Business Opportunity : Corrugated Boxes

1. Introduction

Corrugated box refers to the ubiquitous brown box that brings your online shopping home. Such boxes are also extensively used by manufacturers of consumer and industrial goods to transport their products to their dealers. These boxes keep the contents safe and also serve as a marketing medium for the brand manufacturers.

Corrugated boxes are made from Kraft paper –  several layers of Kraft paper are glued together to make the board.  The board is then cut, folded and stitched/glued to make boxes. The boxes are called three ply, five ply, seven ply etc, depending on the number of layers of Kraft paper.Since the corrugated box manufacturers convert the Kraft paper into a box, they are also called convertors.

The quality of a box is measured by a number of parameters including BF (Burst factor that measures tear resistance of the box), RCT (Ring Crush Test that measures ability to withstand load) and a COBB value (which is its ability to absorb moisture).Quality requirements differ across customers: For example, while a FMCG customer may require the box to have high RCT (the boxes are carried in a truck and a box should be able to withstand the load of boxes placed on it) and low COBB values, the Consumer Appliance industry would need a box with a high BF that can protect valuable electronic parts.

2. Market

The Indian corrugated box industry converts about 4.7[1] million tonnes of Kraft paper per annum and the industry has been growing at a rate of 8-10% annually, which is the fastest among various segments of the paper industry.  Key end users include FMCG, textile, beverages, glass, tobacco and lately e-commerce. Since corrugated boxes are bulky products, they are typically transported within 300 kilometers of the production center, thereby making the industry very local/regional in nature.

The industry is divided into two types of players: automatic plants with a capacity of 1000 tonnes per month and above, and semi-automatic plants with a capacity of under 1000 tonnes per month. At present, there are over 375 automatic plants in the country and more than 10,000 semi-automatic plants[2]. Automatic plants have almost 40% of the share in the corrugated box market. Some of the large corrugators that have operations across the country include Horizon Packs Private Limited, Khemka Containers Limited, TGI Packaging Limitedand MNMTriple Wall Containers. In addition, there are local players that have both automated and semi-automated plants in each state.

The corrugation customers broadly fall into two categories:large corporate consumers such as FMCG, distillery, textile companies and SMEs(fruits and marine products exporters, injection moulded component manufacturers, food processors and consumer products manufacturers). The large customers are gradually shifting their purchases to automatic plants as they require lower lead time and can provide a product with better finish as compared to semi-automated plants.

3. Production process

The corrugated box manufacturing process comprises two steps: board manufacturing and converting the board into the box (See Figure 1).

Figure 1. Corrugated box Manufacturing Process

The capacity of a corrugation plant is defined by the length/width of the machine and its speed and thickness of paper that can be handled by the machine. A 350 meters per minute plant can churn up to 4,000 tonnes of corrugated board per month, when run continuously (24 hours).

There are a number of machinery suppliers both from within India and abroad. Typically, automated corrugation plants use machinery from China or Europe. Some of the popular international machinery manufacturers include BHS(Germany) and Fobster Group(China) for corrugation board and Bobst(Switzerland) and Dongfang(China) for conversion machinery.

4. Capital requirements and profitability

The capital requirements would depend on the capacity and automation levels of the plant. A European plant of capacity of 4000per tonne per month would require an investment of INR 20 Crore in machinery alone. Further as much capital would be needed for meeting other requirements including working capital, factory building, ware house etc.

The corrugation is a volume driven business and profitability would depend on the company’s ability to find bulk/anchor consumers who can buy in large volumes. The pricing flexibility (ability to raise the price) of the corrugators is limited as their customers are large corporates who work with a number of vendors and therefore enjoy high bargaining power. Additionally, the end users/customers have dedicated purchase departments that keep track of Kraft paper prices and cost structure of corrugators thus leaving little room for corrugators for margin expansion.

In order to breakeven, a corrugator should be able to run its plant at more than 30-40% capacity, which can be easily achieved if it has some anchor customers who can provide assured volumes.

5. Why corrugation may be an attractive opportunity

  • Corrugated boxes are environment friendly and currently do not have many substitutes except for shrink films (which are not as environment friendly but cheaper), which are mostly used only in case of PET bottles.
  • The demand for corrugation products is growing at over 9 per cent per annum. The demand growth is expected to remain strong in the near future given the growth in end user industry including FMCG, electronics, e-commerce etc.
  • Customer preference is shifting to large automated plants as these are able to meet the quality requirements and need lower lead time to supply the products as compared to smaller plants, thus resulting in a demand for large corrugation units.

However, before starting a unit, it is critical to study the local demand for corrugated products, potential customers and performance of the existing corrugators. The location of the plant should be chosen carefully keeping in mind the current and potential customers.  Second tier industries cities (that have textile, edible oil, distilleries) seem more attractive as compared to large cities as these already have a number of automatic corrugation plants.

6. How can we help?

If you are interested in starting a corrugated box manufacturing unit, we can assist you in the following

  • Market research to understand local demand supply
  • Viability study for entering a particular market
  • Assistance in developing the project proposal for funding and land allotment
  • Connecting you to technical experts who can offer execution support

[1] Source: Print week and Indian Paper Manufacturers Association (IPMA)

[2] Source: Print week, article dated 14th Sep 2017

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