Profitably-run businesses will become the winners

While the printing and packaging industry continues to bemoan the impact of the Covid pandemic, Venugopal Menon, business director BU printing and converting, Indian subcontinent - Bobst India, believes that Covid-19 was a great learning lesson for industries globally for crisis management. Menon adds, one industry, which stood out globally and sailed through was packaging specially in segments like food, eCommerce, and pharma. “2020 was a good year for Bobst in India. We had some of the best business deals in 2020 in the corrugated board segment.”

From the first FFG line sold in 2013, we will end up with 30 FFG lines sold in India by the end of 2021”, he says.

But it was not all smooth sailing. Menon says there were some hiccups because of the second wave. “2021 saw the paper prices go up to almost 50-60%. Prices of raw materials, such as printing inks and varnishes, also shot up,” he says.

Thus, according to Menon, it’s a kind of wait-and-watch situation, as corrugators were busy managing their margins and seeking price increases from their customers. As a result, Capex was on hold. But since June, the cycle has returned, and Bobst has finalised three FFG lines since June 2021.

At India Corr Expo 2021, the company finalised a FFG machine with a customer in Delhi-NCR — Keshoram Manufacturing.

“Globally, the packaging industry is doing exceptionally well across segments. Investment in the corrugated board industry worldwide has been unprecedented since 2020 and going into 2021, especially in the developed economies of Europe and the US. One of the reasons for the increase is the boom in eCommerce and online businesses worldwide. The volume of retail through eCommerce in developed economies is much higher, and India would be just one-tenth what the US is currently. But having said that, eCommerce also boomed in India in the last 18 months, and I see it will only grow from here. Thus, many brand owners are changing their business model to suit it,” Menon says.

Again, companies globally want to de-leverage their supply chain risk, not depending upon one region as a major supplier. They don’t want to rely too much on China and other specific zones as the only supply base. So, they are asking their companies to put a partial investment in their own country. This means, that in times of crisis, they’re not dependent on the supply chain when it comes to packaging. This philosophy is driving many corrugated companies worldwide.

"That said, it's time for corrugators to replace their old machines and upgrade their efficiency and productivity by adopting new technologies," he adds.

Corrugation in India
"For India, I think, if everything goes well and if we don't have a third wave as disastrous as the second, the Capex cycle will come back as demand and consumption will grow. This will hold good for all kinds of industries, not just packaging. The packaging business will also bounce back strongly, and we are quite positive," he says.

At the same time, Menon says, due to the paper price hike resulting from the Covid crisis, there will be some consolidation. "Today, paperboard suppliers don't even give credit. They supply only against cash. Now, with the lead times increasing in paper and board, the prices are also rising. So, companies that are not efficiently managed or highly leveraged will face problems and have a tough time. So, I see some consolidation happening in mono cartons and corrugated boxes going forward. I think we will hear about some mergers and acquisitions in the coming months," he says.

Recently, Oji invested in Empire, Canpac acquired Manisha, and a few more could be in the anvil. “I believe, in the next two-three years, there will be a shake-up in the industry. So, the larger players who run their operations – lean, efficient and are well-diversified – will grow and expand further,” he adds.

Menon says, for more prominent players, conversion volume is one parameter. The others have their scale of operation, multi-location, geography, and specialisation. “The question is, are they well-organised? When I say well-organised, I don’t mean only in terms of infrastructure and technology, but also in terms of their organisational structure, compliance and governance. Also, if they are process-driven using tools such as ERP." He concludes, "The winner will be a profitably-run business."

During the pandemic, brand owners and buyers found that some suppliers could not keep up with the deliveries. So, now they want to work with reliable players who have better infrastructure and who could be relied on during an emergency. Thus brand owners will go to converters that are better equipped with reliable supply chains and are bankable during a crisis.

Looking ahead
Menon says India is still the one country, among very few globally, buying corrugated boxes in kgs, not in running square metres. Worldwide, corrugators sell brown boxes in running square metres. He says that it will be a win-win situation for both buyers and sellers if brand owners could change their mindset.  

He adds that India is in a growing and learning process. “Even in China, Southeast Asia, Europe, and the US, all buy in square meters. So, it will take time to accept basic ideas. We sold our first FFG to Horizon Packs in 2013, the largest corrugated packaging group in India. I’m proud to say since then, we have sold almost 30 FFG lines in India. It is a big achievement,” he adds.

He explains, “Many corrugators have told me that the the Bobst FFG made their life easy. This has also brought down the variable costs because fewer operators and faster conversion, and reduced wastage. More throughput and faster turnaround mean more business. This is the feedback I am getting. So, all mid- to large-sized corrugated companies will go through the automation cycle. The pandemic has taught them one big lesson that labour dependency is not workable.”

According to Menon, the corrugated board industry in India has evolved in the last ten years or even less. The corrugated board converters have just tasted the benefits of modernising their conversion process with the adoption of better technologies. The proof of the pudding is in eating, as they say, and the corrugated fraternity is passing through this phase.

Final thoughts from Menon. He says: “There is a big potential in this industry only if it consolidates as it is still very fragmented and largely unorganised. This industry plays an important part in the global supply chain. It is only when the converters demand the right value of what they produce that the industry can grow and grow profitably."