Ajanta Packaging: Business Dilemma | Business Case

Ajanta Packaging : Business Dilemma

Section E

Group 9

Vivek Garg PGP32220

Shagun Jhalani PGP32216
Rahul Verma PGP32225

Statement

This is our original work and we affirm that no part of this

has been copied and/or pasted from any source

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Ajanta Packaging: Business Dilemma | Business Case

Table of Contents
Table of Contents ........................................................................................................................ 2
Summary ..................................................................................................................................... 4
Statement of the Problem ......................................................................................................... 5
1 Changing Times and Global Landscape ........................................... 5
1.1 Glass Packaging Industry ...............................................................................................5
.... 1.1.1 Evolution of Glass Packaging Industry ..................................................................5
.... 1.1.2 Organisation Overview...........................................................................................5
.... 1.1.3 Business Need ........................................................................................................5
.... 1.1.4 Changing Environment ...........................................................................................6
1.2 Strategic Fit ....................................................................................................................6
1.3 Detailed Description of the Business Need ....................................................................6
.... 1.3.1 Opportunity ............................................................................................................6
.... 1.3.2 Prioritized Requirements (High Level) ..................................................................6
.... 1.3.3 Assumptions ...........................................................................................................6
Table B: Key Assumptions behind the scenario.........................................................................6
.... 1.3.4 Constraints..............................................................................................................6
.... 1.3.5 Dependencies .........................................................................................................7
Table C: Major Dependencies and their behavior ....................................................................7

2 Analysis and Recommendation ...................................................... 7

2.1 Preliminary Options Analysis ........................................................................................7
.... 2.1.1 Evaluation Criteria .................................................................................................7
.... 2.1.2 What options do we have? ......................................................................................7
.... 2.1.3The Status Quo ........................................................................................................8
.... 2.1.4 What can we do? ....................................................................................................8
.... 2.1.5 How well the options fit? .......................................................................................8
.... 2.1.6 Rationale for Discounted and Viable Options ...................................................... 10
.... 2.1.7 Advantages and Disadvantages ............................................................................ 10
Table E: Key Options with advantages and disadvantages ..................................................... 10
2.2 Recommendation..........................................................................................................11

3 Management and Capacity .......................................................... 11

3.1 Managing the Investment .............................................................................................11
.... 3.1.1 Project Management Strategy............................................................................... 11
.... 3.1.2 Contracting and Procurement ............................................................................... 12
.... 3.1.3 Implementation Plan............................................................................................. 12
.... 3.1.4 Schedule and Approach ........................................................................................ 12

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Ajanta Packaging: Business Dilemma | Business Case

Table G: GANTT Chart .......................................................................................................... 12

.... 3.1.5 Project Review Strategy ....................................................................................... 12
3.2 Risk Management Strategy ..........................................................................................13
.... 3.2.1 Risk Summary ...................................................................................................... 13
.... 3.2.2 Risk Register ........................................................................................................ 13
.... 3.2.3 Risk Management Approach ................................................................................ 13
3.3 Performance Measurement Strategy ............................................................................13
.... 3.3.1 Key Performance Indicators ................................................................................. 13

Appendices ................................................................................................................................ 14
Cost-Benefit Appendix .......................................................................................................14
Sources of funding .............................................................................................................14
Costs and Revenue .............................................................................................................14
Payback period ...................................................................................................................14

Glossary of Acronyms and Terms ............................................................................................ 15

References ................................................................................................................................. 15

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Ajanta Packaging: Business Dilemma | Business Case

Summary
Ajanta Packaging is the leader in the supply of glass bottles in India. This industry has a derived
demand from industries such as liquor, soft-drinks and pharmaceutical products. The industry is
seeing a transitioning from the conventional glass bottle to alternative materials such as PET
bottles, tetra pack, aluminum cans etc. The case discusses the stiff competition that this industry
faces because of substitutes products and increasing bargaining power of the clients. The
competition for maintaining the market share has been intensified and contribution per unit has
been squeezed. The bargaining power of the supplier has been reduced. Thus, the customer
demands renegotiated prices. This has led to price war and ugly competition in the competitive
glass-bottle industry.

The case critically analyses and presents the possibilities of the positive and the negative prospects
in the future. It then, describes the stiff completion that has set in the glass-bottle industry. With
the reduced profit and increased competition, the owner of the Ajanta Packaging has to decide the
best way to adapt to the newer reality. The various feasible solutions include setting up of the
business for PET bottles, maintaining a status-quo or diversifying the business to provide many
other packaging materials.

The company has to take a decision whether to remain in the niche segment and exploit the industry
with fewer competitors or to enhance it reach by diversification of products by investing other
offerings.

Our recommendation would be to go for diversification and experimentation of new packaging

materials. Ajanta should equally invest their resources and capacities between glass bottle business
and PET bottles.

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Ajanta Packaging: Business Dilemma | Business Case

Statement of the Problem

1 Changing Times and Global Landscape
The advances in packaging industry has led to a shift in the usage pattern of various industries.
The glass bottles are facing threats from more durable PET bottles. Ajanta Packaging is looking
on how to reorient their business to be able to compete in the new environment.

1.1 Glass Packaging Industry

1.1.1 Evolution of Glass Packaging Industry
The first glass bottle dates back thousands of years. However, the industrial revolution of 19th
century enabled its mass production. 1990s saw the emergence of new variations of plastic taking
place of conventional packaging. The emergence of innovative products such as PET
(polyethylene terephthalate) bottles, tetra packs have changed the packaging market. These new
materials are more durable, lighter and favored by the customer. The rise of these substitutes has
led to increased competition leading to price wars and reduced profits. Since the industry is
dependent on derived demand, the fate of glass packaging industry highly depends on the demands
by manufacturers of soft drinks, medicine and other industries.
1.1.2 Organisation Overview
Ajanta packaging was founded in 1981 with just 3 employees and an initial investment of US $500.
It started off with the glass bottles, vials, jars for liquor, pharmaceuticals and FMCG companies.
Today the companys revenue stands at US $100 M with more than 50 employees. The companys
offerings include PET bottles, crown caps, glass-bottles printing. Although, the 95% business
comes from glass bottles until up to 2010.
The company has been adept at keeping pace with the new technology. It computerised its system
very early. It has diversified its offering into various PET bottles already. However, more than
95% revenue still comes from glass bottles.
The company has its strength in its supply chain and distribution network. It has strong ties with
global manufacturing firms. The company has warehouses at multiple locations and offers just-in-
time supplies. This strategic location of the warehouses and careful execution of the supply chain
provide advantage to Ajanta over its competitors.
The customer relationship management practices are the prime focus of the management. The
company believes that the customer loyalty was the key to the success of their business.
1.1.3 Business Need
The glass bottle industry faces challenges owing to rising cost and increasing competition from
substitutes. The companies involved in the packaging industry need to reinvent their strategy to be
competitive in the long run. The soft-drink industry is projected to grow at 30% each year. Thus,
there exists huge opportunity if the companies increase the capacity of the variety of offerings.

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Ajanta Packaging: Business Dilemma | Business Case

1.1.4 Changing Environment

The soft drink industry is projected to grow at 30% each year. The majority of growth will be
driven by the product offered in the PET bottle or the aluminium cans. The average consumption
in India is about 3l while the figure stands at 90l in USA and 16l in Pakistan. Even a slight change
in the consumption pattern would lead to a huge commensurate increase in the PET bottle industry.

As the traditional glass bottle industry faces consolidation and downturn, there seems to be need
for the company to reinvent themselves to be competitive in the long run. The company needs to
invest to increase its capacity in the desired offerings such as PET, tetra pack.

1.2 Strategic Fit

Ajanta Packaging aims to be the leading player in supplying packing bottles (glass/PET/tetrapack)
in the Indian market. Ajanta has always been fast to respond to market needs. Based upon the
trends and study, it is projected that major growth driver for the soft-drink segment will be in PET
bottle and other innovative solutions which are easier to carry and store. Ajanta packaging has
established a niche segment for itself. However, to ensure the leadership position in whichever
segment it chooses, it requires to have a relook at its current offerings.

1.3 Detailed Description of the Business Need

1.3.1 Opportunity
As the glass bottle market seems to be saturated, Ajanta packaging needs to re-evolve according
to current markets needs. The soft-drink industry is growing at a fast pace. If captured correctly,
this market will provide huge growth opportunity for the company.

1.3.2 Prioritized Requirements (High Level)

Table A: Key Requirements for Ajanta Packaging

Description Core Desirable Optional

New Offering Yes -
Existing Product Yes
Business Development Yes

1.3.3 Assumptions
Table B: Key Assumptions behind the scenario
Effects on Reliability Level:
It is assumed that:
investment: High/Medium/Low
Assumption 1 There is still demand for glass bottles Not much Medium
Ajanta will be able to capture market for
Assumption 2 High Medium
PET leveraging upon relationships

1.3.4 Constraints
The company faces constraints both internal as well as external. The product has to meet the
minimum qualified set of benchmarks set by the government. Above that, the government also
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Ajanta Packaging: Business Dilemma | Business Case

regulates the amount of pollutants that the company can emit during production. The government
has also banned sale of liquor in PET bottles. These restrictions should be heeded while planning
for future investments.

There has been a rise in awareness about environment conservation. Environmental activists are
demanding that the companies producing the PET bottles must also take responsibility for
recycling dumped material. In such a case, the cost of procurement and delivering the waste might
add up to the cost of production.

Ajanta also seems to lack subject matter expertise in the new technology. The company may also
have to take a loan to finance the expansion of the infrastructure and the production capabilities.

1.3.5 Dependencies
Table C: Major Dependencies and their behavior
Number Element: Is dependent upon [action] from [entity]:
Dependency 1 Raw Material Delivery from Suppliers
Dependency 2 Demand of PET Sales pitch by Marketing Team
Dependency 3 Just in Time Delivery Storage Capacity at each warehouse

2 Analysis and Recommendation

2.1 Preliminary Options Analysis
Given the challenges faced by Ajanta Packaging and after analyzing the market competition, we
propose some recommendations here. These suggestions will help overcome the threats Ajanta
Packaging faces from the alternative packaging options.

2.1.1 Evaluation Criteria

We have made recommendations based on:
Recyclability,
Safety of product,
Future demand,
Initial investment,
Raw material and Production cost, and
Profit margin.

2.1.2 What options do we have?

To overcome the threats of uncertain future for Ajanta Packaging we recommend following
options:

Maintain status quo;

Make 90% glass 10% PET packaging;

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Ajanta Packaging: Business Dilemma | Business Case

Make 50% glass 50% PET packaging;

Make 30% glass 70% PET packaging; or
Make only PET packaging.

2.1.3The Status Quo

The Status Quo for Ajanta is focussing on production of glass packaging only. Ajanta has an
established production facility for glass packaging. It also has a team for procuring recycled glass
which can be used as raw material. Ajanta has established a niche position in the packaging
industry by focussing upon quality and cost and providing time bound services and customized
solutions.

2.1.4 What can we do?

90% glass 10% PET- Through this option we can cater to the growing demand of substitute
packaging, while focussing on Ajantas well established business.

50% glass 50% PET Through this option they can cater to their existing glass customers
and acquire and invest their efforts in the new market of PET.

30% glass 70% PET Through this option, Ajanta can become a major player in PET
packaging while keeping its existing glass customers reasonably in happy.

Only PET Because of the decline in the product life cycle of the glass industry, Ajanta should
look for new technology. Through this option Ajanta can establish in an entirely new customer
base.

2.1.5 How well the options fit?

Maintain status quo In this option the recyclability of product is very high. Glass bottles can
be recycled and used as raw material which is a cheaper alternative than procuring fresh raw
material. Ajanta already have a strong system for procuring recycled glass. As the glass bottles
are fragile and can get easily broken while transportation, safety of the product is very low.
Weight of product is also high. With glass packaging industry eroding fast, future demand
seems to be on lower end. Ajanta already has an established production system for glass
packaging. Hence, initial investment will not be needed. With the increasing prices of raw
material and competition, the production cost is bound to go up.

90% glass 10% PET- In this option the recyclability is high as 90% of the products are glass.
The safety of the product is low due to fragile nature of glass bottles. The transportation costs
are also high with huge offering in glass. As with this option, Ajanta will be serving its existing
market with around 10% offerings as PET bottles, future demand sustainability is low. Initial
investment would also be low. Raw material and production cost will be lower as most of it

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Ajanta Packaging: Business Dilemma | Business Case

would be recycled glass. Profits margin would also be low in this case. This option can be
considered for further analysis and can be a viable option.

50% glass 50% PET with production divided 50-50 between glass and PET the recyclability
of the product is moderate. The safety of product is also moderate with half of the products
being of glass. Future demand sustainability is moderate as it is serving its existing market as
well as fast growing PET bottle market. Initial investment is moderate as Ajanta needs new
production facility for only half of its production. With 50% PET production, raw material and
production cost are also moderate. As 50% of profit is coming from PET bottles, profit margin
is also moderate. This is a viable option and can be considered further.

30% glass 70% PET 70% of the product being PET, recyclability for this option will be
low. Safety of product is comparatively high as PET bottles are safer and have a longer shelf
life. With more focus on fast growing PET market, future demand sustainability is high. Initial
investment is also high as Ajanta needs new production facility for 70% of its production. Raw
materials and production cost are lower. With higher consideration of PET, the profit margins
are also high in this option.

Only PET With a complete shift from glass packaging to PET the recyclability is very low.
All products being PET, the safety of product is very high and weight of product are bound to
be very low. Future demand sustainability is high with growing demand for PET. Initial
investment is very high as Ajanta has to shift entirely to PET production. Raw material and
production cost is low. With less competition and cheaper raw materials profit margin is very
high. As Ajanta has to shift its production entirely this option is not viable.

Table D: Screening Summary Table

Option 1: Option 2: Option 3: Option 4:

Option Number and Option 5:
Status 90% glass 50% glass 30% glass
Name Only PET
Quo 10% PET 50% PET 70 % PET

Screening criterion:
Very high High Moderate Low Very low
Recyclability

Screening criterion:
Very low Low Moderate High Very high
Safety of product
Screening criterion:
Very high High Moderate Low Very low
Weight of product
Screening criterion:
Moderately
Future demand Low Low Moderate High
high
sustainability
Screening criterion: No
Low Moderate High Very high
Initial Investment investment

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Ajanta Packaging: Business Dilemma | Business Case

Screening criterion:
Raw material and High High Moderate Low Low
production cost
Screening criterion:
Very low Low Moderate High Very high
Profit margin
Retained
Summary as Viable Viable Viable Discounted
baseline

2.1.6 Rationale for Discounted and Viable Options

We recommend following three options which are viable for Ajanta Packaging.

90% glass 10 % PET this option maintains existing glass production business and at
the same time peek into the future of PET bottles.
50% glass 50% PET this option maintains a perfect balance between PET and glass.
Any change in the environment will not affect Ajanta with this option.
30% glass 70% PET this option is a big leap in the future and the same time keeping
existing customers happy with 30% glass production

2.1.7 Advantages and Disadvantages

Table E: Key Options with advantages and disadvantages

OPTIONS 90% glass 10 % PET 50% glass 50% PET 30% glass 70% PET

Advantages Recyclability is high, Recyclability, safety, Safety is high, weight is

initial investment is weight, raw material low, future demand is
low. costs, initial high, raw material cost is
investment, profit low and profit margins
margin and future are high.
demand sustainability
are all moderately
fulfilled

Disadvantages Safety of product is Does not excel in any Recyclability is low, and
low, weight is high, of the criteria. initial investment is high.
raw material and
production cost are
high, profit margin is
low and future
demand sustainability
is also low.

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Ajanta Packaging: Business Dilemma | Business Case

2.2 Recommendation
The study suggests three viable options for Ajanta Packaging to adopt in order to overcome the
threats of uncertainty. With growing demand for a rigid, light weight packaging option, Ajantas
existing infrastructure and supremacy in producing glass bottles, we suggest a strategy to produce
a mix of both glass and PET. The three options we suggest are 90% glass 10% PET, 50% glass
50% PET and 30% glass 70% PET.

Based upon the analysis of multiple criteria we recommend Ajanta Packaging to opt for the
strategy to produce 50% glass 50% PET. With this option Ajanta will be able to leverage its
existing infrastructure for producing glass bottles for their existing clients and will also be able to
move into new PET bottle market with a significant capacity. With 50% PET bottle production,
Ajanta would be able to earn sufficient profits to recover its initial investments in PET production.

3 Management and Capacity

The PET bottle manufacturing plant should be set up with a capacity of 2 KTA (kilo-
tonnes/annum), which would be equivalent to Ajantas glass bottling capacity. The existing
warehouses, marketing offices as well as sales staff can be employed to procure contracts and
negotiate terms with existing customers and entice new customers. This strategy will provide
Ajanta with a competitive advantage over its competitors due to economies of scope. The already
established brand equity, superior relationship with customers and industry domain knowledge
will prove to be a huge support to Ajanta to help it extend its product portfolio.

The PET bottle manufacturing plant has a small footprint, technology by DuPont, new hires

3.1 Managing the Investment

The required manufacturing plant has a small required footprint of around 4 acres. Thus, the plant
can be easily established beside the existing manufacturing facility in Butibori, Nagpur. Utilities
required include fuel gas, electricity and canal water which are already used as raw materials in
the existing facility and can be easily scaled up to the required levels. An initial investment of $20
million is required to set up the new facilities with a commissioning time of 1 year and has a break-
even recovery period of 3 years.

3.1.1 Project Management Strategy

Hiring of personnel with the required skill set would mark the beginning of the project which can
commence from Feb, 2013. The license for employing the technology for the project can be
obtained from DuPount and the construction can be outsourced to Larsen & Toubro. The
construction would be finished within 7 months of commencement around Dec, 2013. This would
help the plant achieve full capacity production within a year by Feb, 2014.

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Ajanta Packaging: Business Dilemma | Business Case

3.1.2 Contracting and Procurement

The production requires PET chips as its crucial raw material. They can be sourced at competitive
prices from the multitude of PET manufacturing plants in and around the Butibori SEZ, and can
also be obtained from major players such as IOCL and RIL at cheaper rates albeit higher
transportation costs from Nagpur.

3.1.3 Implementation Plan

The implementation plan for venturing into PET bottles market would be managed into 3 phases.
First would be the production of standard PET bottles in required shapes and sizes fro different
customers but with standard chemical composition. With increasing demand, a bottle printing and
label printing plant can be set up to complement the business and provide better value to our
customers while also improving on per bottle contribution margin. The third phase would entail
setting up a small batch processing plant which can meet the specialised demands of customers
positioning Ajanta in the niche category, while also providing huge profits per bottle for the
customisations.

3.1.4 Schedule and Approach

Table G: GANTT Chart

Feb,13 Mar,13 May,13 Nov, 13 Dec, 13 Jan,14 Feb,14 Oct,14 Jan,16

Hiring starts
Application for
patent
Construction
Trial run
Full capacity
production
Set up printing
facility

Set up batch
plant

3.1.5 Project Review Strategy

The project review should be done based on the adherence to proposed timeline since getting a
movers advantage is crucial to prevent competitors from acquiring market share.

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Ajanta Packaging: Business Dilemma | Business Case

3.2 Risk Management Strategy

3.2.1 Risk Summary
Setting up a new plant would entail procuring large loans, which increases the financial risk
exposure of the company. Also, due to the low recycling of PET products and hence large
accumulation in wastes, there is a possibility of governmental regulations and opposition by
environmental activists. Besides, due to the new industry, the firm may prove to have inadequate
technical knowhow required to upkeep the production.

3.2.2 Risk Register

The relationship of the investment to the existing risk register would be dependent upon

Low technical knowhow,

Financial risk exposure,
Governmental regulations,
New preferred form of packaging, and
Opposition by environmental activists.

3.2.3 Risk Management Approach

The technical knowhow can be combated by employing people with experience from related
industries and contracting with DuPont for providing the technology as well as support for
commencement of the plant. Financial risk exposure is inevitable but insignificant as the breakeven
period is 3 years. The probability of new popular forms of packaging is also low due to the high
popularity and utility of PET.

3.3 Performance Measurement Strategy

The performance of the venture can be evaluated by the quality of the PET bottles produced
compared to the competitors. Ability to produce at full capacity and to sell all the production is a
key metric. Also KPI to measure customer and consumer satisfaction with the product would
provide valuable insights to better improve on the product portfolio and recognise new
opportunities.

3.3.1 Key Performance Indicators

The benchmark information which can help better evaluate our options would be

Ratio of Normal to Capacity production,

Inventory turnover ratio,
Customer satisfaction KPI, and
Quality of product metrics (Strength, visibility, inertness).

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Ajanta Packaging: Business Dilemma | Business Case

Appendices
Cost-Benefit Appendix
Sources of funding
1. Existing Cash
2. Loan from Bank
3. Micro finance Loans

Costs and Revenue

Exhibit 1 provides the comprehensive details of the anticipated cost with respect to three viable
options.

Payback period
Payback Period = Investment Required
Net Cash Inflows
Option 1: $4.5 M/ $1M =4.5 years

Option 2: $20 M/ $6.7 =3 years

Option 3: $24 M/ $6 M =4 years

Exhibit 1. Revenue and Cost Analysis of three viable options

REVENUE AND COSTS over 3 years OPTION 1 OPTION 2 (50% OPTION 3(30%
(payback period) (90% Glass- Glass-50%PET) Glass-
10%PET) 70%PET)
Additional Sales Revenue $ 3 million $ 20 million $ 23 million
New equipment cost -$ 2 million -$ 6 million -$ 7 million
Incremental Raw materials -$ 1 million -$ 5 million -$ 7 million
Equipment setup cost -$ 0.5 million -$ 2 million -$ 3 million
Incremental Wages for sales staff N/A -$ 1 million -$ 1.5 million
Incremental Inventory Costs N/A -$ 0.7 million -$ 1 million
Incremental Utilities -$ 0.3 million -$ 0.6 million -$ 0.9 million
Incremental Maintenance costs -$ 0.2 million -$ 0.7 million -$ 1.1 million
Incremental SG&A expenses -$ 0.5 million -$ 4 million -$ 5 million
Profits before taxes (PBT) ($ 1.5 million) $ 0 million ($ 3.5 million)

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Glossary of Acronyms and Terms

Acronym In Full

PET Polyethylene Terephthalate

JIT Just in Time

FMCG Fast Moving Consumer Goods

CAGR Compounded Annual Growth Rate

R&D Research and Development

$M $ Million

KTA Kilo tonnes per annum

SEZ Special Economic Zone

References
1. Dhawan, S. (2015). Soft drinks in India. Retrieved from
http://www.euromonitor.com/soft-drinks-in-india/report, accessed Nov, 2016.
2. Ali, A. (2013). How plastic bottles are formed. Retrieved from
https://www.youtube.com/watch?v=ed7XJeXl3b4 , accessed Nov, 2016.

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