Essellent performance, global

leadership

Dr Amit Rangnekar
www.dramitrangnekar.com

Case learnings
Insights into
EPLs evolution from a local to a global leader
Global market entry strategies in emerging &
developed markets
Focus, cost leadership & vertical integration
strategies
Inorganic growth strategies

Media

Entertainment

Education

Packaging

IT & Telecom

Essel Group
Subhashchandra Goel- serial entrepreneur
Essel= Subhashchandra & Lakshminarayan (Grandparents)
1970s- Rama Associates, polymer envelopes store 100T GOI
grain
Fortune from GOI quota rice exports to Russia
1982- Indias 1st laminated tubes maker- Essel Packaging
1989- Indias 1st private satellite channel- Zee
1986- Indias 1st theme park- Esselworld
1992- Indias 1st MSO- Citicable
2008- Group Turnover Rs 100b ($2.5b)
2008- Enterprise value Rs 500b, 8,000 employees

Essel Propack (EPL) 2009

Global No. 1 in lamitubes, 32% GMS, double digit growth
No.2 Cebal (France) + No.3 Betts (Britain)= 25% GMS
Manufacture lamitubes, medical devices & specialty
packaging
2009- $300m (Rs 1500cr) sales
25 plants (2004 17)
14 countries (2004- 11): India, Egypt, China, US, UK,
Russia, Germany, Mexico, Colombia, Venezuela,
Philippines, Indonesia, Nepal & Singapore
2,700 employees from 20+ nationalities
Key Customers- P&G, Colgate-Palmolive, LOreal &
Unilever

MD Speak
If you have a product you
truly believe in that is
global in terms of
competitiveness, then just
do it. Find a way to play on
the global stage.
Ashok Goel, MD &VC,
Essel Propack

Lamitubes

ACT+ fluoride= toxic, used only in pharma & industrial

Nontoxic: lamitubes- oral products, plastic tubes- cosmetics
Easier to manufacture & print, more vivid
Not very profitable, tube costs Re 1, net margin 14%
Automated operation, low-cost labour no advantage
EMs- rising PC-GDP, disposable incomes
Asia- accelerating towards dental hygiene products
India CG market- double-digit growth, increased competition
Importance of packaging as a marketing tool- growing
Favourable trend for the industry & EPL

Laminate
Manufacturing Process

Blown film

Lamination

Slitting

Printing

Moulding

Tubing

Essel Packaging
1982- single-unit company in Vasind, MS
Integrated facility- lamination & tube manufacturing
Late 80s- lamitube capacity 1.4b, production capacity
only 53m
Challenge- match tube production to lamination capacity
1990- 2 tube manufacturing plants around Mumbai
1994- tube manufacturing plant at Wada
New product, new concept but technological complexity
Competitive advantage- integration, value chain control

1980s
Lamitubes- low product acceptance in Indian till
late 1980s
India- Low cost market
EPL- poor capacity utilisation
Premium price rejected despite superior
packaging
Strong resistance- metal to lamitube conversion
1989- Huge losses, company recapitalised
Frustration, but conviction- product was too good
to reject

Late 80s to Early 90s

Increasing TV penetration, need for improved
packaging
Greater convenience & visual appeal
Growing middle class, young, urban consumers
NPL gel toothpastes in India
Toothpastes companies replaced ACT with
lamitubes
1993- 70% toothpaste market converted to
lamitubes
EPL- CAGR 1990 to 1995- 20%+

Post Liberalisation

Indian market maturing

Uncertainty of liberalisation
Caution and conservatism
How will we grow and sustain?
Competitive advantage- low cost manufacturing,
efficiency
Belief- world-class product to match the best in the
world
Passion- prove your worth, go global
1995 Vision- Worlds largest laminated tube producer
before the end of the millennium

Procter & Gamble (P&G)

P&G- Essels key client in India
Paradox- P&G did not sell toothpaste in India (Forex
issue)
1995- P&G proposed a foreign foray into Egypt
35% JV with local P&G supplier Osama Mashoor
Essel RM & know-how, local partner ran the
business
Small lamitube facility- 20m tubes
P&G would take 9-12m, satisfy local demand
Acceptance outside India by a global player
Confidence to go west

Egyptian XP

Profit in Y1, losses for N7Y, high expenditures

P&G pulled out after 7 years, with 2 months notice
EPL left with several million lamitubes, no customer
Local partner had no other supplier relationships
EPL recapitalized operations, took 75% stake & control
Retained Mashoor as local partner, helped in HR
EPL built relationships, persevered than give up/ fight
We learned we should never be a JV minority partner.
But this fired our imagination to be a global company.
We had succeeded in a tough place like Egypt and we
should be thinking bigger. Hence, in a way, the loss of
the P&G order helped us to look at other opportunities.

China

1995- China opening up, opportunity

Large domestic market, low lamitube penetration
No exposure to market/ language/ regulations/ legal system
Risks- plenty and obvious
Somebody sold us a piece of land owned by the state and
walked away with the money. We quickly learned that China had
a very unique corporate environment.
Minority shareholders enjoyed same rights as the majority
EPL core team- networked, knowledge of environment &
potential
Potential JV partner? Short term hit & run focus
Solo? 100% foreign-owned? Own manufacturing?
Investing in China created forex issues in India

Permissions
The local authorities were very supportive. We
had no consultant to help set up, we did it on our
own. We went straight to local authorities and told
them what we needed. We didnt know the ABCs of
how to get it. But we asked them to help us. They
appreciated the clarity & transparency of our
approach.
EPL convinced them about unique technology
transfer to China
EPL solved capacity problem of a local plant Only
few workers knew how to use the machinery

China Progress
Location- Guangzhou, Guangdong Province
Approval- 100% foreign-owned, 1st company in
Guangdong
Commercial production within 6 months,
Americans 1-2 years
Confidence to operate globally
2004- 4 plants, $40m investment on the ground
Profitable in Y1, 19971998

Chinese Toothpaste Market 1995

Essel sold to local players,

(major client- Measles),
hoped for a bandwagon
effect with other players

P&G- late
entrant

Propack focused on MNCs

Unilever

Pr
op
ac
k

Co
lg
at

el

Colgate

Pr
op
ac
k

Chinese
manufacturers
80% share

Es
s

suppliers

Tube

Toothpaste
manufacturers

MNCs 20% share

P&G China
MNC acceptance, key to better margins
Domestic tube manufacturers- significant price
threat
P&G entry, spectacularly successful, aligning critical
Crest- reformulated & repriced- took of
Repositioned- female brand to common mans
toothpaste
P&G volume growth 10 times in 5 years

M&A

2000- M&A Propack (Swiss)- 4th largest lamitube player

Entry into high margin high growth MNC space in China
New geographies- EU, Asia & LatAm
Propack plants- China, Philippines, Colombia, Venezuela
& Indonesia
New name- Essel Propack
Challenge- Integration of diferent cultures
Key- Managers and major shareholders cooperation
Common desire- global No 1
New plants- Mexico and Shanghai
Chinese success, global launching pad

CMD Speak
Most of the managers, the senior team, used to
believe they were truly entrepreneurs. Once you
are able to inculcate that feeling, then people get
charged to do things. This just do it
entrepreneurial drive was demonstrated by
Essels leadership in its global expansion Goel

Global Thrust

Organic growth- slow process

Strategic acquisitions in rapid succession
Nepal- preempting free trade
South Africa- M&A MCG (Colgate)
Switzerland- M&A Neopack (Polyfoil tube technology)
Both lines shifted to Nepal
Romania- M&A high-speed tube line & printer- shift to
China
Germany- JV Dental Cosmetics, own brands & tube maker
EPL could service EU, grant from German government
2000- not yet the worlds largest player

P&G, US
2002- P&G floated quotations for lamitubes in US &
Canada
P&G had retained same US supplier for L20Y
Landing P&G contract- key to EPL global aspirations
No price advantage/ xp of mature, high lamitube usage
US market
Regional relationship with P&G India, China &Egypt
Entry options- M&A, alliance, export
P&G- US centric
Colgate US- own lamitube expertise
Unilever- not US focused

P&G contract

5Y contract, but active supplier located close to US plant

Would P&G managers accept an Indian supplier in US?
EPL- confident of meeting price & quality expectations
EPL operations not constrained by 5 day workweek/shifts
EPL capacity flexible
Convince P&G of quality- and process-orientation?
Let us show you who we are strategy
P&G teams invited to visit Germany, India & China plants
Essel won the contract
2002- $25m sophisticated facility in Danville, Virginia, US
Opportunity- grow by increasing MS than by traditional
growth strategy- convert ACT to lamitubes

Why Essel- P&G perspective

Pricing not the key issue
Meeting manufacturing & delivery specifications- critical
Same process at each plant ensured consistent global
quality
EPL integrated, focussed and hungry
EPL willing to set up own plant in Virginia to meet deadline
I6 Virginia machinists trained in Wada, India
Dedicated hotel, American food and security, ISD, comfort
All senior EPL executives in personal touch
Hired & trained 90 Indians also trained to operate Virginia
plant
Indian hospitality as a means to globalization
Reverse outsourcing

EPL 2004
Global leader, turnover Rs 609cr, 17 plants at 85%
efficiency
Global lamitube market- 12.8b tubes, EPL- 3.84b, 30% share
60% global contribution (2.27b) tubes, India 40% (1.57b
tubes)
Global cost leader- efficiency + vertical integration
Meet- Quality standards, delivery schedules, price
expectations
Competitors- primarily converters, no value chain control
EPL 1st Indian company with facilities in all 5 continents
Strategic alliances- leading Swiss, German, Japanese & US
companies

Global Strategy Map

1984 Essel 1st laminated tubes in India

1993 JV Egypt
1997 Wholly owned subsidiary Guangzhou, China
1999 JV Dr Rose Linger, Dresden, Germany
2000 M&A Propack (worlds 4th largest), China reach, global plants
Philippines, Columbia, Venezuela, Indonesia & Mexico
2003 Virginia, US manufacturing plant
2004 M&A Arista Tubes, UK, plastic tubes manufacturer
2005 Own facility- Moscow, Russia
2006 M&A Tacpro US, Medical devices entry, Avalon Medicals, Singapore
2006 Arista Tubes, Poland
2007+ High-end specialty pharma & food packaging entry
2008- M&A Catheter & Disposables Technology US, specialised medical
disposable devices maker

CSFs

Global philosophy- go and grow with the customer

Built close long term relationships, customer involvement
Learnt from experiences, never repeated mistakes
2 R&D teams- NPL & existing improvements- with
customer
3Rs of CRM
Reception (listening to customers opinions)
Reaction (reflecting on customers opinions)
Response (analysis & action relative to customers
opinions)
Customers like P&G have continuous expectations on
how competitive we can be, because they have pressure
from their customers. This challenge really keeps us on
our toes. Goel

CSF

Vision- Global leadership

Passion- To excel
Conviction- World-class product and technology
Belief- Our people are capable
Value system- Well defined working boundaries
Vision 2 Be the supplier of every second
laminated tube in the world in the next three
years
Perpetual optimism is a force multiplier.

Organisational Capability

8 years transformation- local to global player

Overcame challenge & crises
Learnt & integrated various operating cultures
Evolved own style
Capability to manage complexities
Hunger for newer knowledge, practices and
challenges
Same senior management team for over a
decade
Consensus-based, empowered to aggressively
pursue growth

Future
Vision 2010 Through acquisition & strategic client
relationships, establish EPL as a leading player in
plastic tubes across all geographies by 2010 with a
20% market share.
Expansion into medical devices
Focus segments- pharmaceuticals, cosmetics & food
Our approach is of a manufacturer with a service
provider mentality, one that brings value to our
customers through creative applications of
knowledge of science, technology, design &
marketing. Chandrasekhar, CEO

Opportunity 2009
Controlling stake Global No. 3, Betts (UK) 14% GMS
Betts 50m sales, 8m loss, huge debt
Financial mess, hence reasonable valuations
expected
Betts well placed in EU, EPL weak
2007- Gresham PE M&A Betts (110m/ Rs 815cr)
Betts pure tube player M&A, strategic fit for
integrated EPL
Betts buys resins, key RM, can buy from EPL

References
Essel Propack to open a new plant in Danville, Siliconindia,
Wednesday,27 August 2003 www.siliconindia.com/shownews/
Essel_Propack_to_open_a_new_plant_in_Danville-nid-20574.html
ESSELPROPACKLIMITED ibef.org/download/essel_propack.pdf
EsselPropackwww.esselpropack.com
EsselPropackPolskaPlant
www.esselpropack.com/europe.html
EsselPropackopens newplantin U.S.
www.hindu.com/2003/08/28/stories/2003082804391600.htm
ESSELPROPACK www.alacrastore.com/search/ESSEL+PROPACK
EsselPropackto set up unit in Poland www.domainb.com/companies/companies_e/ essel_propack/20060802_
propack.html
EsselPropackannounces entry
www.indiantelevision.com/release/y2k6/aug/augrel3.htm

References
World's Largest Plastic-Tubing Firm Funnels First
U.S.Plantinto www.siteselection.com/ssinsider/pwatch/
pw020729.htm
India withEsselPropackwww.plasticstoday.com/articles/
mumbai-india-essel-propack
EsselPropacknew in-plant in China www.domainb.com/companies/companies_e/essel_propack/20030726_
revenues.html
EsselPropackaquires UKs Telcon Packaging www.printpackaging.com/news/Essel_sub56711344.html
EsselPropackwww.moneycontrol.com/stocks/company_inf
o/locations.php?sc_did=EP11
EsselPropacks Global Sales cross Rs. 10 Bn
www.indiantelevision.com/release/y2k7/jan/janrel57.htm
ESSEL Propack sets sights on UK's Betts, 11 May 2009,
MV Ramsurya,ET