On Saturday, 25 March 2023, an unusually rich in content and intelligently moderated interactive print industry seminar took place in Mumbai. While it featured excellent sessions on the paper industry, and commercial print diversification such as board games, design, and artificial intelligence applications, I will, in this article, only discuss two sessions.
The first is the opening session with its comprehensive presentation by Ramkumar Sunkara of SS Consultants based out of Pune and who is the co-chairman of the research and development center of the Federation of Corrugated Box Manufacturers of India. Sunkara’s comprehensive presentation of Indian economic growth and its prospects was exceptional in terms of its realism and its lack of boastful hubris. He presented growth numbers for the Indian economy that are solid and that present immense opportunity for the packaging and especially the corrugating industry.
Moreover, he warned that the industry doesn’t seem to be ready to make the Rs 15,000 crore (US$ 1.85 billion) investment needed in the next 10 years to take advantage of the corrugation opportunity. The growth opportunity requires great improvement and expansion in recycled liner (known as kraft) paper mills. He said, “Sorry to say, the Indian paper mills will not change and are not likely to improve any time soon.” He added that the implication of virgin liner imports is an untenable solution.
Mergers and acquisitions in paper-based packaging
The merger and acquisition session comprised Kirit Modi, the managing director of the leading Indian corrugated manufacturing company, which he substantially divested to JK Paper last year; the two leading monocarton manufacturers in the country – Saket Kanoria, the managing director of TCPL, a listed company on the stock exchange; and, Ramesh Kejriwal, the chairman of Parksons Packaging, which was substantially acquired by Warburg Pincus more than two years ago.
The fourth panelist was slightly younger, Sushant Gaur, the CEO of Adheera Packaging, which produces (8 crore) 80 million paper bags monthly and exports to seven countries currently, with plans to set up a US plant in 2024. The moderator of the session was Mehul Desai, the founder and chairman of Mail Order Solutions based in Mumbai.
The session was a remarkably frank discussion that addressed the desire and need for growth in order for businesses to sustainably survive. To a large extent, it is a matter of the scale that is required for competitive growth in order to generate the cash and the management resources for continuity and structured growth beyond the personal capabilities of entrepreneurs and promoters. The advice mentioned by several panelists was to embrace good governance (clean up your books).
Kirit Modi pointed out that 95% of mergers and acquisitions fail globally. He said, “When a promoter has exhausted all the options of organic growth then the path forward could be an IPO, private equity investment, or a strategic investor. However, many promoters fail to appreciate the importance of basic financial concepts such as enterprise value, working capital, asset value, and equity value.”
Saket Kanoria emphasized that mergers can be complex and could fail. He felt that there has to be some emotional or psychological fit as in many family partnerships even brothers cannot continue doing business together. “Mergers or acquisitions have to fit your mindset,” he said. Ramesh Kejriwal M&A’s said mergers and acquisitions have to be seen as a marriage of equals. In answer to a question of whether private equity is to some extent a via media because of scale, Kejriwal agreed that to some extent it is. “Eventually, you will have to have an IPO. You cannot continue to grow as a private company,” he said.
Adheera’s CEO Sushant Gaur, whose 10-year-old company has already acquired or merged with half a dozen companies, represents an altogether new generation who are supremely confident and well-equipped to see global opportunities. They seem to lack neither access to capital nor the management skills to replicate success in a number of plants profitably. He explained his quite amazing but convincing method of operation, “At first I speak with every employee of a company that we acquire or build and I explain what is expected of them. Once the metrics of performance are set, then it’s HR’s job.” Voila!