The Packman team conducted a financial analysis of a group of Indian monocarton companies from the fiscal year 2017-18 to the fiscal year 21-22, which is the latest period for which data is available. The sample cohort consisted of seventeen companies that are considered representative of the top tier of the industry.
Among the sample cohort, the top five companies had turnovers exceeding Rs. 200 crore, while the bottom five companies had turnovers ranging from Rs. 45 crore to Rs. 90 crore. Most of the companies supplied monocartons for various FMCG segments, including food, alcobev, and pharma products. While the majority of them produced litho-laminated cartons, some also specialized in pharma packaging and luxury cartons for confectionery and cell phones.
Of the seventeen companies, two were also involved in flexible packaging production, five produced labels, and almost all had in-house capabilities for manufacturing corrugated cartons for transport packaging. Nine of the companies had plants in multiple regions across the country. Capacity expansion has been a consistent trend for most of the sample cohort in recent years.
It is important to acknowledge that the sample cohort analyzed in the study does not include certain prominent carton producers in the country. However, the selected companies are representative of the industry as they provide accessible and up-to-date financial data. This ensures a reliable basis for the financial analysis conducted.
Furthermore, despite having equity investors, it is noteworthy that only one company among the sample cohort is listed as a joint stock company on the Indian stock exchanges. This implies that while some companies have attracted equity investment, the majority of them have not pursued public listing and continue to operate as privately held entities.
These observations provide insights into the composition and structure of the industry, indicating the prevalence of privately owned companies and highlighting the availability of comprehensive financial information for analysis purposes.
A quick review of the reported financial figures of the sample cohort reveals that the combined EBITDA (earnings before interest, taxes, depreciation, and amortization) as a percentage of revenue started at 13.2% in FY 17-18, experienced a slight dip in the following two years, and then grew to 14.7% in FY 20-21. However, it dipped again to 13.5% in FY 21-22. Over the reported five-year period, the combined profit of the seventeen companies doubled from approximately Rs. 100 crore to over Rs. 200 crore.
Interestingly, FY 20-21 showed healthier EBIDTA figures for several companies compared to FY 21-22. This can be attributed to lower human resource costs in FY 20-21, followed by a significant 9.45% increase in HR costs in FY 21-22.
Furthermore, the combined EBITDA as a percentage of total revenue declined notably in FY 21-22 compared to the previous year, dropping from 14.7% to 13.5%. However, profits increased by more than 50% in FY 21-22 compared to the previous year, while the combined turnover of the sample cohort rose by 23.6%. This suggests stronger demand and improved efficiencies despite rising raw material costs.
The financial performance of the sample cohort in FY 2021-22 demonstrated the industry’s resilience, as all seventeen companies were profitable. This is a notable improvement compared to the initial years of the survey when one company recorded a loss in the first year, and two companies experienced losses in the subsequent three years. The industry’s ability to achieve profitability showcases its adaptability in overcoming inflationary challenges related to raw material costs by optimizing the utilization of installed capacity.
In the midst of the pandemic, during FY 20-21, the industry experienced positive developments. There was an increase in EBITDA and profitability, indicating the industry’s ability to navigate challenging circumstances effectively. Additionally, there was marginal growth in turnover, demonstrating stable market demand. Furthermore, the industry showcased efficient resource management with a decline or stability in raw material consumption and a slight dip in employee benefit costs. These factors collectively contributed to the industry’s ability to maintain profitability during the pandemic year.
Overall, the industry’s performance in FY 2021-22 and the preceding years highlights its resilience, adaptability, and capacity to overcome challenges while driving profitability and sustainable growth.
Some companies that experienced a decline in profitability attributed it to the continuous increases in raw material prices, where they struggled to pass on the higher costs to their customers before facing further price hikes.
Despite facing inflationary challenges, the Indian monocarton industry has shown resilience and potential recovery in the past year. However, caution is advised due to the inflationary trends observed. The industry has encountered obstacles in capacity expansion, primarily due to delays in the shipment of highly configured multicolor presses ordered from major manufacturers. These delays are a result of supply chain and energy dysfunctions. Notably, some of these projects were planned two or three years ago, further contributing to the constraint on capacity expansion within the industry.