"We are making conscious efforts in offering high-end plastic based products." - Views on News from Equitymaster

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  • May 26, 2001 - "We are making conscious efforts in offering high-end plastic based products."

"We are making conscious efforts in offering high-end plastic based products."

May 26, 2001

An IIM, Ahmedabad alumni, Mr. RVS Ramakrishna joined ITW Signode India Limited as Area Sales Executive in 1982. Since then his significant contribution, through various capacities, has enabled ITW Signode to build a strong presence in the metals sector.

A leader with a belief in the company’s growth, Mr. Ramakrishna has been instrumental in the positive turnaround of the company, which was caught in a slow growth syndrome for the past few years. The turnaround was a result of the prudent restructuring and consolidation measures undertaken by the company under his capable guidance and leadership.

In an interview with Equitymaster.com, Mr. Ramakrishna talks about the reasons behind ITW’s turnaround and its future prospects. But from the interview you can make out he is a man of few words.

EQM: How does India compare vis-ŕ-vis other emerging markets in ITW's business plan?

Mr. Ramakrishna: India plays a key role in ITW Inc.'s business plan as it is an emerging market and offers tremendous growth opportunities.

EQM: ITW Signode India is back in the black. What were the key factors that contributed to this turnaround?

Mr. Ramakrishna: This has been possible due to the implementation of international best practices, knowledge sharing and a focus on our core strengths that has helped us in improved productivity, quality and greater operational efficiency. This in turn contributed to the improved financial performance in the current year.

The positive indicators for the year manifest the appreciation received from our clients across the diverse sectors we serve and in the improved financial performance for the year. The company consistently applied the 80:20 principle to all its businesses and introduced benchmarking with international best practices to evolve the service ladder and provide its customers with focused packaging solutions.

The company adopted a two-pronged approach that contributed to the turnaround –

  • In the first phase the company undertook a massive restructuring and consolidation exercise in order to simplify the complex business structure and systems. The restructuring involved reduction of manufacturing locations from 18 to 3 and reducing the number of branches from 35 to 15.

    In addition to this the company aligned its systems and process in accordance with its parent company ITW Inc's accounting procedures.

  • In the second phase ITW Signode India Limited, benchmarked against international best practices. Adoption of best practices and the restructuring exercise was intended to result in the following benefits –
    • Controlling material and production costs
    • Focusing on reducing overheads and cost of distribution
    • Decreased interest burden from improved cash flows
    • Consolidation

The company in the past year was able to repay its entire loan outstanding of Rs 180 m. The amount was paid through internal cash accruals and has made the company a zero debt company.

EQM: Where do you see the company going from here? What is the foreseeable RoI that the company has set for itself?

Mr. Ramakrishna: Our benchmarking exercise has led us to an organisation, which is more effective than previously and we find that we are becoming more productive and efficient. Today we are focused at providing customised packaging solutions to our customers and increase service efficiencies by applying the 80:20 principle wherein we are able to service 20% of our customers directly who provide us with 80% of the business.

EQM: You have made a conscious shift towards plastic based products. Why did the company feel the need to do this? What is the growth scenario of plastic based products?

Mr. Ramakrishna: Worldwide steel is increasingly being replaced with plastics. We foresee a similar trend in India and are making conscious efforts in offering high-end plastic based products.

EQM: In FY01, the company significantly increased its exports for the year by 72%. Will the company be able to continue on this growth curve?

Mr. Ramakrishna: The encouraging growth in exports is mainly on account of our penetration in the South and South East Asia, Africa and CIS countries. About 7% of the total company's sales are attributed to exports. We are primarily servicing the Bangladesh and Sri Lanka markets for our packaging products. These are strong brands that have already been well accepted in the exports markets. Superior quality, competitive pricing and a strong distribution network are the drivers for export sales and ITW Signode India Limited has been able to beat competition on all three accounts. To sustain the growth in the exports, the company plans to aggressively focus on exports as we foresee a tremendous amount of untapped potential for growth in these markets.

EQM: What is your outlook on the industrial packaging segment in India? Are there any concerns you foresee for the segment? (especially with respect to competition)

Mr. Ramakrishna: The volume of Indian packaging industry is about 7.5 to 8.5 m tonnes and reflects a segment filled with small players, inferior quality products and non-standardisation. The growth of industrial packaging is driven by the growth of its customers whether it is the steel sector or the consumer durables sector.

The importance of industrial packaging is influenced by a multitude of factors - increasing demand for goods in a "as manufactured condition" coupled with certain other positive developments like the facelift being given to steel sector, the growing demand of automobiles and consumer durables. Today, companies like Kellogg's, Pepsi, Indian Shaving Products (now Gillette India) and many more have realised that packaging is the key to marketing success, as it can give that extra edge to a product. And these megabuck organisations are sparing neither money nor creativity to carve out a distinct niche for their products. However, the slow growth syndrome within the economy affecting the topline growth of the complementary industry continues to affect the growth of our industry.

EQM: The international company has seven business divisions while in India you are present in three with a bulk of your revenues coming from industrial packaging. Do you foresee the introduction of new products through your listed Indian subsidiary?

Mr. Ramakrishna: We definitely foresee an infusion within the packaging business, however the other 7 businesses are diverse in nature and ITW Inc will access the feasibility of being in these businesses before a structure can be determined.

EQM: On a personal note, please tell us about the personalities that have influenced you the most.

Mr. Ramakrishna: I have always been influenced by the people I have met in my daily life as their new ideas and perspectives have played a large role in influencing my perspective towards business and personal life.

EQM: Can you tell us something about your hobbies?

Mr. Ramakrishna: I am a sports enthusiast and have represented my school and universities in hockey and soccer. I try to presently keep myself fit by going to the gym and swimming. My other interests include reading about current affairs and business management.

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