Page 148 - CW E-Magazine (17-10-2023)

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LOWER PROFITABILITY

‘Indian fl exible packaging industry to be impacted

by oversupply’

A Crisil Ratings analysis of eight BOPP fi lms. However, BOPP fi lms movement. The average raw material
large fl exible packaging players, which have higher moisture resistance proper- prices this fi scal will be lower on-year
account for over 75% of the domestic ties and are cheaper, making them ideal and the same will also impact the reali-
capacity, has indicated that sizeable for packaging food products. sations. Consequently, revenue of the
capacity additions over the past two industry will degrow 3-5%. This will
fi scals and the resultant oversupply will Demand-supply trends be on the back of a stagnant revenue
beat down profi tability of Indian fl exi- Mr. Mohit Makhija, Senior Direc- performance last fi scal.
ble packaging industry to a decadal tor, Crisil Ratings, said, “The industry
low of 8% this fi scal. operating margin is expected to shrink Manufacturers will need to rely on
250 basis points to 8% this fi scal, after balance sheet liquidity and fi nancial
Additionally, the weakness in ex- a sharp correction of about 750 basis fl exibility to sail through this cyclical
port demand will contribute to the dent points last fi scal. BOPET fi lm makers downturn, the report noted.
in profi tability. Revenue will decline have added around 45% capacity and
3-5% as realisations remain subdued BOPP fi lm makers 20% in the last two Mr. Anand Kulkarni, Director, Crisil
due to the supply glut. The credit risk fi scals, while domestic demand has in- Ratings, commented, “The credit pro-
profi les of manufacturers will remain creased only 11% in the period. This fi les of fl exible packaging companies
under pressure till an expected reco- imbalance was compounded by a fall in are expected to stay under pressure due
very in operating performance kicks in exports (typically 25-30% of total rev- to weak operating performance in the
towards the end of the fi scal. enue) because of slowdown in Europe current fi scal. Additionally, capacity addi-
and the US, the key markets.” tions in the recent past have increased
The industry has historically seen debt levels. Hence, debt metrics of these
cycles of chunky capacity addition and While food packaging, pharmaceu- companies have weakened consider-
oversupply. Last fi scal, for instance, ticals and personal care segments are ably. Debt to Ebitda (earnings before
capacity addition crumpled the indus- likely to help keep domestic demand interest, taxes, depreciation, and amor-
try’s operating margin to around 10.5% resilient, exports may recover slowly tisation) and interest coverage ratios are
from 18-20% seen during the pandemic. towards the end of this fi scal. With no estimated at ~3.9 times and 2.8 times,
major capacity coming online this fi scal respectively, this fi scal against 10- year
The industry comprises bi-axially and the next, demand-supply balance is average of ~2.5 times and ~5.0 times.”
oriented polypropylene (BOPP) and expected to improve gradually over the
bi-axially oriented polyethylene (BOPET) next 6-12 months. Given these dynam- In the near term, any major capex
fi lms. BOPET fi lms have diverse end- ics, volume growth is expected to be that may increase the demand-supply
use applications on account of their moderate at 5-6% this fi scal. imbalance will remain monitorable, as
higher oxygen-retention power, high will macroeconomic developments that
tensile strength, longer shelf life, and On the supply side, raw material impact commodity prices, the report
better print quality compared with prices typically follow the crude price stated.
PROMOTING CIRCULAR ECONOMY

Log9 Materials, Lohum partnership to target

recycling of electric vehicle batteries

Noida-based producer of sustain- battery maker, Log9, have announced a (EV) industry. The partnership helps
able battery raw materials through re- strategic partnership aimed at address- Log9 to repurpose batteries that have
cycling, repurposing, and low-carbon ing the critical challenge of sustainable reached end-of-fi rst-life to make sec-
refi ning, Lohum, and Bengaluru-based battery disposal in the electric vehicle ond-life solutions for renewable energy

148 Chemical Weekly October 17, 2023

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