AJANTA PACKAGING

WRITTEN ANALYSIS AND COMMUNICATION II

ASSIGNMENT - 3

Submitted By
VIKRAM KHANNA P16027
TOYAJ MALHOTRA- P16030

Memorandum
To: Mr. Deepankar Agarwal

From: XYZ, Executive Assistant

Date: 1 May 2013

Subject: Whether to diversify with a new product portfolio of PET bottles.

Dear Sir,

As requested, please find appended below a report analyzing whether to expand companys
product portfolio with the PET bottles or to continue with only glass bottle packaging.
Recommendations and corresponding action plans are also included.

Sincerely.

XYZ

2
 Executive Summary

Ajanta Packaging has established a niche position as a glass-bottle supplier as it is quality

focused, cost-effective and provides customized packaging. It has a loyal customer base as
90% of its revenue are from repeat customers. Indian glass industry is growing at 15%,
however, it faces threats from durable and low-cost packaging solutions like PET bottles,
tetrapaks, etc. PET bottles have emerged as a preferred medium for packaging for non-
alcoholic beverages as they are low-cost, lightweight, easy to handle and unbreakable.
Changing socioeconomic conditions, high competitive market, and increased raw material
cost have made the brands choose alternative forms of packaging. Therefore, Ajanta should
diversify to gain new customers, retaining existing ones, increase market share and decrease
operating expenses.

Word Count: 119

3
 Table of Contents

Memorandum.......................................................................................................i
Executive Summary............................................................................................ii
Situation Analysis................................................................................................1
Problem Statement.............................................................................................2
Options.................................................................................................................2
Criteria of Evaluation.........................................................................................2
Evaluation of options..........................................................................................2
Recommendations...............................................................................................4
Action Plan..........................................................................................................4

Situation Analysis

The packaging industry of US$500 billion is growing at a compounded average growth rate
of 3.1% with more industries preferring low-cost PET over fragile glass bottles. Ajanta
Packaging has been producing glass bottles for over thirty years but a change in the trend in
packaging industry coupled with a stagnant net profit in the recent years is making the
partners in Ajanta Packaging contemplate about the way forward.

To respond to the growing demand for different types of packing following are the options
available to Ajanta Packaging:

First is to diversify into PET bottles, PET and other forms of flexible packaging are gaining
acceptance both for the protection they offer and the aesthetics. Most of the industries like
soft drinks, pharmaceuticals and Indian Made Foreign Liquor (IMFL) are shifting to PET
bottles for packaging. The total sales of Ajanta Packaging have been increasing continuously
over the last few years. However, the expenses have been increasing in the same proportion
thereby keeping the net profit stagnant at around $25 million. Though Ajanta Packaging is
into the production of PET bottles for some specific customers, more investment is required
to produce it on a larger scale to cater to the growing needs of the industry. Also, the raw

4
material cost of glass bottles has been increasing in the last few years, so it will only be
prudent to diversify into the production of PET bottles as the production cost of it is less
compared to that of glass bottles.

Second is to not diversify into PET bottles as Ajanta Packagings core competency lies in the
production of glass bottles. As of 2010, 80 percent of the total packaging in India is rigid
which includes glass bottles. Most of the customers of Ajanta are repeat customers, so brand
loyalty has been a major reason for the growth in sales over the years. Concentrating on the
production of glass bottles by ramping up capacity and changing marketing strategy to tap the
potential existing in beer, wine and spirits industry can help Ajanta in capturing the markets
as yet held by its competitors such as Hindusthan National Glass & Industries, Piramal Glass,
etc. Also, the business opportunity is increasing in the soft drinks category as the companies
are targeting new regions.

Problem Statement

Whether to diversify the product portfolio with PET bottles?

Options

1. Diversify
2. Not Diversify

Criteria of Evaluation

1. Industry trend: The market of the glass-bottle industry is reducing due to increased
competition and threats posed from different durable and low-cost packaging
solutions. Hence analyzing the market trend and user preference would be of prime
importance.
2. Profit margin: The market is highly competitive and prices sensitive because of the
decreasing demand for glass-bottle industry. In order to sustain the intense price war
between the companies, it is important to be a low-cost produce and maintain target
profits.

Evaluation of options

1. Diversify into PET Bottles:

2
 Industry Trend: IMFL, soft-drinks, and pharmaceutical industries are the major
consumers of glass bottle industry. Change in socio-economics conditions over the
years has resulted in unprecedented growth in sales of alcohol. People have started
preferring foreign premium brands over the traditional ones; this has led the latter to
shift to alternative forms of packaging to guard themselves against the rising prices of
glass bottles. Soft drinks industry growing at 5-6% annually is also a major consumer
of packaged bottle products. However, high competition among the brands in this
market results in companies trying to gain competitive advantage through cost
effectiveness, innovative packaging designs. Therefore, they are switching to
packagings like PET and tetra pak to reduce their expenses and save distribution cost
on the returnable fragile glass bottle. Similarly, the pharmaceutical industry is shifting
to the use of PET bottles to benefit from low weight, small pack size, ease of storage
and transportation, prevent breakages and energy savings.
As a result of these changes, it is important for Ajanta Packaging to increase the
production of PET bottles so as to offer packaging solutions to these industries. The
growth of 15 percent or more in most of these industries is an opportunity for Ajanta
which it can make use of for its growth in sales.

Profit margin: Though the sales have increased over the years, from $61 million in
2008 to $102 million in 2012, expenses have also increased from $37.9 million in
2008 to $82.2 million in 2012 thereby keeping the net profit in the range of about $25
million. The reason for an increase in the expense can be partially attributed to the rise
in the prices of raw materials. PET bottles, on the other hand, cost less in production
than glass bottles, and hence it will reduce the total expense of Ajanta Packaging
while improving the sales. Apart from these, the competitors in the glass industry
have started reducing the prices while negotiating with the present clients of Ajanta.
This move is continuously affecting the sales of Ajanta, and therefore it needs to offer
better solutions at a lower price to counter this. Offering PET bottles as an alternative
will stabilize the sales and increases the profit margin.

2. Not diversifying into PET bottles:

Industry trends: Industries using products manufactured by Ajanta are growing at a
rapid pace. Some of these like pharmaceuticals have been using glass bottles for long
and are repeat customers of the company. With changing trends, these companies are
switching to cost-effective PET bottles and tetra pak. Therefore, not scaling up the

3
 production of PET bottles will deprive Ajanta of an opportunity to increase their
market share. Also, other competitors might make use of this opportunity to make
their position stronger in the market.

Profit margin: Prices of raw materials for glass bottles has been increasing thereby
keeping the net profit stagnant. Not diversifying into PET bottles will maintain the
expense high as also the market share and sales. To increase the sales of glass bottles
the company has to penetrate in the untapped market, which will increase their
expenditures and reduce profits. Due to increasing competition increasing raw
material prices it will be difficult to sustain in the market.

Recommendations

Based on the evaluation of options, it is recommended that Ajanta Packaging should diversify
its product portfolio in PET bottles. It will help the company to gain new customers and
retain existing ones and increase market share. Changing market dynamics can have a
significant impact on the company due to its high dependency on glass-bottle.

Action Plan

1. Maintain customer relationship: Company earns 90% of its revenue from repeat
customers, therefore, by analyzing its customer preferences of packaging options it
can explore different products innovation and retain its customers.
2. Increasing the sales of glass bottles: Sale of glass bottles can be achieved by
increasing its distribution channel and targeting the untapped market.
3. Utilizing current distribution network: It can strengthen its distribution network to
sell the new PET product by giving higher incentives for PET bottles instead of glass.
4. Intensive marketing of PET products: Sales of the PET bottles can be achieved by
doing rapid market penetration, and this will help them to attract new customers and
increase their market share.

Word Count: 1196