For Essel Propack, specialty packager from the $2.4 billion Essel Group, the European and American markets are looking good despite the overall economic scenario being shaky.
Ashok Goel, the company’s vice-chairman and managing director, told Ashutosh Kumar that Essel Propack, which is looking for footprint in Brazil and Africa, would plan European expansion only when it signs long-term contracts.
Excerpts from the interview:
Essel Propack has been emphasising on the non-oral care segment for some time now. Has the strategy been beneficial and how has it changed the revenue mix?
Globally, about 90% of our sales were for oral care, which gives us a critical mass, which is good for business. But one has to grow as we already have 33% of the global market share. You can grow either by pushing your market share or you start to make more value-added products. So if we would have pursued the strategy of pushing more market share, then it would have put some pressure on pricing. That may not have been the best of the strategy. The right strategy for us would be to start selling more value-added products. Oral care being a vanilla product - of course there is a lot of technology behind it - we thought it is the non-oral care products like pharmaceuticals, personal care, skin care, hair care and cosmetics where the scope of value addition is more. For this, we had to equip ourselves with new technologies. Our objective is that the global average this year for non-oral care should be 25% or slightly more. In India, we are already doing about 30% non-oral care, in Germany more or less 100% is non-oral care. So in various markets and geographies, we are at different thresholds.
What about the plan to expand capacity in the non-oral care segment in Brazil and South Africa?
We are present in all the continents today. South Africa per se is not a large market, the African continent is, but given the political situation of the African continent, cross-border trade is not so very easy even today. Therefore, we are looking at some footprint in Africa, but we are yet to identify the right place for us to have the footprint. Brazil is a large market, but at the same time it is dominated by a single player, Colgate. So we need to be very careful in devising our entry strategy.
How is the European market doing, especially Germany? How much impact has the sovereign debt crisis had on your business?
The oral care and the non-oral care story in situation like the current economic scenario insulates us completely. But at the same time, because we were a small player in the non-oral care, for us there was no impact. Only impact it could have is that if our expectation was to grow in the segment in the next four years, it would now take more time.
What is your outlook for the European and the American markets?
Both the markets are holding good so far. We have to be only careful in terms of our expansion in those geographies. Only if we sign long-term contracts in these regions, we will expand in these regions, particularly in Europe.
Has your capacity utilisation reached the targeted 70%?
Yes, in fact we are now looking at pushing it beyond to 75%. In some geographies, we have reached it. And wherever we need more capacity, rather than buying new equipment, we are shifting those equipment from other locations, so that the overall efficiency can be pushed. Like we needed to expand very quickly in India and so we picked up one machine from China and one from the US and the balance we will buy. To that extent, we are controlling our capex and churning out more from the existing facilities.
Is the pricing power intact, or are you seeing a pressure on that front? Have you been able to increase prices or pass it on to the customers?
Pricing is a kind of misnomer. There are multiple ways to look at it. Essel Propack being a global player, you are on the top of list as far as the customer is concerned. They want to talk to you and discuss there business plans with you. And because one customer wants to deal with less and less suppliers, and we having a global footprint, fit the bill. Our ability to churn out products and our ability to implement the projects with the speed we do is a plus for us.
How much of a pain has the rupee been to Esssel Propack this season? Are you fully hedged on the currency front?
Our hedging policy is that first we do not speculate on currencies. It is the actual receivable and payable that we take a view on. In this scenario, for India, we have taken a view that all imports are hedged, exports are not hedged. The rupee would have impacted to the extent of 2% of our prices.
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