET bottles which are cheaper, lighter and much
stronger and therefore more cost effective than glass bottles.
This in turn has resulted in many companies including some of AP’s
customers changing to PET bottles.
Furthermore the 3 main industry segments (exhibit 2) served by AP:
Indian Made Foreign Liquor (INR 507 Billion), Softs Drinks (INR 60
Billion) and the Pharmaceutical Industry (INR 85195 Billion) which are all
expected to grow are also all expected to increase the usage of PET
bottles and decrease usage of glass.
For instance although usage of glass bottles in the Soft Drinks industry
stands at 85%, the surplus/availability of one billion bottles reflects that
the market segment is moving away from glass.
Similarly increasing numbers of companies in the pharmaceutical and
IMFL industry are converting to more cost effective packaging solutions
such as PET bottles.
In addition global trends and estimates of PET growing at a CAGR of
6.9% against a CAGR of 3% for the entire packaging industry provide
further support for the increasing popularity of PET bottles and declining
popularity of glass.
However despite this trend glass bottles are unlikely to become
completely obsolete for the following reasons:
- being more aesthetically pleasing than PET bottles
- being more suited for more high end/expensive products and
- being able to better preserve the taste and aroma of its contents
Therefore there are distinct arguments for and potential benefits
associated with AP continuing with its current business model. The first
is the brand name/reputation AP has a supplier of glass bottles and the
competitive advantage it has over competitors.
In addition although the market share of glass bottles is expected to
decline further from its 11% level the overall packaging industry is
expected to grow at 15%. This coupled with the fact that AP’s share
stands at approximately 5% (exhibit 3) reflects that revenues and profits
can be maintained if not grown.
However this course of action has the risk that AP will continue to be
overdependent on a single product (accounting for 95% of revenues)
whose popularity is decreasing year after year. Furthermore profit
margins are also likely to decrease year after year.
Further diversifying into PET bottles will mitigate these risks and also
mean AP is entering into a growing industry segment. The brand name
and learnings AP has achieved in supplying glass bottles can be used to
enable AP to also become an effective and efficient distributor of PET
bottles.
However AP will be a relatively new entrant into this industry segment
and will have to compete against much better established suppliers.
Furthermore the efforts involved with activities such as marketing and
establishing an entirely new supply chain risks the high levels of
customer service AP currently provides to its existing customers getting
detrimentally impacted.