Packaging: The next big investment opportunity

Packaging: The Next Big Investment Opportunity

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At Premji Invest, we strongly believe in India’s consumption story – which also manifests itself into several consumption derivative sectors – such as Packaging. It offers an opportunity to participate in India’s consumption bandwagon at relatively attractive valuations.

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The Indian Packaging Industry is transforming due to accelerated penetration across the end-use industries, increasing service-innovation-quality related demands from the brand owners and increasing significance of sustainability/recyclability across households and boardrooms. On the supply side, the consolidation theme is gaining traction, leading to a once-in-a-generation opportunity for ambitious business leaders and investors to co-create scaled enterprises.

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The packaging sector is the fifth largest sector in the Indian economy. More than 25,000 packaging units exist in the country, most of which operate in the unorganized part of the industry. Various industry estimates note that the Packaging sector is worth $50-80bn. The near-unanimous consensus is that it will likely grow 11-12% for the next few years. It is typically divided into multiple substrates and end-use industries.

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We primarily focus on Flexibles Plastics, Rigid Plastics and Paper Packaging sub-sectors. The deciding factors include size, growth potential, availability of scaled assets, extent of fragmentation of the market and ability to maintain and grow margins in a capital-efficient way.

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We track the sector very closely and believe that the following are critical success factors that could make or break an investment in the Packaging sector in India:

• Customer obsession manifested through high-class product & service quality (e.g. high OTIF)

• Product innovation

• Ensuring the most efficient procurement (the biggest cost item)

• Tight control over day-to-day business (manifested into efficient pass-through of substrate/polymer price escalations)

• Lowest cost of operations

• Prudent capex planning

• Focus on sustainability/recyclability

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Often, smaller packaging firms face challenges in scaling up due to a lack of capital, inability of the business to transition into evolving trends and succession issues. We have seen several such companies in the marketplace – across the substrates (Flexible, Rigid, Paper). That’s where the role of a private equity firm becomes crucial. It can help offer a solution in terms of capital, attracting professional talent and putting the company back on the trajectory of accelerated value creation.

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As the packaging industry navigates consolidation, sustainability, and changing consumer expectations, our commitment remains steadfast – to invest in and support the pioneers shaping the future of packaging.