'Paper manufacturers bullish on future'

Q&A/ R C Mall

Paper manufacturers in the country are bullish on the industry's prospects. At present, every major paper mill in India is either expanding capacity or modernising its units.

According to R C Mall, executive director of Andhra Pradesh Paper Mills Limited (APPML), there is a huge demand-supply gap, which is making everyone bullish. APPML, an enterprise of LN Bangur Group of Kolkata, has also embarked upon a Rs 635-crore expansion-cum-modernisation project.

Ugradation of facilities by paper manufactures is also on account of their need to comply with the stringent Corporate Responsibility for Environmental Protection (CREP) requirements by March 2008. APPML feels that CREP requirements will create a structural shift that represents a threat for most paper manufacturers and opportunity for a select few.

The company foresees the closure of a number of small mills and a movement towards industry consolidation. Mall says APPML is expanding and upgrading its facility so as to be ready for futuristic trends.

Excerpts from the interview:

Every major paper mill in the country is either expanding or modernising its facilities. What are the reasons?

One of the prime reasons for the spate of modernisations being contemplated or taken up is the need to comply with the more stringent environmental norms as spelt out in the CREP.

The other aspect of the question, on why the spurt in capacity expansions is answered by the fact that there is a definite and palpable gap in demand and supply.

The Indian Paper Manufacturers Association also seems to be bullish on the industry prospects. What are the internal and external factors contributing for the uptrend in the paper industry?

Pundits have always felt that the pace of growth in the paper industry is close to the GDP growth which is expected to be stable at a minimum of 8 per cent.

This means growth in the demand for paper would be in the vicinity of 7 per cent to 8 per cent, whereas growth in paper production for the next five years is estimated to be around 4 per cent. This gap is what is making everyone bullish. How is the Indian paper industry's performance on the export front? Do you envisage any quantum jump in the export of the Indian paper products in the near future?

On the export front, there has been no perceptible increase in volumes. This, however, does not stem from the fact that the Indian paper industry does not perceive the export market as attractive.

In fact, it is more because of demand in the domestic market being what it is. But many of the players have their plans to regularly export about 10-12 per cent of their volumes. What are the long-term prospects with regard to the Indian paper industry? Will the current demand for paper products sustain in the long term?

It is felt that the present upswing in the demand for paper in the country will be sustained over the next decade or so at least. This is also going to be more likely because of the government's initiatives on the primary education front under the aegis of the Sarvasiksha Abhiyaan.

The finance minister has also indicated in his Budget speech, while on the topic of reduction in Excise Duty on paper, that he is doing so in order to facilitate growth in the paper industry.

How many paper mills in the country are currently in the expansion mode? What would be their capacity after the expansion?

Many of the paper mills like WCPM, BILT, ITC, JK, Star Paper Mills, and TNPL have announced their plans. APPML is already nearing completion of its mega project. It is anticipated that the capacity enhancement of these players is likely to add about 9 lakh tonnes per year in the next 4-5 years.

You are saying the paper industry at the moment would require an investment of Rs 6,000 crore over the next three years to switch to chlorine-free bleaching technology. Is adoption of chlorine-free bleaching technology mandatory?

Environmental norms as spelt out in the CREP mandate the switching over to elemental chlorine-free bleaching by March 2008.

According to an estimate by the Indian Paper Manufacturers Association, close to 98 per cent of India's paper mills with sub-optimal capacities of 50,000 tonnes per annum and below will be unable to address this emerging challenge. The probable result: an imbalance in the demand and supply of paper starting from 2008 onwards.

According to you, APPML's Rs 635-crore modernisation-cum-expansion projects will lead to higher operating efficiencies, compliance with stringent environment norms, superior product mix and higher raw material flexibility. Can you give the details in this regard?

Cost reduction will be in the vicinity of 6-7 per cent and value-addition in the form of sales realisation is likely to go up by about 10-12 per cent.

Besides, it will also enable us to meet and exceed the more stringent environmental norms stipulated in the CREP by enabling the manufacture of Elemental Chlorine Free (ECF) paper across our entire range of products.

What are the benefits APPML has derived by implementing the ERP system?

With the implementation of ERP system, which is still in the initial stages, we expect the data integration to be of great help in the field of better control and effective decision-making across the organisation. Needless to mention, it will also be a major support to our operational controls in consonance with our growth plans.

Is the recent strike at one of your units going to affect the overall performance of the company this year?

It is likely to impact our sales by about 5 per cent. As it is almost the end of the fiscal, we will not be able to offset the same.