MUMBAI — Cello Group, one of India's best-known plastics processors, sees the local industry as on the edge of some big changes.
The government's “Make in India” campaign could bring more pro-manufacturing policies, like tax reform that would be crucial to its plastics furniture business. And the market seems more open to higher-value products that require more innovation, an area the company sees as a strength.
At least that's according to Cello Group Managing Director Pankaj Rathod, who sat down with Plastics News for a mid-February interview in his Mumbai office.
He said India remains a tough place for larger manufacturers, with intense price competition and a confusing mix of rules that, for example, sometimes allow smaller firms to avoid taxes and get cost advantages.
But the company, which has 10,000 employees and more than 180 injection molding machines across several divisions, believes it has grown with a focus on branding, product design and innovation.
“It is a challenge but at the end of the day we have always grown in this business with innovative products,” he said. “We always believe in adding value instead of creating products that are selling more like commodities.”
The company has units making plastic furniture, daily use items like food storage and coolers, plastic sheet and writing instruments. It has a joint venture with French pen-making giant Société Bic.
Innovation is important, Rathod said, even in something as seemingly ordinary as plastic furniture. The company believes an ability to innovate is becoming more important for Indian manufacturers.
“The price points are moving up and we are doing more gas-assisted injection molded chairs and more cabinets and accessories that we have added,” he said. “The market is changing into more value-added plastic chairs, compared to what it was in the past.”
The plastics furniture division operates as a separate publicly traded company, Cello Wim Plast Ltd., and faces particular challenges from what in India is called the “unorganized sector,” the name for the many smaller companies that shave costs by not fully paying taxes or using substandard materials.
In fact, Wim Plast's most recent annual report to the Bombay Stock Exchange identified those “under the radar” operators as the “main risk” it faced in the market.
“The organized brand players of [the] plastic industry faces major concern about the rise in the unorganized local players who are using nonstandard materials for production and supply the products at much cheaper rate as compared to the quality products of the organized players,” Wim Plast told the BSE.
Rathod estimated such “unorganized” companies have 50 percent of India's market in plastic furniture and housewares. It's somewhat less in other sectors: only about 20 percent of the writing instrument business is unorganized, while in products like cookware and thermoses, it's probably 40 percent, he said.
Still, it's a big chunk of the market. Unorganized firms can skip out on value-added taxes and excise duties, which can be 15 percent of the cost of the product, Rathod said.
“So if somebody doesn't do business in an organized way, they save almost 15 percent,” he said. “This is huge, the margins are 10 percent in furniture. So we have to sell these chairs at 20 percent higher, to be even.”
But Rathod said that the government's plan for a major tax reform in 2016 — a goods and services tax — will give a big boost to “organized” companies like Cello.
Analysts say that's because the GST would be a de-facto national sales tax, replacing dozens of smaller taxes and reducing the opportunity for corruption.
“In India things are changing fast,” he said. “For Wim Plast, the GST will be a big advantage. The unorganized sector will be hit by that. The organized players will have a big advantage.
“When the GST comes… it will not be easy for them to do an unorganized business,” he said. “That will be a real changing point.”
In the meantime, the company continues with expanding its product range. It told the stock exchange that it introduced 34 new plastic furniture designs in the 2013-14 fiscal year, and in February it launched a line of water coolers and expanded capacity to make 200,000 a year.
In the last two years, the company built new molding plants in Chennai and Kolkata, as part of a regional expansion, and it expanded its mold making capacity in Chennai, Rathod said.
In its last annual report, covering the period ending March 31, 2014, Wim Plast said sales rose 20 percent to 340.82 crore rupees ($54.6 million).
Wim Plast represents a little more than 20 percent of Cello Group sales, Rathod said.
The company, started in 1982 by Rathod's father Ghisulal Rathod, has grown up with plastics. Its first products were plastic household goods.
In 2009, it took a big step into international markets, selling a 40 percent stake of its writing instrument business, the largest in India, to global giant Bic. Today, the French firm owns 75 percent of that joint venture, Rathod said.
Now, the Indian company is looking to broaden into more complicated household products, and has started manufacturing electrical appliances like toasters, blenders and rice cookers. It also has units that make glass dinnerware and melamine kitchen products.
The common element in those plans is leveraging its Indian brand name as a maker of everyday home products, and pushing new items in the same distribution channels, he said.
“We at Cello have said we want to become more of a houseware company than just plastic,” Rathod said.
There are real possibilities in India for manufacturing, he said, particularly if the new “Make in India” program pushed by Prime Minister Narendra Modi can take off.
Rathod, who comes across in the interview as a plain-spoken executive, said he believes the government will follow through on the “Make in India” policy changes. But he cautioned that right now, it can seem more like talk than actual significant changes on the ground.
“Today's it's just a line but I think he [Modi] has to perform and do these things,” Rathod said. “It will take some time but I feel that it will go.”
In Rathod's view, the country needs to give companies more flexibility in labor laws, enact a GST and improve infrastructure for India's manufacturing to move ahead.
“I feel that going forward this is the way that India's economy can grow. Manufacturing is the only thing we are lacking.”