PET Consumption in India Demand Forecast

Objective

To formulate a realistic estimate for PET demand over the next 3-5 years To identify trends and determinants that will influence demand and help build alternate scenarios for PET demand

Structure

Part I: The macroeconomic context for analysis Part II: Selecting an estimation method Part III: Approach and methodology Part IV: PET demand estimates and findings Addendum: Other information

Part I:
The macroeconomic context
A new boom phase marked by high growth, rise in consumer spending and changing lifestyles

GDP growth has entered a higher orbit

10 8 6 4 2 0
1970 1974 1978 1982 1986 1990 1994 1998 2002 2006
Leading to strong industrial growth

Real GDP Growth (%)

5.6% 4.1% 4.8%

7%

-2 -4 -6

1970-79: Socialism-led Hindu rate of growth

1980-91: Rajiv Gandhi undertook limited reforms

1992Post-reforms period

2010

* 2005-10 are forecasts

12

BoP crisis triggered reforms

the economy is entering a new growth phase

Growth will be strong and consistent

Nominal GDP (USD trillion)

50 40 30 20 10 0

China Japan Germany

India US

2000

2010

2020

2030
9 8 7 6 5 4 3 2 1

2040

2050
Brazil

India: fastest growing economy by 2012

China India Russia

India: third largest world economy by 2032

Source: Goldman Sachs Report (2003) Dreaming with the BRICs: The path to 2050

Real GDP Growth (%)

2005

2015

2025

2035

2045

Services and Industry will drive growth

Agriculture 45% 31% 24%
Low income nations

Industry 70% 10% 20%

High income nations

Services 51% 27% 22%

India
58 28 15

Agriculture 32 22 46 37 24 40 1981

Industry 41 27 32 1991

Services

48% 40% 12%

Lower middle income nations

51

56

27 22 2003

28 16 2010*

1951

1971

An average 8.5% growth in Services will create more white collar jobs and propel the trend towards urbanisation and aspirational lifestyles An average 6.5% Industrial growth will create blue collar employment and boost incomes and spending in the middle and lower-middle classes However, agriculture will remain monsoon-impacted; hence, average growth will be relatively modest (3%)
* IMA India forecast, assuming 8.5% average growth in Services, and 6.5% average growth in Industry from 2004-05 to 2009-10

This is leading to higher incomes

2000-01 2006-07* 2000-01 High Upper Middle Middle Lower Middle 2006-07*

2 3 9 Rural

6 6 18

9 10 21 Urban

25 22 27

32
54

46
24

35
24

24
3

Lower

Consumption will be fuelled by greater number of households rising to the high and middle-income categories the inverted pyramid Source: NCAER (% of HH)
Income classes (annual household income, Rs) High (> 215,000); UM (45,000-215,000); M (22,000-45,000); LM (16,000-22,000); L (<16,000)

*estimated

accompanied by rapid urbanisation

% of urbanised population
50 45 40 35 30 25 20 15 10 5 0

1991

2001

36% urbanisation by 2030

Source: Census of India

2030

TamilNadu

All India

Madhya Pradesh

Bihar

Steady urbanisation nationally but faster in the key consuming states of Tamil Nadu, Maharashtra, Gujarat, Karnataka, Punjab, and Haryana

Himachal Pradesh

Andhra Pradesh

Maharashtra

Karnataka

Rajasthan

Haryana

Punjab

Kerala

Uttar Pradesh

Gujarat

West Bengal

Orissa

rising per capita income

35000 30000 25000

China

India

USD

20000 15000 10000 5000 0 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Indias per capita income will increase five-fold by 2025 and will be the fastest growing between 2025-2050
Source: Goldman Sachs Report (2003) Dreaming with the BRICs: The path to 2050

and favourable demographics

Population Distribution (Million): 1996
0 0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80+ 25 50 75 100 125
0-4 5-9 10-14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80+ 0

Population Distribution (Million): 2016

25 50 75 100 125

Rising share of working age population

Demographic Bonus will peak in 2010

North South

0.52

0.53 0.51 0.45

0.38

0.35

0.06

0.02

A larger working population means more income and fewer dependents hence, greater surpluses and spending power

1995-00 2000-05 2005-10 2010-15 2015-20 2020-25

Difference between growth rate of working and non-working population

The result: an explosion in consumption

Passenger vehicles sales (000)
947 765 550 779 1030

With over a million cars annually, currently India is worlds 12th largest market expected to become the 7th largest by 200607
Two-wheeler sales (million)
5 3.7 1.3
1993-94 2000-01 2001-02 2002-03 2003-04

1993-94 2000-01 2001-02 2002-03 2003-04

5.6

With over 5 million units sold annually, India is the second largest two-wheelers market in the world

4.3

The consumption boom

Cellular subscribers^ (million)
37.3

26.1

12.7 2 1999-00 3.6 6.5

0.9 1997-98

1.2 1998-99

2000-01

2001-02

2002-03

2003-04 2004-05*

In the last 5 years, cellular telephony has grown by 70-80% annually adding more subscribers than added in the previous 50 years
^ Includes GSM mobile telephones only
* as on Dec 2004

The consumption boom (2)

CTV sales (millions)
8 5 2.1
3

5.5

At 9 million CTVs pa, currently India is the worlds 5th largest market expected to be the third largest by 2005-06
PC sales (millions)
3.8

1996

2001

2002

2003

2004
1.9 1.7

2.3

PC sales have doubled to almost 4 million units in 3 years; projected to more than double by the end of the decade

0.6
1996-97 2000-01 2001-02 2002-03 2003-04 200405*

* MAITs estimates

The consumption boom (3)

Growth in retail finance (Rs billion)
830 630 430 230 30
2000-01 2001-02 2002-03 2003-04 2006-07*

Credit cards ownership (millions)

11.5 8.7 6.9 3.1 3.5 4.2 4.9

Housing Car Two wheelers Consumer durables

1.9

2.5

1995

1996

1997

1998

1999

2000

2002

2003

*estimated

Consumer credit has more than doubled to Rs 800 billion over the last 3 years

Credit card ownership has trebled in 4 years

2004

The capital markets are buoyant too

Growth in HH asset creation (%) 40 30 20 10 0 BSE sensex (right axis) 7000 6000 5000 4000 3000 2000 1000 0

1995

1996

1997

1998

1999

2000

2001

2002

2003

-10 -20

Fiscal year ended

Household asset purchases are driven by the wealth effect which is reflected in the state of the capital markets Strong capital market typically induce greater consumption of luxury goods, durables, etc and vice-versa

2004

Part II:
Selecting a demand estimation method for PET

Macroeconomic extrapolation
The macroeconomic context suggests that growth rates across key sectors of the economy will be strong
This is on account of the combined effects of factors such as strong GDP growth, higher incomes, lifestyle changes, availability of options, urbanisation, media exposure, etc With the Indian economy in the midst of a strong boom phase, this performance can be sustained over the next few years The low per capita consumption of several products in relation to international levels implies scope for further growth in these categories

Prima facie, this would suggest that growth rates in the PET industry (and its user industries) should exhibit a similar trend However, a range of sector-specific, micro level factors are also at work these have a more direct bearing on growth prospects

Sectoral growth rates do not exhibit a strong correlation with GDP growth
160 140 120 100
%

Soft drinks GDP current prices Car sales

Introduction of pre-paid cards boosted telecom growth

Credit cards Cellular phones

Falling finance rates led to increase in car sales and credit cards growth Pesticides controversy and high input costs hit growth in CSD

80 60 40 20 0 -20 1996-97 1998-99 2000-01 2002-03

2004-05

Micro demand-determinants are more relevant

nor does the trend in the PET industry

PET demand is derived Growth in PET vs GDP 70 from several consumer PET growth 60 goods sectors each with GDP growth different cyclical patterns, 50 (current prices) 40 demand dynamics and 30 conversion propensities 20 In addition, pricing, availability of substitutes, 10 regulation and consumer 0 2000-01 2001-02 2002-03 2003-04 2004-05 perception issues exist The net result: a diffused, almost non-existent relationship with aggregate macroeconomic indicators Hence, a need for a more robust, micro-level approach

Part III:
Approach and methodology

Approach Basic principles: As an industrial input, PET demand is directly and completely explained by demand from user industries Assuming constant input-output manufacturing ratios, volume growth in PET demand will be determined by three factors:
Volume growth in existing user industries Propensity to convert to PET (i.e. PET usage vis--vis alternative packaging material) in each existing user industry Emergence of new user industries for PET

Approach (2): Derived Demand A Robust Model

Focuses on the direct sources of demand i.e. user industry demand, rather than relying on abstract statistical models (which are based on past data) or indirect estimation methods (e.g. consumer research) Takes into account industry-specific factors governing PET usage which cannot be captured either through consumer research or statistical modelling Inherently adjusts for macro factors, both quantitative (e.g. GDP growth, income growth, industrial growth, oil prices, etc) and qualitative (e.g. lifestyle changes, westernisation, hygienic awareness, cultural factors, etc) in terms of their specific influence in each industry; thereby avoids a dependence on generalisations and subjective correlations Enables the identification of underlying factors and hence, allows for the building of alternate scenarios critical in defining extreme points of a forecast range

Approach (3)
In summary: Examine the macroeconomic context within which to interpret growth estimates and forecasts Estimate growth in each user industry over the next 3-5 years Quantify propensity to shift to PET in each industry In each case, identify causative factors and by extension, those that can lead to higher/lower demand in an industry or its PET consumption Explore possible new uses of PET and the resulting demand Obtain further validation by looking at growth expectations of intermediate players (pre-form/bottle manufacturers)

Methodology
Core methodology: primary research tap the most authoritative sources of information and insights Interview leading players in each user industry Interview leading pre-form/bottle manufacturers
seek 3-5 year growth forecasts for each user industry/PET industry multiple responses obtained from major players to arrive at representative average values (PET manufacturers also asked to respond to industry-wise growth expectations to corroborate user industrys estimates) identify causative factors and influences and seek scenariobased growth ranges Understand factors governing increase/decrease in PET usage in each industry Identify possible new uses of PET and use of recycled PET

Focus on senior-level interviews given the long term and strategic nature of questions involved

Methodology (2) Support with desk research to: Understand additional factors/trends in each industry Stated growth expectations of industry players; views on PET usage Analysts and observers forecasts, if any

Part IV:
PET demand estimates and findings

PET consumption in India

Bottle-grade PET consumption: 137 Kilotonnes (Apr 2004 to Mar 2005)
Spirits 9% Pesticides 4% Edible oils 6% Others** 4% Packaged water 21%

Foods* 3% CSD 22% Confectionary 7%

Healthcare 8%

Personal care 15%

CSD, packaged water and personal care account for over half of the total consumption currently Last 5 years CAGR: 42%; a seemingly high rate of growth however, skewed because of the low base (e.g. 4-year CAGR is 36%, 3-year CAGR is 29%)
* Includes malted and other food products and artificial juices/drinks ** includes retail PET bottles/jars and homecare products

CSD: An Overview
Recent growth trend ~10%, reflecting the adverse impact of the pesticides controversy of 2003 and continuing tax anomalies Nevertheless, low per capita consumption** (10) vis--vis comparable nations Pakistan (18), Sri Lanka (24), China (21), Thailand (113) indicates substantial untapped potential and scope for long term growth Over the next 5 years growth will be higher: players will drive width (new consumers) in rural markets (rural penetration has almost doubled over the past 3 years) and depth (greater consumption by existing customers) in urban markets
Forecasts* Base case: 13% Optimistic: 15% Pessimistic: 12% Key scenario determinants^ Tax corrections within 2-3 years; stable input costs; no further regulatory conflicts Immediate tax correction; low input costs Volatile economic/agricultural growth; high input costs
** 8-ounce servings

* Forecasts based on inputs by major industry players ^ Only includes major determinant behind each scenario; not an exhaustive listing of all growth-impacting determinants

CSD: Growth Estimates

5-year PET demand growth forecast: 22.5% Computation: 13% growth in CSD + conversion to PET Conversion: 20% of total CSD in PET will rise to 30% by 2009-10 Implied rate of PET growth with 13% industry growth: ((0.3(1.13^5)/0.2)^(1/5) = 22.5%
PET demand (kilotonnes)
85.5

12

20

25

25

31

Additional considerations: Focus on family/home consumption (i.e. 1-2 litre bottles) will drive PET usage, as will rapid urban retail development (which encourages consumption on the go) Over a 5 year period, PET growth will be robust, but not linear continuous sales-driven innovations in CSD will shift the balance from time to time

1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2009-10

Packaged Water: An Overview

Recent growth trend ~25% a high rate on account of the low base Increased hygiene awareness; entry of MNCs (Pepsi, Coca Cola); and poor urban municipal water supply have driven growth Yet, per capita consumption is low (litres per person per year) India (1), Asian average (10) and USA (90) indicating substantial untapped potential Over the next 5 years underlying growth factors remain strong, hence growth will remain robust; but will gradually settle to more realistic levels
Forecasts* Optimistic: 26.5% Key scenario determinants^ Stable and progressive regulation (food standards, etc); quick acceptance in semi-urban markets Base case: 22.5% Urban water supply infrastructure to remain weak

Pessimistic: 18%

Rapid improvement in urban water supply

* Forecasts based on inputs by major industry players ^ Only includes major factors behind each scenario; not an exhaustive listing of all growth-impacting determinants

Packaged Water: Growth Estimates

5-year PET demand growth forecast: 22.5%
PET demand (kilotonnes)
80

Computation: 22.5% industry growth* + conversion to PET Conversion: Nil. Packaging mix to remain constant (predominantly PET)

29 5 10 16 17 20

Additional considerations: Rapid urbanisation and emphasis on hygiene will bring new consumers into the fold and sustain healthy growth in the bottled water segment Bulk packs will increasingly become an alternative to (poor) municipal water supply (which is unable to keep pace with urban population growth), in both major and second-rung urban centres will grow even faster
* 18% growth in bottled segment (55% weightage) and 28% growth in bulk segment (45% weightage)

1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2009-10

Personal Care: An Overview

Recent growth trend ~20%; driven by innovation in packaging material and smaller pack sizes Low per capita expenditure hence, scope to drive consumption continues to exist e.g. shampoo (ml per capita) India:38, Brazil:
444, US: 1018, world average: 383 ml; skin care products (Rs per capita) - India: 20, UK: 902, USA: 843, Argentina: 353

Over the next 5 years growth will remain consistent, given the effects of westernisation and media exposure and rise in incomes; low penetration levels (skin care-25%, hair wash-23%) clearly indicate scope for driving new consumption
Forecasts* Base case: 20% Optimistic: 22% Key scenario determinants^ Growing media access and trade liberalisation (the channels of westernisation) Strong agricultural growth to encourage acceptance in rural markets Volatile economic growth, high input costs/tariffs

Pessimistic: 18%

* Forecasts based on inputs by major industry players ^ Only includes major determinant behind each scenario; not an exhaustive listing of all growth-impacting determinants

Personal Care: Growth Estimates

5-year PET demand growth forecast: 20% Computation: 20% growth in industry + conversion to PET Conversion: Nil. Packaging mix (~20% PET) to remain broadly constant
PET demand (kilotonnes)
50

11

15

20

Additional considerations: Current growth will be sustained through sachetisation (to reduce entry cost and bring new consumers into the fold) and category branding (to create need for specialised application products e.g. skin care, facial care etc amongst existing consumers to enhance their consumption) (Marginal) scope for change in packaging mix exists based on price equations vis--vis substitutes (see summary of scenarios)

1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2009-10

Healthcare: An Overview
Recent growth trend ~16%, driven largely by increased health awareness and lifestyle changes Low per capita health expenditure (USD in PPP terms): India (80), China (224), Thailand (254) offers significant scope for continuing growth Over the next 5 years growth will rise even further as the newly ushered-in patent protection regime will encourage new product introductions and market expansion
Forecasts* Base case: 18% Key scenario determinants^ Continuing urbanisation and health awareness, strong patent protection Optimistic: 20% Regulatory clarity on status of OTC# drugs and easing of restrictions on marketing, promotion, distribution Pessimistic: 15% Weak patent protection or enforcement
* Forecasts based on inputs by major industry players ^ Only includes major determinant behind each scenario; not an exhaustive listing of all growth-impacting determinants
# Over The Counter

Healthcare: Growth Estimates

5-year PET demand growth forecast: 28% Computation: 18% growth in industry + conversion to PET Conversion: 20% of total OTC in PET will rise to 30% by 2009-10 Implied rate of PET growth with 18% industry growth: ((0.3(1.18^5)/0.2)^(1/5) = 28%
PET demand (kilotonnes)
38

11

1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2009-10

Additional considerations: Convenience will drive shift towards PET; technology advancement (e.g. PET that does not react with vitamins) can spur this trend further However, relative cost of PET (vis--vis substitutes) will determine rate of shift; scope for faster conversion exists if price equation changes significantly

Spirits (excluding beer): An Overview

Recent growth trend ~9% a stable and long term trend Indias per capita consumption of liquor (2.5 litres) is well below Asian levels Korea (33.2 litres); China (11.1 litres); despite this untapped potential, growth will be limited by regressive regulations and capacity expansion constraints* Over the next 5 years growth will be constant at current levels; scope for marginally higher growth stems from consumers shifting away from the informal sector (e.g. country liquor) a trend that is being encouraged by state Governments^
* Liquor is a state policy subject; most states have stopped issuing licenses for new capacities ^ 3 southern states accounting for 60% of national consumption, have already banned the sale of country liquor

Spirits (excluding beer): An Overview (2)

Forecasts* Base case: 9% Optimistic: 11% Key scenario determinants^ Current policies and tariffs to continue Greater emphasis on hygienic drinking; further restrictions on country liquor Higher tariffs in key consuming states; restrictions on beer and wine eased (will cannibalise spirits sales)

Pessimistic: 8%

* Forecasts based on inputs by major industry players ^ Only includes major determinant behind each scenario; not an exhaustive listing of all growth-impacting determinants

Spirits (excluding beer): Growth Estimates

5-year PET demand growth forecast: 10.5%
PET demand (kilotonnes)

20

Computation: 10.5% growth in regular segment* (low priced 12 brands) + conversion to PET 8 Conversion: Nil. Packaging mix 7 5 to remain broadly constant but 4.5 4 year-to-year variations may exist (based on relative prices) 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2009-10 Additional considerations: PET usage will be limited to some regular segment brands and defence supplies No scope for PET usage in premium brands due to consumer perceptions and technical constraints (guala caps cannot be fitted on PET bottles) However, regular segment will witness higher-than-industry growth on account of entry of consumers shifting up from the informal sector
* Based on industry estimate that growth in the regular segment will lead overall industry growth by 1-2 percentage points; regular segment defined as spirits priced below Rs 180-200 a litre

Confectionery: An Overview
Recent growth trend ~5% Rigidity of price points (minor price reductions do not spur demand) and an uncertain tax/regulatory environment has limited growth, despite the potential suggested by per capita consumption e.g. sugar confectionery (grams per capita) India: 621,
UK: 4600, Sweden: 9600; chocolates (grams per capita) India: 312, UK: 9300, Sweden: 6400

Over the next 5 years growth will be marginally higher assuming tax reform; regulatory reform (e.g. Integrated Food Law, safety standards) can spur growth further through new product introductions (sugar-free, adult chewing gums, etc)
Forecasts* Base case: 6% Optimistic: 8% Pessimistic: 5% Key scenario determinants^ Current economic growth; ongoing tax reform; rural penetration Integrated food law and well-enforced safety standards Volatile economic growth, high input/infrastructure costs

* Forecasts based on inputs by major industry players ^ Only includes major determinant behind each scenario; not an exhaustive listing of all growth-impacting determinants

Confectionery: Growth Estimates

5-year PET demand growth forecast: 9% Computation: 6% growth in industry + conversion to PET Conversion: 70% of total confectionery in PET will rise to 80% by 2009-10 Implied rate of PET growth: ((0.8(1.06^5)/0.7)^(1/5) = 9%
PET demand (kilotonnes)

14
9 7 5 0.5 2

2000-01 2001-02 2002-03 2003-04 2004-05 2009-10

Additional considerations: PET will remain the primary packaging option but pouches in small proportions will continue to be used as refills Entry of players with deep rural distribution (e.g. HLL, ITC) will help drive penetration in these markets

Packaged Edible Oils: An Overview

Recent growth trend ~14% on account of increasing hygiene awareness in urban markets and partial shift by consumers from loose oils to packaged oils; however, growth has been gradually falling in recent years from initial high growth phase Although scope for further shift from loose segment exists, growth will be limited by tax and regulatory discrimination (which adversely impacts packaged oil producers) and the fact that Indias per capita consumption (10 kg/year) is now approaching the world average (17 kg/year) Over the next 5 yearsgrowth will continue its correction to a long term trend average
Forecasts* Base case: 12% Key scenario determinants^ Stable growth in urban markets, moderate conversion from loose oils to packaged oils Optimistic: 15% Removal of tax anomalies, cut in import tariffs Pessimistic: 10% Further increase in import tariffs/domestic excise
* Forecasts based on inputs by major industry players ^ Only includes major determinant behind each scenario; not an exhaustive listing of all growth-impacting determinants

Packaged Edible Oils: Growth Estimates

PET demand (kilotonnes)

5-year PET demand growth forecast: 12%

14

Computation: 12% growth in industry + conversion to PET Conversion: Nil. Packaging mix to remain broadly constant

8 3 4 5 6 6

Additional considerations: PET packaging limited to specific brands and consumer segments where transparency is a desirable feature; other materials will remain important due to molding flexibility and opacity In the long term, an increase in domestic oilseed production can help maintain growth by reducing dependence on highly-taxed imports

1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2009-10

Energy/Malted Foods: An Overview

Recent growth trend ~6% Witnessing sluggish growth on account of adversely changing demographics (fewer individuals in the juvenile and dependent age group, vis--vis the working age group) Higher disposable incomes have been channeled into alternative food products; growth in this segment has progressively and consistently fallen from 7% in the late 90s Over the next 5 years demographic trends will continue to restrict consumption; growth rates expected to fall further

* Forecasts based on inputs by major industry players ^ Only includes major determinant behind each scenario; not an exhaustive listing of all growth-impacting determinants

Energy/Malted Foods: Growth Estimates

5-year PET demand growth forecast: 5%
PET demand (kilotonnes)

2
1.5 0.75

Computation: 5% growth in industry + conversion to PET Conversion: NIL

0.6 0.3

Additional considerations: 2001-02 2002-03 2003-04 2004-05 2009-10 PET usage will remain limited to promotional supplies/specific SKUs* due to cost, perceived technical issues (such as moisture absorption by PET and lower shelf life of PET-packaged bottles) and availability of well-accepted familiar substitutes (glass, tins, etc) in this product category
* Stock keeping units

Other Beverages*: An Overview

Recent growth trend ~20%; driven by rising health and wellness awareness among urban consumers Low per capita consumption reinforces growth potential e.g. fruit beverages (litre per person per year) India (0.2), China (1.7), US (56.8), world average (5.7) Over the next 5 years growth rates will be sustained at current levels given the growth in disposable incomes; growth could be higher if regulatory reforms (e.g. PFA) enable new product introductions (e.g. diet drinks)
Forecasts* Base case: 20% Key scenario determinants^ Continuing urbanisation and income growth, ongoing trade liberalisation Optimistic: 24% Integrated food law will enable introduction of new products to drive higher growth; FDI in retail will give wider exposure/choice to consumers and boost demand Pessimistic: 18% Volatile economic environment, unwillingness in semiurban/rural markets to shift from traditional beverages
* Forecasts based on inputs by major industry players ^ Only includes major determinant behind each scenario; not an exhaustive listing of all growth-impacting determinants
* Fruit juices, RTS (ready-toserve) drinks, etc

Other Beverages: Growth Estimates

5-year PET demand 13 growth forecast: 30% Computation: 20% growth in industry + conversion to PET Conversion: 20% of total beverages in PET will rise to 3.5 30% by 2009-10 1.8 1.4 0.7 Implied rate of PET growth: ((0.3(1.2^5)/0.2)^(1/5) = 30% 2001-02 2002-03 2003-04 2004-05 2009-10 Additional considerations: Players will drive depth of consumption to achieve continuing growth this will favour greater usage of PET (e.g. 1 litre PET bottles) PET will also increasingly become a means for product differentiation vis-vis conventional tetrapak packaging Availability of PET heat-filling technology will also encourage conversion*
* The greatest impact of this technology will however, be in the natural fruit juice segment this is computed separately in the new uses section

PET demand (kilotonnes)

Pesticides: An Overview
Recent growth trend ~4% volatile and unstable growth due to erratic monsoons; major producers shifting focus to exports to drive top-line growth Despite low per capita consumption (600 grams per hectare, compared to 10 kg per hectare in developed countries), growth prospects are limited by purchasing power and unpredictable weather conditions/pest attacks Over the next 5 years growth will be marginally higher than current levels, based on gradual improvements in farming techniques/awareness levels
Forecasts* Base case: 5% Optimistic: 7% Key scenario determinants^ Agricultural growth to remain moderate (<3% average) Higher agriculture growth, faster acceptance of modern farming techniques (based on the current Governments focus on agriculture) Volatile agricultural growth, regulatory/environmental restrictions on use of certain chemicals in pesticides

Pessimistic: 4%

* Forecasts based on inputs by major industry players ^ Only includes major determinant behind each scenario; not an exhaustive listing of all growth-impacting determinants

Pesticides: Growth Estimates

5-year PET demand growth forecast: 21% Computation: 5% growth in industry + conversion to PET Conversion: 5% of total pesticides in PET will rise to 10% by 2009-10 Implied rate of PET growth: ((0.1(1.05^5)/0.05)^(1/5) = 21%
PET demand (kilotonnes)

15

6 3 1 1 1 4

1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2009-10

Additional considerations: A gradual focus on shelf-appeal and packaging quality will drive the shift to PET

Others*
5-year PET demand growth forecast: 8%
Computation: 8%* growth in industry + conversion to PET Conversion: not applicable
PET demand (kilotonnes)

9
6 4 3 3

1.5 Key considerations: 1 Lifestyle improvements and aspirations driving demand 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2009-10 for hygienic home storage options (PET jars/ containers) Penetration being driven by new shapes, sizes and colours of PET jars and containers However, re-usage of PET-packaged products (e.g. CSD, bottled water, foods, etc) will moderate the demand for new jars and containers

* Forecasts based on inputs by PET/ pre-form manufacturers

* Includes retail PET bottles/ jars and homecare products

Estimated PET Demand: Base Case Scenario

Others Pesticides Other beverages Energy/malted food Edible oils Confectionery Spirits Healthcare Personal care Packaged water CSD

340.5KT

137 KT

2004-05

2009-10

2009-10 figures arrived at by applying industry-specific CAGR forecasts to 2004-05 figures for PET consumption by industry (as provided by RIL) Forecasts do not include PET usage in beer and natural fruit juices

Estimated PET Demand: All Scenarios

Others Pesticides Other beverages Energy/malted foods Edible oils Confectionery Spirits 340.5 Healthcare Personal care Packaged water CSD

434 KT 10 KT 9

15 13 2 14 14 20 38 50

17 18 2 16 15 29 8 268 KT 15

55 67

137 KT

6 6 3.5 1.5 8 9 12 11 20 29 31 2009-10

94 80

10 2 13 13 19 27 34 58

85.5 2009-10

111

68 2009-10

2004-05

Current

Base case

Optimistic

Pessimistic

2009-10 figures arrived at by applying industry-specific CAGR forecasts to 2004-05 figures for PET consumption by industry (as provided by RIL) Forecasts do not include PET usage in beer and natural fruit juices

PET Demand: Year-on-Year Estimates (KT)

Base case forecasts only
CSD Personal care Spirits Packaged edible oils Other beverages Others Packaged water Healthcare Confectionery Energy/malted foods Pesticides 248

340.5
292

207

171 137

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

Forecasts do not include PET usage in beer and natural fruit juices

Summary of Scenarios
Scenarios Industry growth PET growth Assumptions regarding PET usage (assumptions regarding industry growth are covered in individual industry sections) CSD Base case Optimistic Pessimistic Base case 13% 15% 12% 22.5% 22.5% PET penetration will rise from 20% to 30%* 29% PET penetration will rise from 20% to 35%* 17% PET penetration will rise from 20% to 25%* Packaged water 22.5% PET penetration will remain constant

Optimistic
Pessimistic

26.5%
18%

26.5% PET penetration will remain constant

15% PET penetration will fall from 85% to 75%, assuming 1 major players shift to polycarbonate or polypropylene due to favourable cost economics

* Pet usage will not grow in a linear fashion given continuous pack size and other innovations in the industry, which will shift the balance vis-vis PET from time to time

Summary of Scenarios (2)

Scenarios Industry growth PET growth Assumptions regarding PET usage (assumptions regarding industry growth are covered in individual industry sections) Personal care

Base case Optimistic Pessimistic

20% 22% 18%

20% PET penetration will remain constant 27.5% PET penetration will rise from 20% to 25%, if PET prices fall significantly vis--vis substitutes 11.5% PET penetration will fall from 20% to 15%, if PET prices rise significantly vis--vis substitutes Healthcare 28% PET penetration will rise from 20% to 30% 38% PET penetration will rise from 20% to 40%, if PET prices fall significantly vis--vis substitutes 20% PET penetration will rise from 20% to 25%, if PET prices rise significantly vis--vis substitutes

Base case Optimistic Pessimistic

18% 20% 15%

Summary of Scenarios (3)

Scenarios Industry growth PET growth Assumptions regarding PET usage (assumptions regarding industry growth are covered in individual industry sections) Spirits* Base case Optimistic Pessimistic 9% 11% 8% 10.5% PET penetration will remain constant^; growth will be equal to growth in the regular# segment 19.1% PET penetration will rise from 30% to 40%, if PET prices fall significantly vis--vis substitutes 9.5% PET penetration will remain constant^, growth will be equal to growth in the regular # segment Confectionery Base case Optimistic 6% 8% 9% PET penetration will rise from 70% to 80% 11% PET penetration will rise from 70% to 80%

Pessimistic

5%

8% PET penetration will rise from 70% to 80%

#

* Excludes beer ^ Year-to-year variations in PET usage are possible based on price movements vis--vis glass

Spirits priced below Rs 180-200 a litre

Summary of Scenarios (4)

Scenarios Industry growth PET growth Assumptions regarding PET usage (assumptions regarding industry growth are covered in individual industry sections)

Packaged edible oils

Base case Optimistic 12% 15% 12% PET penetration will remain constant 15% PET penetration will remain constant

Pessimistic
Base case Optimistic Pessimistic

10%
5% 5% 5%

10% PET penetration will remain constant

Energy/malted foods 5% PET penetration will remain constant 5% PET penetration will remain constant 5% PET penetration will remain constant

Summary of Scenarios (5)

Scenarios Industry growth PET growth Assumptions regarding PET usage (assumptions regarding industry growth are covered in individual industry sections) Other beverages* PET penetration will rise from 20% to 30% PET penetration will rise from 20% to 35% PET penetration will rise from 20% to 25% Pesticides PET penetration will rise from 5% to 10% PET penetration will rise from 5% to 10% PET penetration will rise from 5% to 10%

Base case Optimistic Pessimistic Base case Optimistic Pessimistic

20% 24% 18% 5% 7% 4%

30% 39% 23.5% 21% 23% 19.5%

Base case Optimistic Pessimistic

8% 10% 6%

Others^ 8% PET penetration will remain constant 10% PET penetration will remain constant 6% PET penetration will remain constant

* Includes artificial fruit juices, nectars, RTS (ready-to-serve) drinks; natural fruit juices are covered separately in the new uses section ^ Includes PET jars/containers sold in retail and PET usage in homecare products

New Uses For PET

Beer Research reveals divided opinions on PET usage in beer due to cost, technical limitations (crown cap fitting, chilling, pre-pasterising) and consumer perception issues However, technology exists globally and can potentially be introduced in India within 1-2 years PET usage by 2010 could be in the range of 5.5 KT (assuming 7% growth in the beer industry and a shift of 5% of the total beer market shifting to PET every year between 2007-08 and 2009-10*)

* Estimate provided by PET/pre-form manufacturers

New Uses For PET (2)

Natural fruit juices (fruit content >85%) Currently, natural fruit juices are not packaged in PET since heat-filling technology for PET was not available in India With the technology becoming available, scope for shifting partially to PET exists primarily for differentiation and shelf appeal purposes PET usage in 2010 would be <1 KT, assuming 30% of natural fruit juices are packaged in PET by 2010
Size of natural fruit juice market is 4 million cases currently This will grow to 10 million cases (56.6 million litres*) at a CAGR of 20% by 2010 30% of this volume with a conversion factor of 25 grams of PET resin per 500 ml implies PET consumption of 0.85 KT by 2010
* I case = 8 ounces x 24 = 5.66 litres

New Uses For PET (3)

Dairy products (flavoured milk, long-life milk, etc) Immediate constraint is inability to sterilise PET bottles Although technology to overcome this constraint exists globally, it is not considered feasible in the foreseeable future, due to prohibitive costs However, this is a preliminary assessment by industry players made in the absence of detailed cost estimates of the new technology

Addendum:
Other information

About IMA India

IMA India is an Associate of Economist Corporate Network, the business information division of The Economist Group, UK Provides the full range of ECN services in India peer group forums, executive briefings, conferences and research independently and through the network of ECN offices across the region Undertakes pan-Asian research and business surveys in collaboration with the Economist Intelligence Unit (EIU) the macroeconomic and business research arm of The Economist Group In addition, undertakes a range of country-specific activities advisory services, corporate knowledge programmes, etc independently

Entities interviewed for the project

User industries CSD: PepsiCo, Coca Cola Packaged water: Parle, PepsiCo, Coca Cola, Bisleri, DS Foods Personal care: P&G, Dabur, HLL, Confectionery: Perfetti, Nestle Healthcare: Ranbaxy, Pfizer, Wockhardt Spirits: The UB Group, Radico Khaitan, Seagram Energy foods: GlaxoSmithKline, Nestle Other beverages: PepsiCo, Dabur, Parle Edible oils: Agrotech, Amrit Agro Pesticides: Rallis PET manufacturers Amcor RivaPet Sunrise PET ShriPET Other: Integrated Caps