India’s packaging industry is set for high volume growth thanks to stable economic growth, boom seen in retailing and ecommerce. According to research reports, the industry is expected to witness a compound annual growth rate (CAGR) of 9.2% in 2016-2021 period compared to 6.2% in 2011-16.
Changing demographics such as rapid urbanisation and growing middle class contribute to the increased demand for packaging. Plastic, metals, cartons, polymers films, BOPP films for flexible packaging are some of the materials used in the packaging industry.
Amidst the positive trends seen in the industry, here is a look at the prospects of major players:
Cosmo Films Ltd (BSE: 508814, NSE: COSMOFILMS) Category: Small Cap
Cosmo Films Ltd, established in 1981, is a leading player in flexible packaging and is one of the largest manufacturers of Biaxially Oriented Polypropylene (BOPP) Films in the world. It has production units in India, Korea and the US. It has a BOPP manufacturing capacity of 136,000 tonnes per annum. It has a comprehensive range of BOPP films for flexible packaging, lamination, labelling and industrial application and exports to 80 nations worldwide. It recently bagged the SIES SOP and IFCA Star Awards for excellence in packaging innovation and product development.
In 2016-17, the company reported profit after tax (PAT) of Rs 112 cr up 3% from the previous year. According to Chairman, Ashok Jaipuria, demonetisation and one-time exceptional forex loss in Japan subsidiary affected the financial performance.
In June quarter, the company made a net profit of Rs 9.24 cr, a fall of 51.16% Y-o-Y while sales rose 15.44% to Rs 440.26 cr.
On a returns perspective, it is trailing its peers on monthly, quarterly and half-yearly basis with negative returns but financial ratios seem to be positive with return on equity of 16.24%, on assets 6.7% while liquidity and cash flow is a cause for concern. Promoters hold 43% stake. It is presently trading at a Price Earnings Multiple of 7.5 indicating a lower valuation by market.
On technical charts. Relative Strength Index (RSI) of 44.52 indicates neutral to bearish position, while MACD has witnessed a bearish crossover. Average directional index (ADX) of 10 indicates tight range bound trading. Stochastic indicators are bearish. It trading close to 50 DMA.
Target: 410 Duration: 8 weeks Strategy: Buy/Hold
Manaksia Industries Ltd (BSE: 539043 NSE: MANAKINDST) Category: Small Cap
Manaksia Industries, previously known as Hindustan Seals, was established in 1978 as a proprietorship firm in Kolkata. The group now makes metal packaging products including crowns, roll-on pilfer-proof closures, expanded polyethylene liners, as well as push open and other metal containers in the fast-moving consumer goods segment.
The company earned a net profit of Rs 7,67 cr in June quarter with an annualised growth of 3.65% and sales rose 81.05% to Rs 52.40 cr. On a returns perspective, 11.25% monthly, 25.15% quarterly are impressive while half-yearly returns are negative. Financial ratios present a mixed picture with return on equity of 13.16%, assets of 7.10% and net profit margin of 18.59% while liquidity and cash flow ratios are below that of peers. Promoters hold over 62% stake. It is presently trading at a PE of 32 which means moderately priced by market.
On technical charts, RSI of 47.13 denotes neutral trend, MACD line has witnessed a bearish cross over while ADX of 15 denotes range bound trading. Stochastic indicators are also bearish.
Target: 48 Duration:4 weeks Strategy: Hold
Ess Dee Aluminium Ltd (BSE: 532787 NSE: ESSDEE) Category: Small Cap
The parent company of Ess Dee Aluminium Ltd was set up in 1936 and was called Division India Foils. It has been one of the pioneers and largest producers of aluminium foils in Asia. Ess Dee Aluminium was started in 1991 and has become the leading player in aluminium packaging. Ess Dee was the first in India to manufacture dedicated high-end pharmaceutical packaging products like Cold Form Blister and Child-Resistant-Blister packaging.
Foreign promoters hold 57.97% stake. The company posted a net loss of Rs 62.94 cr in March quarter while sales fell 84.15% to Rs 32.60. On a returns perspective, it has been giving negative returns on monthly, quarterly, half-yearly basis.
On technical charts RSI of 54.23 denotes bullishness while MACD is bearish while ADX of 9.14 denotes tight range bound trading, stochastic indicators are also bearish.
Xpro India Ltd (BSE: 590013, NSE: XPROINDIA) Category: Small Cap
Xpro India Ltd is part of the Birla group with Sidharth Birla as Chairman. The product range inclues BOPP films, coex cast films, coex sheets, dielectric films and thermoformed liners. It has a customer base consisting of Indian and transnational companies. Promoters hold 50% stake.
The company has sustained losses in 2016-17 and also in the June quarter a net loss of Rs 2.20 cr was reported on a turnover of Rs 81.53 cr. The company is facing stiff competition in BOPP films industry with capacity utilisation near to 70%.
On a returns perspective,13.22 % monthly, 11.26% quarterly and 5.79% half yearly is quite impressive but financial ratios are all negative with return on equity of -17.36%. net profit margin of -3.78%, liquidity and cash flow ratios are also negative.
On technical charts, RSI of 74.61 indicates bullish trend moving to overbought territory, MACD has witnessed a bullish crossover while ADX of 39.71 indicates uptrend, stochastic indicators are bullish.
Target: 70 Duration: 8 weeks Strategy: Hold/Buy
India’s packaging industry has huge growth potential as per capita consumption of packaging is only 4.3kg compared to Germany 42 kgs and Taiwan 19 kgs. The industry is facing stiff competition in some segments while others have debt and working capital issues and scalability issues.
The companies in this industry have long years of experience but still remain small. It constitutes 4% of global packaging industry.
The prospects for growth of companies would depend on which segment of the industry they are catering to. Food and Beverage industries will be a major consumer of packaging. In addition, innovations in the packaging industry, such as the development of lighter packaging with better barrier properties, add to the growth of packaging industry.
In terms of packaging material, Glass and Rigid Plastics will be among the major share gainers, with share growth of 0.7% and 0.6% respectively during 2016-2021. Flexible Packaging is the leading pack type in the Indian packaging industry and will grow at a healthy CAGR of 8.9% during 2016-2021, with major contributions from the Food, Household Care, and Cosmetics & Toiletries industries.
This growth is largely driven by its low cost and flexibility to suit multiple shapes and sizes, convenience (zip-locks, plastic closures), and low-carbon foot print on the environment as compared to Rigid Plastics. In addition, the increasing prominence of low-density flexible packs in high protein foods is expected to drive the growth in the future, according to a report by Research and Markets.