Key takeaways of the call

The acute water shortage starting February 2017 has affected production of paper, hard wood pulp as well as availability of baggase (due to lower cane for tied up sugar plants). The production was normalized only by last week of July 2017. The company has lost production equivalent to 46041 MT of paper, 33302 MT of hard wood pulp and 46350 MT of chemical bagasse during April 2017 to July 2017.

To keep the plant running considering paucity of bagasse in TN, the company was forced to source/procure bagasse from Northern Karnataka that has increased the cost of baggase (including freight cost) from usual Rs 2900/tonne to around Rs 4200 /tonne in FY18. The cost of bagasse still quotes higher at around Rs 6200/tonne. In FY18 the company has consumed 593307 MT of depithed bagasse for manufacture of paper.

The company has constructed additional reservoirs to store water. The company has now had about 5 reservoirs filled with water. Moreover there is plenty of water in Mettur and Bhavani Dam in Cauvery Basin, assuring water availability for irrigation as well as industrial use. So the company expects FY19 and FY20 to be a normal year unlike FY18.

Good water levels in Cauvery basin Dams/reservoirs and good sugarcane crop in command areas of sugar mills (tied up for bagasse) will improve the availability of bagasse for the company starting Q3FY19 especially from December 2018. Improved availability of bagasse locally will bring down the cost of bagasse in second half of FY19. So profitability in second half of current fiscal will be better than that of last fiscal.

The company's paper board plant has started registering full machine coverage from Q2FY18 as the company select right product mix of value added products and aggressive market penetration through promotional activities on pan India level.

The company is embarked on mill expansion plan in Unit II in a phased manner for producing 165000 MT of paper per annum by way of installing state of the art paper machine, 400 tpd chemical hardwood pulp mill with chemical recovery boiler, augmentation of captive power plant and waste water treatment plant and other auxiliaries at a total capital outlay of Rs 2520 crore. The ECF pulp mill will be installed in phase I which is targeted for commissioning by May 2021. And the paper machine will be installed in phase 2. With the implementation of the expansion plan, the overall paper and packaging board production capacity (together in Unit I and Unit II) will increase to 765000 MTPA from the current capacity of 600000 MTPA.

Unit 2 of the company depends on hardwood pulp. Given sharp jump in world hardwood pulp and unlikely moderation going forward the proposal to put up a 400 tpd hard wood pulp plant makes sense. The in-house pulp plant along with domestic sourcing of hard wood from Government of Tamil Nadu and through own plantation scheme will make the company cost competitive. The world hardwood pulp rate jumped to about Rs 59000/metric tonne from about Rs 29000/metric tonne.

Post Unit 2 expansion the company requires 12 lakh tonnes of pulpwood per annum and of which the company propose to source 8 lakh tonne from its own plantatation scheme and balance 4 lakh tonne of pulpwood from Government.

Capacity utilization of the company is currently at about 95%. The average capacity utilization of the industry is about 90% of total installed capacity of about 16 million Metric tonnes. Overall paper consumption inclusive of imports and net of exports is about 14 million metric tonnes.

The growth rate of paper across the globe is around 1.5% and the demand growth of India is estimated at 6% consisting of 5-6% in printing and writing paper, 10-12% in industrial and packaging board, 3-4% in newsprint and specialty papers. The average per capital paper consumption in India is around 13 kgs against global average consumption of 58 kgs.

The company is keeping pace with the customer preference by introduction of new products. The demand/market for thermal paper is growing at about 30%. Further the company is also mapped the gap in market presence and acquired new dealers in such markets.

The company is the largest producer and first preference for thermal paper in the country. Imports from countries covered under FTA are levied basic customs duty at 0%. The overall GST levied on paper is 12%.

The company's focus is on product maximization or products or product mix that gives greater profitability.

The company has increased the price of copier paper twice in current fiscal. The extent of rise each time was Rs 2.50 per kg. Due to competitive pressure the company could not completely pass on the incremental cost in inputs to customers.

The company has transferred the patta of the land in its favour.