Hire hard, manage easy: Essel Propack's Blackstone makeover starts

Finding the right CEO fast, and expanding segments are key

Ninety days after private equity major Blackstone started running Essel Propack, a packaging company that makes one of three toothpaste tubes worldwide, debt has reduced, revenue is increasing, and there’s an uptick in margins.

Now what it needs is to get a top-flight chief executive officer (CEO) on board with a new sales engine to crack open up new areas and grow the business worldwide.

After Blackstone spent Rs 3,215 crore for a 75 per cent acquisition in Essel Propack, it has, in trademark-style, swiftly revamped the top leadership. There is a new board of independent directors including former Ranbaxy CEO Davinder Singh Brar; Uwe Roerhoff, a former CEO of a packaging firm in Europe; and former PwC audit head Sharmila Karve.

They have joined senior shareholder board representatives from Blackstone including India Head (Private Equity) Amit Dixit, Senior Managing Director Alex Yang, and Managing Director Amit Jain.

On the operational side, Parag Shah, an executive earlier in supply chain management at Hindustan Unilever, has been parachuted in as chief financial officer.

Also private equity (PE) insiders say around 12 high-performing CEOs have been selected in keeping with Blackstone’s philosophy of “hire hard, manage easy” and getting a 10/10 leader to set the course for the firm in its new avatar. Earlier that role was occupied by Ashok Goel, the largest shareholder at the firm, which was part of the Essel Group run by his billionaire brother Subhash Chandra before it sold.

While Blackstone’s other acquisitions have been closer to turnaround stories with cases like IT firm Mphasis, Essel is a different animal. While it does make 8 billion laminated tubes a year, and is the global leader in oral care packaging, making it a sticky consumer business in which “clients take time to get in but never leave once they do”, the commercials itself are not enormous: Essel Propack’s revenue last year was around Rs 2,700 crore and EBITDA (earnings before interest, tax, depreciation, and amortisation) Rs 501 crore.

“Part of the challenge for such a business is that customers are highly concentrated in one area, namely oral care and possibly even in certain geographies only, and the world is moving away from plastic,” says a PE executive.  

Blackstone did not respond to queries till the time of going to press.

As example, Essel Propack’s India business sees almost Rs 1,400 crore, or half its revenue, come from oral care, with clients ranging from Colgate and P&G to Patanjali and Weimizi of China.

The challenges then for Blackstone?

For one, new “tube-package” categories have to grow. Those include pharma, foods, and personal care products such as ophthalmic products, cheese tubes, personal lotions, and lip balms.

The other is to ramp up its other core markets that include Europe, China, and the US. Sustainability is also going to be a challenge for any company in polymer. However, it’s also something that packaging firms are working on by focusing on optimising recycling technology. Firms are moving to single polymer or plastic that is easier to break down. 

For example, a packet of wafer chips is made of three types of polymer plastic, which makes it hard to recycle because you have to segregate them all before breaking down, says Ankit Gor, vice-president, institutional equity research, Systematix Group. He goes on to add that while Essel is one of the few firms that is backward-integrated to make various components of single-use polymer, its global access to technology through Blackstone’s other investments shouldn’t be ignored.

Others agree. “The company’s performance has been way above expectations, driven by improved performance across regions. The influence of Blackstone is clearly visible. Their global advisors are engaged with the company on growth initiatives and operational improvements. The focus on growth, especially on personal care, is visible across regions,” says Ruzmik Oza, senior vice-president, head of fundamental research, Kotak Securities.

During the acquisition, Blackstone’s Amit Dixit said the philosophy was to build business, not be opportunistic.

“The idea is very strategic — to accelerate the growth of the company along two vectors. The first is newer-end segments, which is beauty, cosmetics, and pharmaceuticals, and the second growth vector is emerging markets of India, China, and Latin America.”

He went on to add that Blackstone operated a large global network in the consumer sector, had owned or currently owned other packaging companies, and thus knew the sector and its customers well. While those are pros, the new incoming CEO’s biggest challenge will be to stimulate new hunger within an old company. That, of course, is not new to Blackstone.