“Packaged food consumption will grow 40% in the next five years”
A graduate of Karachi University, Naveed Godil began his career in 1999 from the Karachi Stock Exchange. He exited the financial market in 2007 to explore business ventures. In 2008, he co-founded Al-Shaheer Corporation Limited. Two years later, in 2010 he set up Universal Packaging Company (Private) Limited that specializes in Rotogravure Printing Packaging. He set up International Packaging Films Limited (IPAK) in 2015. It began its operations in 2017. BR Research recently had a conversation with Godil to understand the dynamics of the 5.5-billion-dollar packaging industry of Pakistan, and its future in the country.
Following are the edited excerpts:
BRR: Tell us about IPAK, and where it fits into the packaging industry of Pakistan.
Naveed Godil: IPAK started its operations in 2017 with the aim to meet the growing demand of flexible packaging solution in Pakistan. IPAK pioneered and introduced the five-layer BOPP Film technology in Pakistan. We currently have a capacity of 40,000 tons of Biaxially-Oriented Polypropylene (BOPP) Films and 10,000 tons of Cast Polypropylene (CPP) Films per annum. IPAK has a state-of the art production facility equipment, latest automatic machines, and a production line from Bruckner, Germany and SML, Austria. It is internationally certified, and owns certifications like quality management systems, environment management systems, etc.
We entered the packaging industry because we saw tremendous demand in the market which showed a continuous growth pattern on consistent year on year basis. In 2015, we decided that it was the right time to enter the market and set up a unique production line in the industry. Initially, the packaging industry was operating in a monopoly, but there was growing demand and we saw that opening up opportunities for new entrants. In 2017, IPAK started its commercial operations to meet this growing demand at an unmatchable level.
BRR: How did you capture the market when it was led by a monopoly, in terms of costs and price?
NG: Despite the monopolistic business environment in the sector, IPAK managed to mark its foot-print based on its sheer commitment towards quality centered and unique products, advanced technologies, customer-focused attitude and strategically located business region which enabled IPAK to obtain a higher share of the vacuum which was available in the northern part of the country.
BRR: What is the difference between the three layer and five layer film?
NG: Five layer as compared to three layer brings unique advantages in various forms. Commercially, a five-layer film is more cost efficient due to its layer structures and harbors greater customer satisfaction by allowing the converters to experience better printing, enhanced gloss and excellent machine run-ability. Furthermore, from an environmental point of view, five-layer films are more environment friendly as they reduce the energy consumption and transportation requirements significantly. Through the five-layer technology, a thin film can be produced without compromising the barrier properties and other quality features of the film, which ultimately results in less energy required for its production and it is easily transferable which reduces the transportation need. All this ultimately leads to a reduction of carbon emissions thereby making the environment clean and green.
BRR: What are the advantages of BOPP and CPP films over paper packaging?
NG: There are a lot of companies that have made the switch from paper packaging to BOPP and CPP films based packaging. There are various advantages for it. Firstly, the films are a cheaper source, whereas paper proves more costly due to its thickness. Paper requires a thickness of minimum of 50 microns, while films can be made as thin as 10 microns yet providing better barrier properties than the paper. This also serves efficiency and because it is thinner, it is easier to transport. Additionally, with film packaging the products can maintain a longer shelf life compared to when they have a paper packaging. There are still companies that continue to use paper packaging for their products, but by and large, majority have switched. Plus, production of paper results in greater sacrifice of forest and trees which is a global concern at the moment.
BRR: You have certain clients to whom you sell directly, while some of your clients are other packaging companies. Where do you fall in the supply chain and where is most of your product utility found?
NG: We are film manufacturers; we sell these films to converters who print and sell onwards to other FMCGs, like the MNCs, etc. Largely, it is used in food packaging because they are 80 percent of the market. The remaining 20 percent is used by clothing brands in the form of shirt bags and lamination.
BRR: What is the share of each product in your business, and what are the capacity utilisations for each of them?
NG: Currently, we offer two films: BOPP and CPP. BOPP has a 38 percent market share with a 90 percent capacity utilization. We just started the CPP plant in April 2021. It has a capacity utilization of 40 to 50 percent and has a market share of 15 to 18 percent.
Once the expansion has happened, our combined capacity will increase to 120,000 metric tons, which will make us the largest film manufacturer in the country.
BRR: Between the various segments in the industry, which is the biggest segment, and which is the fastest growing segment?
NG: If we talk about the film segment, there are three kinds of films that are being manufactured in Pakistan; BOPP, BOPET film, and CPP film. Approximately 90 percent of food packaging falls within these three. In terms of which one is growing fastest, I believe it is BOPP since it can be customized in various ways: thin micron, barrier film to protect product, etc. BOPP film is printing and lamination grade; it is easily recyclable since it gets recycled at low temperatures. Presently, the market size for BOPP film is PKR 40 billion at 80,000 metric tons per annum in terms of volumes.
BRR: If we talk about the raw material, how much of it is imported, and is it possible to produce or source it indigenously?
NG: Around 90 to 95 percent of the raw material is imported, mainly from the Middle East. We cannot source it indigenously because it is a gas bio product. Pakistan is already facing a gas shortage. Moreover, we do not have any polypropylene manufacturer in Pakistan. About 5 percent to 10 percent is a specialised raw material which we import from Europe.
There are currently some companies that are conducting technical studies on this. They are planning to put polymer plant in Pakistan. Engro is already planning; they have had technical discussions and are in the phase of project feasibilities. They may set up a plant in the next five to ten years.
BRR: Why have imports and exports reduced in FY20 in the overall plastics segment?
NG: It is primarily because of the pandemic; it has severely impacted the supply chain globally. Also, local demand is more; we sell 98 percent of our products in the domestic market, while only 2 percent is exported. This is because of two reasons. Firstly, the demand in the local market is more. Secondly, in the international market, our prices are not competitive. Energy prices in the country are higher, and the products require a fairly decent size of energy. So local market is our main focus. But, in the next one or two years, with the newer government policies such as TERF financing, subsidized financing for renewable power generation from solar system and rebates on exports, we can export, because we will have additional available capacities post-expansion.
BRR: The per capita consumption for packaging in Pakistan is 7kg, which is lower than that for Africa which stands at 8kgs. Where do you see it heading?
NG: It must be lower than 7kg currently. But at the same time, the growth in the retail sector in the last two years has been tremendous. The organised sector has grown in terms of number of retail outlets which has encouraged demand. Previously, Imtiaz Supermarket had only one store, but today it has expanded to about 18 to 20 stores. Currently, growth is around 8 percent to 9 percent on a year-to-year basis for the packaging industry. So, in the next 5 years, it will have grown beyond 10kgs. Specially after Covid-19, awareness in people for packaged food has increased. Next time we look at data, consumption for packaged food will have possibly increased by 30 to 40 percent.