Rexam sees India as a potential market for beverage cans

India does not like aluminium cans. That has not stopped Graham Chipchase from deciding that the country – one of the world’s lowest consumers of cans per capita – is his next big market.

“It is very much part of our strategy to move into India as one of the first big canmakers and put some capacity ahead of market demand,” says the chief executive of Rexam, the FTSE 100 can manufacturer.

“We believe that ultimately India will become a very big market for beverage cans.

Rexam’s recent move to broaden its Indian foothold with a £30m upgrade of its manufacturing plant in Taloja, Maharashtra, is something of a gamble, given the current lack of consumption of cans in the emerging economy.

Indians consume less than one can per head a year – compared with one can per person per day in the US, the country with the world’s greatest demand for aluminium beverage cans per capita.

Rexam is one of the world’s top two makers of beverage cans by volume, the other being Ball of the US.

In 2007, Rexam became the first large foreign canmaker to enter the Indian market by way of a joint venture with Hindustan Tin Works.

This month’s Indian investment will switch the Taloja plant from steel to aluminium cans, and a new high speed production line will increase its capacity from 400m cans a year to about 900m.

Although small compared with most of Rexam’s other 20-plus canmaking plants, the upgrade brings the group’s capacity above Indian market demand.

The British company, which is the world’s sole maker of Red Bull energy drink cans, has a significant presence in emerging markets, including Brazil and Russia.

This emerging markets focus has helped Rexam recover from a 2010 setback that saw it fall out of favour with Coca-Cola.

Although Rexam has since renegotiated its contracts with Coca-Cola, the temporary loss of some of its core US sales encouraged the group to look elsewhere for growth.

The group is under pressure to sell its healthcare division, which makes packaging for medical-related items such as asthma inhalers and syringes and earns just 10 per cent of total group revenues.

At Rexam’s most recent results, the company warned that the healthcare division’s loss of a contract to provide syringes for cattle would knock £5m from full-year operating profit, taking the gloss off otherwise solid third-quarter figures.

However, Mr Chipchase is adamant that Rexam will hold on to its remaining healthcare packaging business, as long as it provides a fair return on equity.

The potential sale of the healthcare packaging unit would not be out of step with recent company policy, following a move earlier this year to sell its personal care division, a maker of packaging for cosmetics and toiletries, for £450m.

Rexam also sold off its High Barrier food container business in July for $250m, and in 2011 disposed of its plastic lid-making business for $360m.

The disposals have prompted Rexam to return £370m to shareholders – a windfall that has been delayed until January pending Chinese approval for its personal care unit sale.